ECONOMICS 3144/1H Paper 1 Higher Tier

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General Certificate of Secondary Education

June 2009
ECONOMICS
Paper 1
Higher Tier
Wednesday 17 June 2009
3144/1H
1.30 pm to 4.00 pm
For Examiners Use
You will need no other materials.

You may use a calculator.
Question
Mark
Question
Time allowed: 2 hours 30 minutes
Instructions
Use black ink or black ball-point pen. Use pencil only for drawing.
Fill in the boxes at the top of this page.
Answer five questions.
Answer all questions in Section A.
Answer one question in Section B.
You must answer the questions in the spaces provided. Answers
written in margins or on blank pages will not be marked.
Do all rough work in this book. Cross through any work you do not
want to be marked.
Information
The maximum mark for this paper is 147.
The marks for questions are shown in brackets.
You are reminded of the need for good English and clear presentation
in your answers. All questions should be answered in continuous
prose. Quality of Written Communication will be assessed in
Questions 2(d), 5(b) and 6(b).
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Total (Column 2)
TOTAL
Examiners Initials
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2
SECTION A
Answer all questions in this section.
Answer the questions in the spaces provided.
Total for this question: 29 marks

1 Study the information below and answer the questions that follow.
Item A
Fairtrade
Sales of Fairtrade products have been growing rapidly in the UK. The following charts
show the retail sales (m) for chocolate/cocoa, coffee and bananas for 2002 and 2005.
65.8 m
47.7 m
23.1m
17.3m
Key
Chocolate/
cocoa
Coffee
21.9 m
Bananas
7.0m
2002
2005
Caf Direct is an example of a Fairtrade business. Last year Caf Direct paid
0.5 million out of its profits to coffee, tea and cocoa growers in poor countries, instead
of giving the money to its shareholders.
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1
(a) Using Item A, circle the product below which showed:
(a)
(i) the biggest increase in retail sales (m) from 2002 to 2005.
Chocolate/cocoa
(a)
Bananas
(1 mark)
(ii) the biggest percentage growth (%) in retail sales from 2002 to 2005.
Chocolate/cocoa
Coffee
Coffee
Bananas
(1 mark)
(b) Using Item A, explain why Caf Direct could be called a Fairtrade business.
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(c) How are the objectives of a Fairtrade business likely to be different from those of other
businesses?
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1
(d) Using Item A, identify and explain one example of opportunity cost.
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Item B
St Lucia, an island in the Caribbean, specialises in banana production. In 2006 Sainsburys
bought 75% of St Lucias bananas. This Fairtrade decision has saved the banana farmers
of St Lucia.
(e)
(i) Explain how the economy of St Lucia might benefit from Sainsburys decision.
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1
(e)
(ii) Discuss whether or not specialisation benefits an economy.

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Item C
Social enterprises are businesses with a reputation for social and environmental
responsibility. They are likely to sell ethically sound products. It is argued that
social enterprises can be an effective alternative to both the public and private sectors,
delivering both social and economic benefits.
1
(f) Explain how a social enterprise is different from:
(f)
(i) a public sector organisation

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(f)
(ii) a profit maximising company in the private sector.

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1
(g) Using examples, explain the differences between the public and the private sector.
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2 Study Item D and answer the questions that follow.
Item D
5 fish and chips as potato shortage bites
One of Britains most popular takeaway meals is facing a price rise caused by weather
damage to the potato crop and increases in the cost of fresh fish. Recently, many fish and
chips shops have added 50p to the price of a meal.
2
(a) This diagram shows the price of fish and chips in Britain before the price rise.
Price
4.50
D
O
(a)
(08)
300
Number of meals
sold (millions)
(i) Draw and label a new curve on the diagram above to show the price increase.
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2
(a)
(ii) Using Item D and your diagram, explain why the price of fish and chips has
increased.
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(b) Explain two factors that influence the price elasticity of demand.
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2
(c) Explain the effect that the following might have on the price of fish and chips:
(c)
(i) a drop in the price of Chinese takeaway meals;

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(c)
(ii) an increase in the rate of VAT on fish and chips takeaway meals.
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2
(d) Discuss why the price of takeaway fish and chips in a fishing port will be lower than a
fish and chips meal in a top quality London restaurant.
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3 Study Items E and F and answer the questions that follow.
Item E
Bus companies compete for declining numbers
Apart from London, bus use has declined dramatically in the UK since services were
deregulated over 20 years ago. There are 25% fewer passenger journeys now but the
buses cover 25% more miles. It is easier to run bus services now and there has been
intensive competition on popular routes. In Manchester, increased competition has led
to bus wars with buses from different companies stopping at the same bus stops to
compete for passengers. This has caused more traffic jams and greater air pollution.
Outside London fares have risen by over 80% in real terms, but in London the increase
has been a lot smaller.
3
(a) Outline one reason why fewer people outside London travel by bus.
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(b)
(i) Explain the meaning of external costs.

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3
(b)
(ii) Using Item E, identify two external costs of the bus wars in Manchester.
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(b) (iii) Explain two effects a bus war might have on bus passengers.
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3
(c) The price elasticity of demand for bus travel outside London is inelastic.
(c)
(i) What does the term inelastic mean?

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(c)
(ii) How could a bus company use this information about price elasticity of demand
when considering a change to its fares?
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Item F
In London, bus fares have risen by only 36% but bus use has increased by 55%. This is
almost certainly linked to the congestion charge, which is a form of tax paid by motorists
driving into central London.
3
(d)
(i) Give two private costs of motoring.

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(ii) Explain how the congestion charge affects the social costs of motoring in London.
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3
(e) Discuss whether the introduction of a congestion charge in a city might lead to more
bus travel.
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17
DO NOT WRITE ON THIS PAGE

ANSWER IN THE SPACES PROVIDED
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4 Study Items G and H and answer the questions that follow.
Item G
No more boom and bust . . . . . . and very little inflation
% change on 6
previous year
GDP Growth in the UK
4
2
0
2
1990
1995
2000
2005
Inflation in the UK
% change on 10
a year earlier
0
1990
4
(a)
Inflation targeting
introduced
1995
2000
2005
(i) What does an increase in Gross Domestic Product mean for an economy?
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4
(a)
(ii) Using Item G, describe what happened to the UK economy between 1990 and
1995.
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(a) (iii) The UK economy has an inflation target of 2%. What does this mean?
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4
(a) (iv) The government also has a macroeconomic objective to lower unemployment.
Outline two reasons for this objective.
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(b) Explain how monetary and fiscal policies can bring about an economic recovery.
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Item H
During boom times the UK economy tends to have a worsening balance of payments on
current account. For example, the UK Current Account deficit rose from 18 billion in
2002 to 51 billion in 2007.
In December 2007, the UK Current Account showed the following net trade in goods and
services.
billion 4
2
2.9 billion
Services
0
2
4
Goods
6
8
4
(c)
7.6 billion
(i) Using Item H, calculate the UK Current Account balance in December 2007.
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4
(c)
(ii) Explain two possible causes of a balance of payments deficit on current account.
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4
(d) Discuss two policies which a government could use to reduce a balance of payments
deficit on current account.
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SECTION B
Answer either Question 5 (pages 24 to 27) or Question 6 (pages 28 to 32).

5 Study Items I, J and K and then answer all parts of the question which follow.
Item I
Demand for air travel expected to grow
In the last few years budget airlines, such as Ryanair, have increased earnings and made
higher profits, despite higher oil prices and intense competition. Although the world is
experiencing recession, the demand for air travel is likely to grow strongly in the future
and 500 million passengers are expected at UK airports in 2030. The main reasons being:
higher incomes
more leisure time
lower airfares
greater choice of destinations
more advertising
more UK airports.
Item J
The rapid growth of air travel
The graph shows the growth in numbers of passengers using UK airports between
1953 and 2005. Most of these passengers were going abroad, with Spain being the most
popular destination.
Millions of 250
passengers
200
150
100
50
0
(24)
1953
1962
1971
1980
1989
1998
2005
Years
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Item K
Aeroplanes may cause climate change but . . .
Carbon emissions from aeroplanes may damage the environment. Presently, aeroplanes
account for 2% of global carbon emissions but this is expected to rise to 15% by 2050.
Critics of air travel want to see either a tax on passengers or a quota system (pollution
permits). Pollution permits allow airlines to pollute up to a certain amount. They then
have to pay more if they exceed that amount.
Supporters of air travel want the airlines to have tax breaks as they earn income for the
UK economy and help improve peoples standard of living.
5
(a) Using Items I, J and K and your knowledge of economics, discuss the costs and
benefits of the expansion of air travel.
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(b) Discuss whether government intervention is desirable in a competitive air travel market.
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Do not answer this question if you have answered Question 5.

6 Study Items L, M and N and then answer all parts of the question which follow.
Item L
The EU how it works
The EU is a large trading area which has grown in membership from 15 countries in
May 2004 to 27 countries in 2008. Each member country is subject to certain economic
policies, such as the Common Agricultural Policy and Regional Policy. The EU is partly
funded by VAT revenues, with the standard rate varying from 15% to 22.5% between
countries. The EU protects its members by having a tariff on imports from outside the area.
There is labour mobility in the EU because workers can move between member countries
in search of jobs. Businesses can also move into other member countries and this increases
competition. The EU further encourages competition by removing barriers that prevent
markets working freely. Where there is market failure and some regions decline, the EU uses
its Regional Policy to fund new capital projects such as building a new airport in Cornwall.
Item M
EU Spending
In 2006, the EU spent 121 billion Euros. The pie chart below shows how this was spent.
Some countries were winners because they received more from the EU than they paid in
taxes to the EU. For example, Spain received 9 billion Euros more than it paid to the EU.
On the other hand, Germany was a loser, as it paid 9 billion Euros more to the EU than it
received.
How the 121 billion Euros was spent
Other expenditure
Administration
Global aid
7
Who are the winners and losers?

Losers
5 bn
UK
121 billion
9 bn
Germany
4 bn
France
56
47
Winners
2 bn
Competition
and regional
development
(28)
Agriculture
including
environment
and fishing
4 bn
9 bn
Ireland
Greece
Spain
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6
(a) Using Items L and M and your knowledge of economics, discuss the costs and benefits
of British membership of the EU.
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Item N
The Euro
The Euro, the single currency of the EU began in January 1999. 12 of the 15 countries,
belonging to the EU adopted the Euro but Britain decided not to. The British Government
was concerned about:
job losses
one common interest rate (set by the European Central Bank rather than the Bank of
England)
control over the pound () sterling.
However, some British firms could see benefits to be gained from:
no currency exchange costs (transaction costs)
all prices being shown in the same currency (transparency)
a stable exchange rate.
6
(b) Using Item N, discuss whether or not Britain should adopt the Euro as its currency.
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ECONOMICS 3144/1H Paper 1 Higher Tier

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ECONOMICS 3144/1H Paper 1 Higher Tier

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General Certificate of Secondary Education

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Time allowed: 2 hours 30 minutes

Total for this question: 29 marks

(a) Using Item A, circle the product below which showed:

Question 1 continues on the next page

(ii) Discuss whether or not specialisation benefits an economy.

Question 1 continues on the next page

(f) Explain how a social enterprise is different from:

(i) a public sector organisation

(ii) a profit maximising company in the private sector.

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(i) a drop in the price of Chinese takeaway meals;

(i) Explain the meaning of external costs.

Question 3 continues on the next page

(i) What does the term inelastic mean?

(i) Give two private costs of motoring.

DO NOT WRITE ON THIS PAGE

GDP Growth in the UK

Question 4 continues on the next page

(Extra space) .............................................................................................................

Turn over for the next question

Total for this question: 30 marks

(Extra space) .......................................................................................................................

Total for this question: 30 marks

Who are the winners and losers?

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