A level economics paper 1-markets and market failure

Distribution of this document is illegal A-level ECONOMICS Paper 1 Markets and Market Failure Monday 20 May 2019 Morning Time allowed: 2 hours Materials For this paper you must have: • an AQA 12-page answer book • a calculator. Instructions • Use black ink or black ball-point pen. Pencil should only be used for drawing. • Write the information required on the front cover of your answer book. The Paper Reference is 7136/1. • In Section A answer EITHER Context 1 OR Context 2. • In Section B, answer ONE essay. Information • The marks for questions are shown in brackets. • The maximum mark for this paper is 80. • There are 40 marks for Section A and 40 marks for Section B. • You will be marked on your ability to: – use good English – organise information clearly – use specialist vocabulary where appropriate. Advice • You are advised to spend 1 hour on Section A and 1 hour on Section B. Distribution of this document is illegal IB/M/Jun19/E11 7136/1 S - The Marketplace to Buy and Sell your Study Material 2 IB/M/Jun19/7136/1 Distribution of this document is illegal Th reCs study sceeHwearos.c Section A Answer EITHER Context 1 OR Context 2. EITHER Context 1 Total for this context: 40 marks The market for sand Study Extracts A, B and C, and then answer all parts of Context 1 which follow. Extract A Figure 1: Indices of US producer prices for sand, Jan 2010–Jan 2018 (Jan 2010=100) Figure 2: Global demand for sand(millions of tons), 2010–2025 ishared via our om Source: Federal Reserve Economic Data, 2018 Source: The Freedonia Group/Nation al Post, 2018 Extract B: Is the world running out of sand? Sand is in high demand. Sand accounts for up to 85% of all mining and the global depletion of sand is rapidly exceeding its natural renewal rate. Sand is mostly used in the construction industry to make concrete and asphalt. Chinese demand has risen significantly, reflecting the country's rapid pace of constructi on: it built 32.3 million houses and 4.5 million kilometres of road between 2011 and 2014. Sand also has industrial uses: it is used to make glass, 5 electroni cs, and to help extract oil in the fracking industry. While market demand for industrial sand has tracked overall economic growth in the USA, the demand for fracking sand has been as volatile as oil prices. Vast quantities of sand are dumped into the sea to reclaim land: Singapore, for example, has expanded its land area by over 20% since the 1960s. Much of this sand originates from 10 Indonesia, where sand miners have completely erased over 20 islands since 2005. The S - The Marketplace to Buy and Sell your Study Material 3 IB/M/Jun19/7136/1 Distribution of this document is illegal Maldives and Kiribati have used sand to shore up their islands against rising sea levels. The United Nations forecasts that, by 2030, there will be over 40 ‘megacities’, home to more than S - The Marketplace to Buy and Sell your Study Material 4 IB/M/Jun19/7136/1 This study resource was 10 million inhabitants (up from 31 in 2016), which means more housing and infrastructure will need to be built. Also, sea levels will continue to rise and so sand will only become more 15 sought after. But why is there a shortage when sand seems so abundant? Desert sand is too smooth, and so cannot be used for most commercial purposes. Australian sand was shipped to a faraway desert to build Dubai’s Burj Khalifa tower, made possible by cheaper transportation. Most countries have rules in place about where, and how much, sand can be mined. However, surging demand has sparked a lucrative illegal trade in many rapidly developing countries which 20 is damaging the environment, causing pollution and harming local biodiversity. Extract C: The need for international action Source: New s reports, February 2018 There are currently no international conventions to regulate sand extraction, trade and use. Critics argue that the international community needs to treat sand like a resource on a par with clean air, biodiversity and other natural endowments that nations seek to manage for the future. In the developed world, concerns have led to restrictions on where sand can be mined. In the USA, for example, mining it offshore or near large residential areas is restricted. Regulations 5 are also in place in many developing countries. Indonesia, Malaysia and Cambodia have all placed restri ctions on exports, although the rules are not always enforced. There is a parti cular problem of i neffective enforcem ent i n India, with organi sed crimi nal networks ignoring rules and conducting unregulated sand mining. Substitutes for sand do exist. Mud can be used for land reclamation, straw and wood for 10 building houses, and crushed rock for making concrete. In some rich countries a shift towards these alternative production processes is already under way as sand prices rise. In the UK, sand demand is 25% less than in 2007, and 28% of building materials used in the UK in 2014 had been recycled. Rising prices will eventually also force builders in developing countries to explore alternatives to sand. But without better law enforcem ent, high sand prices also make 15 illegal mining more profitable. Source: News reports, February 2018 Using the data in Extract A (Figure 1), calculate the percentage change in the price of construction sand between January 2014 and January 2018. Give your answer correct to one decimal place. [2 marks] Explain how the data in Extract A (Figures 1 and 2) show that expansion in the global sand market is leading to prices of construction sand rising in real terms. [4 marks] Extract B (line 18) states that the global trade in sand has been ‘made possible by cheaper transportation’. With the help of a diagram, explain how cheaper transportation and a construction boom in East Asia have led to growth in the market for sand. [9 marks] 30 20 10 S - The Marketplace to Buy and Sell your Study Material 5 IB/M/Jun19/7136/1 Distribution of this document is illegal Extract C (lines 14–15) states that ‘Rising prices will eventually also force builders in developing countries to explore alternatives to sand.’ Use the extracts and your knowledge of economics to assess the view that the increasing scarcity of sand is a problem best solved by market forces, rather than through government intervention. [25 marks] This study source was downloaded by from CourseH on :55:29 GMT -05:00 Turn over ► 40