Economics 9708/22 May/June 2021: question paper and mark scheme
Cambridge AS & A Level Economics (9708), Paper 2 Data Response and Essay, May/June 2021. Read both free below, or download them. Done the paper? Get it marked by AI against this mark scheme.
Rice farmers in Cambodia and Myanmar under pressure
Rice farmers across Cambodia and Myanmar, in Southeast Asia, have been left searching for new markets for their crop after the European Union (EU) announced that it will now be imposing substantial tariffs on rice from both countries for the next three years. An investigation has confirmed that the increase in rice imports from these countries has been damaging to EU rice producers.
Representatives of EU farmers welcomed the decision, as the cheap rice imported from Southeast
Asia has been contributing to EU farmers and labourers leaving agriculture and migrating to towns.
EU rice imports from the two Southeast Asian countries increased from 9000 tonnes in 2012 to
360 000 tonnes in 2017, leading to a sharp fall in the price of rice in the EU. In 2018, approximately
30% of all EU rice imports came from countries with duty-free status, with most being shipped in from Cambodia and Myanmar. The increase in low-price imports has caused serious difficulties for
EU rice producers. Their market share in the EU dropped substantially from 61% to 29%.
Rice is currently grown across eight EU countries including Italy, whose government initially requested that the EU investigate the issue in March 2018 to protect the EU rice industry.
Cambodia and Myanmar have enjoyed duty-free rice exports to the EU since 2010, when tariffs on the crop were removed as part of a policy which aims to promote EU trade in goods with the world’s 50 least-developed countries. Other more developed countries in Southeast Asia, including
Thailand and Vietnam, have long been paying tariffs of around US$200 per tonne for rice exports to the EU. For both Cambodia and Myanmar, rice is a major export and the EU has become their most profitable market, so the new tariff has harmed their economies.
The EU is currently Cambodia’s largest destination for rice exports, accounting for 43% of all exported rice. It is thought that Cambodia’s rice industry could be put in a critical condition as a result of the EU tariffs. In order to offset the additional costs resulting from the tariffs, local rice farmers will have to cut production costs, and may need to grow different crops altogether. One suggestion is that government subsidies could make Cambodia’s rice industry more competitive.
The impact of the tariff will ultimately depend on the extent to which EU consumers consider rice produced in the EU to be a good substitute for Cambodian rice. Consumers in Europe may not mind paying a bit more for Cambodian rice.
Myanmar is in a similar situation, as the EU has become one of Myanmar’s major rice markets.
Myanmar reached an all-time high of 293 000 tonnes of rice exported to the EU in 2017. But this could change now that there is a high barrier for entry to the EU rice market, forcing farmers to look closer to home for different buyers. Myanmar’s Rice Federation stated that the EU’s decision to levy tariffs on the country’s rice exports had serious potential negative effects on Myanmar’s economy.
Source: Robin Spiess, Southeast Asia Globe, 18 January 2019
Table 1.1 Myanmar and Cambodia: consumer prices (annual percentage change)
2016 2017 2018 2019* 2020*
Myanmar 6.8 4.0 7.1 6.8 7.5
Cambodia 3.0 2.9 2.5 2.5 2.5
*Projections
Table 1.2 Myanmar and Cambodia: current account balances: (% of national income)
2016 2017 2018 2019* 2020*
Myanmar –4.3 –4.7 –2.0 –4.0 –5.0
Cambodia –10.9 –10.5 –13.6 –12.7 –11.8
*Projections
Source: Asian Development Bank: Asian Development Outlook 2019
(a) Compare the change in the price level in Myanmar with that in Cambodia between 2016 and
2018. [2]
(b) Compare the current account balance of Myanmar with that of Cambodia in 2018. [2]
(c) Explain any two policies that could improve the competitiveness of rice from Myanmar and
Cambodia in the EU market. [4]
(d) Discuss two factors that will determine the extent of the impact the EU tariffs will have on the economies of Myanmar and Cambodia. [6]
(e) Discuss the view that the EU should give tariff-free access to the EU market to all producers of rice. [6]
Section B
Answer one question.
Mark scheme
1(a) Compare the change in the price level in Myanmar with that in 2 Do not credit answers that merely trawl
Cambodia between 2016 and 2018. through the data with no meaningful
comparison
Both price levels rose/both countries had inflation (1 mark)
If the candidate suggests that prices fell in
The price level rose by more in Myanmar / less in Cambodia / the rate of Cambodia, 0 marks
increase was increasing in Myanmar and declining in Cambodia / prices were
increasing at a faster rate in Myanmar than in Cambodia/the change in the
price level was more volatile in Myanmar (1 mark)
1(b) Compare the current account balance of Myanmar with that of 2 If the candidate states that the deficit is
Cambodia in 2018. higher in Cambodia then this must not be
credited.
Both are in deficit (1 mark)
Do not allow a reference to the current
The deficit is a greater / more significant % of national income in Cambodia account being negative/better/worse.
than in Myanmar (1 mark)
For the second mark, the candidate must
refer to % of national income as specified in
the data i.e. Table 1.2
1(c) Explain any two policies that could improve the competitiveness of rice 4 A number of policies are acceptable. These
from Myanmar and Cambodia in the EU market. include government subsidisation
mentioned in the text:
For the identification of a valid policy (1 mark) and for explanation of how the • export subsidies
policy could improve the competitiveness of rice (1 mark) • devaluation of the currency to
reduce export prices etc.
e.g. government subsidies to rice producers (1 mark) should lead to lower
prices for rice and therefore make rice more price competitive (1 mark) Do not reward references to depreciation
unless it is made clear that this is a
Government incentives for rice producers to carry out R and D (1 mark) may ‘managed’ depreciation.
improve the quality of rice and its competitiveness (1 mark)
Policies can also be designed to improve
Two policies required (2 × 2 marks) quality, productivity, etc.
The policies must relate to government
action and not action by individual firms
(note – the gov action could be from either
Myanmar/Cambodia OR from the EU.)
1(d) Discuss two factors that will determine the extent of the impact the EU 6 General factors are required that apply to
tariffs will have on the economies of Myanmar and Cambodia. both countries. These include the price
elasticity of demand for rice from these
For each relevant factor identified (1 mark) explained (1 mark) and countries in the EU, the cross elasticity of
developed to show the impact on the economies of Myanmar and Cambodia demand between rice from Myanmar and
(1 mark) Cambodia and rice from the EU, the extent
to which they can find other markets, how
e.g. The ped of rice (from Myanmar and Cambodia in the EU) (1 mark). If the the governments of these countries
demand is price inelastic this means that the rise in price will lead to a less respond e.g. by providing
than proportionate fall in QD (1 mark). Therefore, the exports of Myanmar subsidies/devaluing their currencies etc.
and Cambodia may not significantly reduce (1 mark)
The impact on the economy may be on
Two factors required (2 × 3 marks) balance of payments, employment, growth
etc and needs to be clear.
Reference to the fact that the tariffs will be
substantial as quoted in the text, should be
credited.
1(e) Discuss the view that the EU should give tariff-free access to the EU 6 This is effectively a question on free trade
market for all producers of rice. or protection. Good answers will need to
recognise the context of the case study.
For analysis of the reason(s) why free trade is justified (up to 2 marks)
For example, if they suggest that the
For analysis of the reason(s) why the market should be protected European rice farmers are an example of
(up to 2 marks) an inefficient ‘sunset industry’ they need to
question whether these should be
For evaluation that considers both sides of the argument and which is clearly protected.
related to the EU market for rice (up to 2 marks)
If the market discussed is clearly a market
other than rice then do not reward.
In 2018 the UK government, concerned about the rise in obesity, particularly amongst young people, imposed a tax on producers of sugar-sweetened drinks.
(a) State what is meant by a demerit good, and with the help of a diagram(s) explain how a tax on producers can improve the allocation of resources in the market for sugar-sweetened drinks. [8]
(b) Compare the likely effectiveness of a policy of imposing minimum prices on demerit goods with one other policy to improve public health and consider which policy is more likely to be successful. [12]
Mark scheme
2(a) In 2018 the UK government, concerned about the rise in obesity, 8 The answer provided must show
particularly amongst young people, imposed a tax on producers of knowledge and understanding that a
sugar-sweetened drinks. demerit good is one that is worse for the
consumer than they realise because of
State what is meant by a demerit good, and with the help of a information failure. The diagram(s) should
diagram(s) explain how a tax on producers can improve the allocation show that demerit goods are under-priced
of resources in the market for sugar-sweetened drinks. and over consumed and also how a tax can
improve allocation.
For knowledge and understanding of a demerit good which explains that the
term refers to a good that has the cost of consumption underestimated/worse
for the consumer than they realise/because of information failure (1 mark)
and is overconsumed (1 mark)
Application that uses a correctly labelled diagram to explain the impact of
an indirect tax on price and quantity. Diagram showing a left shift in the S
curve (1 mark) the fall in quantity consumed (1 mark) and the increase in
price (1 mark) (up to 3 marks)
An explanation that the tax is increasing the cost of production for producers
(1 mark), which increases the price and reduces the consumption (1 mark)
which removes the market failure/problem of information failure/improves the
allocation of resources (1 mark) (up to 3 marks)
2(b) Compare the likely effectiveness of a policy of imposing minimum 12 The effectiveness of a minimum price is
prices on demerit goods with one other policy to improve public health dependent upon the ability to control prices
and consider which policy is more likely to be successful. and the likelihood that unauthorised / illegal
/ underground / informal / hidden markets
For analysis that explains the likely effectiveness of a minimum price on a might arise.
demerit good. Maximum of 3 marks if only benefits or drawbacks are
considered (up to 4 marks) Other policies include indirect taxes,
education campaigns, subsidisation of
For analysis that explains the likely effectiveness of one other policy. alternatives.
Maximum of 3 marks if only benefits or drawbacks are considered
(up to 4 marks) No credit for simply referring to part (a)
And for evaluation that clearly compares the effectiveness of both policies
(3 marks) that leads to a reasoned conclusion as to which policy is more
likely to be successful (1 mark)
(a) Explain how the concept of cross-elasticity of demand can be used to distinguish between goods that are substitutes, those that are complements and those that have no relationship.
[8]
(b) An economy is experiencing a fall in average incomes during a severe recession.
Discuss the extent to which the concepts of income elasticity of demand and price elasticity of demand might be useful to an entrepreneur in this economy and consider which would be more useful. [12]
Mark scheme
3(a) Explain how the concept of cross-elasticity of demand can be used to 8 For knowledge and understanding, the
distinguish between goods that are substitutes, those that are candidate must display an awareness of
complements and those that have no relationship. the idea of ‘responsiveness’ as well as an
accurate formula
For knowledge and understanding of the concept of cross elasticity of
demand. What it measures (1 mark) and the formula (1 mark)
And application explaining that a positive value indicates a substitute
(1 mark) and explains why (1 mark)
And explains that a negative value indicates a complement (1 mark) and why
(1 mark)
And explains that a value of zero indicates unrelated goods (1 mark) and
why (1 mark)
3(b) An economy is experiencing a fall in average incomes during a severe 12 Income elasticity of demand would be
recession. useful to an entrepreneur because it would
indicate those goods that are likely to
Discuss the extent to which the concepts of income elasticity of experience a decrease in demand and
demand and price elasticity of demand might be useful to an those that should experience a rise in
entrepreneur in this economy and consider which would be more demand i.e. normal goods and inferior
useful. goods respectively
For analysis that explains the usefulness of income elasticity of demand to Price elasticity of demand will inform an
an entrepreneur when incomes are falling. (Up to 4 marks) entrepreneur of the possibility of changing
prices to increase revenue.
For analysis that explains the usefulness of price elasticity of demand to an
entrepreneur when incomes are falling (Up to 4 marks) The estimates might be used by an
entrepreneur or firms for sales forecasting,
And for evaluation that clearly compares the usefulness of each concept investment decisions, production planning,
(3 marks) that leads to a reasoned conclusion as to which is the most useful location and new markets.
(1 mark)
There are no KU marks awarded in part (b)
for merely explaining/ defining terms or
phrases within the question
(a) Explain what is meant by deflation and use aggregate demand and aggregate supply diagrams to explain how it might arise in an economy. [8]
(b) Discuss whether a government should use monetary policy or fiscal policy to solve the problem of deflation in an economy. [12]
Mark scheme
4(a) Explain what is meant by deflation and use aggregate demand and 8 Do not reward ‘micro’ diagrams showing
aggregate supply diagrams to explain how it might arise in an economy. S/D, P/Q
For knowledge and understanding of the meaning of deflation. Deflation is a Reasons why AD may fall include: fall in
sustained fall (1 mark) in the general price level (1 mark) either C, I, G, X or rise in M.
One mark maximum for stating it is the opposite of inflation/negative Reasons why AS may rise include:
inflation ( up to 2 marks max for KU) increased investment, falling costs
And application that uses an appropriate and accurate diagram to show how
deflation might be caused by a fall in aggregate demand. For an explanation
why AD may fall (1 mark) a diagram that shows the resulting change in
general price level (1 mark) and explains how this causes deflation (1 mark)
(up to 3 marks)
And application that uses an appropriate and accurate diagram to show how
deflation might be caused by a rise in aggregate supply. For an explanation
as to why AS may increase (1 mark) a diagram that shows the resulting
change in general price level (1 mark) and explains how this causes deflation
(1 mark) (up to 3 marks)
4(b) Discuss whether you would advise a government to use monetary 12 Monetary policy can include exchange rate
policy or fiscal policy to solve the problem of deflation in an economy. policy and should be rewarded.
For analysis that explains how monetary policy can be used to stimulate The evaluation here should compare the
aggregate demand with due reference to the strengths and weaknesses of strengths and weaknesses of each
this approach. Maximum 3 marks if only strengths or weaknesses are approach and arrive at a conclusion based
explained (up to 4 marks) upon this assessment.
For analysis that explains how fiscal policy can be used to stimulate If a candidate gets MP and FP the wrong
aggregate demand with due reference to the strengths and weaknesses of way around throughout their response then
this approach. Maximum 3 marks if only strengths or weaknesses are award a max of [1 + 1] marks for an
explained (up to 4 marks) understanding of both economic policy
instruments. A response such as this
And for evaluation that clearly compares the use of each policy to solve the should be recorded as [1 + 1 + 0] in the text
problem of deflation (3 marks) that leads to a reasoned conclusion as to box.
which policy may be the most appropriate (1 mark)
There are no KU marks awarded in part (b)
for merely explaining / defining terms or
phrases within the question
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Economics 9708/22 for May/June 2021 is out of 40 marks, with 1 hour 30 minutes to answer it.
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