2 N14/3/ECONO/SP2/ENG/TZO/XX SECTION A Answer one question from this section. 1. Study the extract below and answer the questions that follow. ‘The Australian dollar ‘The Australian dollar is very strong against the United States (US) dollar and has reached its highest value against the British pound and the euro since 1992. ‘The world demand for coal, iron ore, and natural gas is rapidly increasing. Australia has these resources in abundance. This has led to an extraordinary boom in the construction of new mining facilities in Australia that is likely to run for at least 10 years. It has had a huge effect on domestic economic growth and has also threatened inflation. With its stable economic outlook and high interest rates, Australia has proved to be a magnet for foreign investors since 2002, and this has had a significant impact on the exchange rate. The global surge in foreign direct investment and portfolio investment is a sign of international confidence in the economy but it has come at a cost, and with risks. The rise of the exchange rate has created hardships for domestic exporters of goods and services other than resources, and the tourist industry. In the context of the resources boom, the high exchange rate helps to make the boom less inflationary. It also lowers the prices of imports for those consumers and businesses that buy them Structural change is occurring in the Australian economy as domestic firms adjust to a high Australian dollar. It creates pressure for resources — capital and labour ~ to shift from manufacturing and service export industries to the expanding mining sector. The result is a change in Australia’s comparative advantage. Everything suggests that the Australian dollar will stay strong, even as export prices increase. The huge spending on mining construction over the years will require a lot of foreign financial capital to flow into Australia, helping keep upward pressure on the exchange rate. 88145113 [Source: adapted from “AI hail mighty Aussie dollar, as itis hereto stay", Shuey Morning Herald, 28 January 2012 ‘and “Aussie Bond Appeal comes at cost”, The Mest Australian, 27 January 2012] (This question cominues on the following page)(Question I continued) (a) (b) () (d) 8814-5113 (i) Define the term exchange rate indicated in bold in the text (paragraph ®) (ii) Define the term comparative advantage indicated in bold in the text (paragraph ®). Using an appropriate diagram, explain two possible causes of the increase in value of the Australian dollar. Using an AD/AS diagram, explain why “an extraordinary boom in the construction of new mining facilities ...has also threatened. inflation” (paragraph @) Using information from the text/data and your knowledge of economics, discuss the possible consequences of the strong Australian dollar, N14/3/ECONO/SP2/ENG/TZ0/XX [2 marks] (2 marks] [4 marks] [4 marks] [8 marks] Turn over~4— N14/3/ECONO/SP2/ENG/TZO/XX 2. Study the extract below and answer the questions that follow. Increase tariff on foreign chicken In the country of Trinidad and Tobago, it has been reported that the price of domestic chicken (poultry) will not increase in the near future, even if the government introduces a higher tariff ‘on imported whole chicken from the United States. ‘The Poultry Association of Trinidad and Tobago (PATT) hosted a news conference to reduce public concerns about reports of an increase in poultry prices. The association says that there will be an increase in prices, but this will only be on imported chicken, However, economists know that this will not be the case. ‘The association is insisting that the current 40% tariff on imported chicken be increased to 80% to make things fairer between domestic and imported chicken. They argue that Trinidad and Tobago’s poultry industry has been operating at a major disadvantage in comparison with other Caribbean nations. For instance, Barbados has a 180% tariff on imported chicken, Jamaica 280% and Guatemala 257%. ‘The President of PATT said imported chicken was hurting the local industry, with some firms in danger of shutting down, “Chickens are remaining longer on farms, and it's not because we ‘want to keep them as pets, it’s because they are not selling,” he said A domestic poultry producer said the local industry had to compete with goods that came from the United States, the European Union and Brazil, which were heavily subsidized by their governments, “We don’t need subsidies and the government cannot afford to pay us any. We want the tariff, We don’t want to ban imported chicken: once the tariff is on, everything will be fine.” ‘Trinidad and Tobago imports two types of chicken. The first type, “mechanically deboned meat (MDM)”, is used to make processed meat products, such as chicken sausages and chicken ‘burgers. The second type is whole chickens. There is a quota on MDM chickens at 0% tariff because domestic producers have accepted that they cannot meet the local demand by firms. However, there is a concern that the importers are abusing this tariff-free access to bring whole chicken into the domestic market. Data from customs show that 3.29 million kilograms, of chicken was imported in August, but almost 75 % was brought in duty-free. Local chicken sells for approximately $4.50 per kilogram while imported chicken, according to PATT’s information from Customs, is about $1 to $2 per kilogram. “That just covers the cost of shipping the chicken. If these figures are correct, there is something very wrong,” said the domestic producer. The poultry industry makes up 60% of the agriculture sector in Trinidad and Tobago and «generates over 10000 jobs and $1 billion in revenue. 8814-5113 [ Source: adapted from “Increase tari on foreign chicken”, Trinidad & Tobago Express, 14 December 2011 ‘and “Cadiz says eabinet to decide on chicken tatf™, Trinidad & Tobogo Guardian Online, 'S December 2011] (This question continues on the following page)-5 N14/3/ECONO/SP2/ENG/TZ0/XX (Question 2 continued) (a) (b) (c) @ 814-5113 (i) Define the term quota indicated in bold in the text (paragraph ®) i) List two reasons why the government might wish to protect the domestic poultry industry. Using an appropriate diagram, explain the likely effect that the suggested increase in the tariff (paragraph ®) would have on the domestic production of poultry. Using an AD/AS diagram, suggest what will happen to employment if imports continue to damage the domestic poultry industry Using information from the text/data and your knowledge of economi discuss the arguments for and against the protection of the domestic poultry market. [2 marks] [2 marks} [4 marks] [4 marks] [8 marks] ‘Turn over-6- N14/3/ECONO/SP2/ENG/TZO/XX SECTION B Answer one question from this section. 3. Study the extract and data below and answer the questions that follow. Mozambique to produce its own antiretroviral (ARV) drugs Mozambique’s health minister announced that the first ARV drugs produced in Mozambique, in partnership with Brazil, will be ready by July 2012. In doing so, it will be the first African country — rather than private sector supplier — to produce its own supply of the drug, which can allow people who have HIV to live for many years. Until 2011, a handful of drug multinational corporations have battled to keep in place patents that give drug companies the exclusive right to manufacture and sell the ARV drugs. This has allowed them to control the highly profitable market. Although most African countries aim to provide free ARV drugs to their citizens, the high costs of importing them, along with a recent cut in funding from international foundations, means that many are struggling. A total of 10.6 million people in Sub-Saharan Africa are in need of ARV treatment but only 37% currently have it. In Mozambique, 15% of people aged 15 to 49 have HIV. Brazil has been producing its own ARV drugs since 1993 and now provides free versions of the drugs to everyone in the country suffering from HIV. Mozambique is the biggest beneficiary of aid from Brazil, which has invested heavily in its infrastructure, mining, health, agriculture and educational sectors. ‘The health minister signed an agreement with Brazil to co-produce ARV drugs in a factory in the southern city of Matola, Mozambique. Brazil will provide training for Mozambican staff in the production, management and quality control of the drugs. He was pleased because more people in Mozambique will soon have access to the ARV drugs. Other countries in Aftica are also taking steps to produce their own drugs. As new international agreements on intellectual property are going to make drugs more expensive, countries are now trying to produce the ARV drugs themselves. ‘This is a positive move for Mozambique. 8145113, Source: adapted from hitp:/www:telegraph co.uk, 28 December 2011) (This question continues on the following page)=i N14/3/ECONO/SP2/ENG/TZO/XX_ (Question 3 continued) Figure 1 jique and Sub-Saharan Africa — Human Development Index (HDI) figures 2000 to 2011 os 0.401 0.431 0.438 0.445 0.451 0.456 0.46 0.463 044 11—_ =—_s—_s—4 03 -o—_e —_0—_® @ oe e 3 024 08s 0285 029 0.299 0.304 0312 0317 0.322 0.0 — — 2000 ©2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Key: @ Sub-Saharan Africa @ Mozambique [Source adapted fom htpshdestats undp, accessed 30 December 2011] (@) (i) Define the term infrastructure indicated in bold in the text (paragraph @). [2 marks] (ii) With reference to the data in Figure 1, describe the HDI trend for Mozambique from 2000 to 2011 [2 marks] (b) Using an appropriate market failure diagram, explain how externalities arising from a lack of access to ARV drugs may be eliminated by their free provision (paragraph @). [4 marks] (©) Using an appropriate diagram, explain how increased access to ARV drugs might affect potential economic output. [4 marks] (@) Using information from the text/data and your knowledge of economii evaluate the possible outcomes of Brazil’s aid to Mozambique. [8 marks] s814-5113 ‘Turn over=8= N14/3/ECONO/SP2/ENG/TZ0/XX 4. Study the extract below and answer the questions that follow. Burmese leaders slow to move on much needed economic reforms After years of being isolated from the global economy due to its military dictatorship, Burma is now open for business. It is now gaining international attention for its pro-democratic political reforms. Unfortunately, efforts to boost economic development have been slower. Mismanagement and corruption by military rulers mean that one third of its 60 million citizens live in poverty. In addition, rising prices are making the situation worse for households. | Burma is geographically close to the large Asian economies of China and India. This offers the resource-rich nation significant opportunities in terms of investment and trade. The government is eager to take advantage of these opportunities and improve the stitutional framework. Possible measures include deregulation, breaking up local monopolies, the development of property rights and improvements of the legal system. In 2011, the government broke up the monopolies for importing cars and trading cooking oil. It also reduced export costs and made it easier for citizens living abroad to transfer money back to Burma. Some private banks are, for the first time, being allowed to trade in foreign currencies, providing an additional source of foreign investment However, analysts say that some government officials are resisting deregulation and that other important institutional reforms have not yet been put into place. Without warning, the government recently reduced subsidies on fuel, raising the price by 30%. A similar unexpected price hike in 2007 sparked protests that later grew into an anti-government movement. Although there is still a risk of social unrest if prices get out of control, the reform environment is making people feel optimistic about the future. Economists warn inflation could threaten reform efforts. Burma’s inflation rate has always been problematic. To some extent the inflationary pressure has been reduced over the period 2011-12 because of the rising value of Burma’s currency, the kyat. The USA and Europe continue to limit Burma’s access to global trade and technology through trade sanctions. Some economists argue that these sanctions should be removed immediately, while other economists believe that they should only be removed gradually if further reforms are implemented. 8814-5113, Source: adapted from hiip:/www-voanews.com/, 4 January 2012) (This question continues on the following page)9- N14/3/ECONO/SP2/ENG/TZ0/XX (Question 4 continued) (@) Define the term economic development indicated in bold in the text (paragraph O). (ii) Define the term inflation indicated in bold in the text (paragraph @). (b) Using an appropriate diagram, explain how reducing subsidies has affected the market for fuel in Burma (paragraph ©). (©) Using an appropriate diagram, explain how “the inflationary pressure has been reduced over the period 2011-12 because of the rising value of Burma’s currency” (paragraph @). (@) Using information from the texv/data and your knowledge of economics, evaluate the possible effects of Burma’s market-oriented reforms on economic growth and development. [2 marks] 22 marks] [4 marks] [4 marks] [8 marks] s8145113