2023 Economics Past Paper PDF

Economics 2023 1 Question booklet 1 Questions 1 and 2 (41 marks) Answer all questions Write your answers in this question booklet You may write on page 10 if you need more space...

Economics 2023 1 Question booklet 1 Questions 1 and 2 (41 marks) Answer all questions Write your answers in this question booklet You may write on page 10 if you need more space Allow approximately 65 minutes Examination information Materials Question booklet 1 Question booklet 2 SACE registration number label Instructions Use black or blue pen Total time: 130 minutes Total marks: 80 © SACE Board of South Australia 2023 Attach your SACE registration number label here 1. Source A There are two main types of potatoes in Country A: processing potatoes and table potatoes. Processing potatoes are used to make frozen fries (also known as chips) for restaurants and supermarkets, whilst table potatoes are used for all other purposes. While poor weather has affected the production of both types of potatoes this year, the area where processing potatoes are grown has been affected more significantly. This has impacted the production of processing potatoes more than the production of table potatoes. (a) (i) Explain why the structure of the potato market cannot be classified as perfect competition. In your answer, refer to one of the characteristics that distinguish market structures. ___________________________________________________________________________________________________ ___________________________________________________________________________________________________ ___________________________________________________________________________________________________ ________________________________________________________________________________________ (2 marks) (ii) Outline one reason why consumers may be disadvantaged by the potato market not being perfectly competitive. ___________________________________________________________________________________________________ _________________________________________________________________________________________ (1 mark) (b) Complete the following diagrams to illustrate the impact of poor weather and flooding on the markets for processing potatoes and table potatoes. Market for processing potatoes Market for table potatoes P P S S Pe Pe D D Qe Q Qe Q (3 marks) page 2 of 10 (c) (i) Outline why the change in the market for processing potatoes identified in part (b) is likely to affect the market for frozen fries. ___________________________________________________________________________________________________ _________________________________________________________________________________________ (1 mark) (ii) Explain how the price mechanism would impact both producers and consumers to return the market for frozen fries to equilibrium. ___________________________________________________________________________________________________ ___________________________________________________________________________________________________ ___________________________________________________________________________________________________ ________________________________________________________________________________________ (2 marks) page 3 of 10 PLEASE TURN OVER Source B Owners of family restaurants in Country A are major purchasers of frozen fries, which are included in almost every meal. There are effectively no suitable substitutes for these fries for family restaurants. (d) (i) Explain why demand for frozen fries from family restaurants is likely to be highly price inelastic. ___________________________________________________________________________________________________ ___________________________________________________________________________________________________ ___________________________________________________________________________________________________ ________________________________________________________________________________________ (2 marks) (ii) Explain the impact of an increase in the price of frozen fries from P0 to P1 on the total revenue of processors of frozen fries. Refer to the diagram below in your answer. Demand for frozen fries from family restaurants P a P1 b c P0 d e f D Q1 Q0 Q ___________________________________________________________________________________________________ ___________________________________________________________________________________________________ ___________________________________________________________________________________________________ ___________________________________________________________________________________________________ ___________________________________________________________________________________________________ ________________________________________________________________________________________ (3 marks) page 4 of 10 Owners of family restaurants have reacted to changes in the market for frozen fries in different ways. Some are making their own fries from table potatoes (which are less suitable for fries) and others have reduced their serving sizes. Both responses have led to a decrease in the frequency of consumers eating out. Some owners have even been forced to close their restaurants due to a reduced number of customers. (e) Explain the likely effects of the changes in the market for frozen fries on the market for meals at family restaurants. Complete the diagram below to support your answer. Market for meals at family restaurants P S Pe D Qe Q ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ _____________________________________________________________________________________________ (4 marks) page 5 of 10 PLEASE TURN OVER Source C Consumers who purchase frozen fries from supermarkets have also been affected by the changes in the market for frozen fries. Supermarket Chain 1, one of Country A’s two supermarket chains, has chosen to hold the price of frozen fries at P1 and has also set buyer limits to help availability and affordability for customers. (f ) (i) Use the following diagram to identify the impact on both consumer surplus and producer surplus of Supermarket Chain 1’s decision to hold prices at P1. Write your answer in the table below. Market for frozen fries at supermarket chains P S a P2 b c Pe e d f g P1 P1 h i j k l D Q1 Qe Q2 Q Consumer surplus if price is Pe Consumer surplus if price is P1 Producer surplus if price is Pe Producer surplus if price is P1 (2 marks) (ii) Referring to intended and unintended consequences, assess the likely effectiveness of Supermarket Chain 1’s decision to hold prices at P1 and set buyer limits. ___________________________________________________________________________________________________ ___________________________________________________________________________________________________ ___________________________________________________________________________________________________ ___________________________________________________________________________________________________ ___________________________________________________________________________________________________ ___________________________________________________________________________________________________ ___________________________________________________________________________________________________ ________________________________________________________________________________________ (4 marks) page 6 of 10 Source D The other supermarket chain in Country A, Supermarket Chain 2, must now decide if it will follow the decision of Supermarket Chain 1 to hold the price of frozen fries at P1 and set buyer limits. The following payoff matrix shows the revenue ($billion) that each supermarket chain can make when it chooses between: holding price and setting buyer limits not holding price and not setting buyer limits Supermarket Chain 1 Hold price and Not hold price and set buyer limits not set buyer limits Hold price and 1.9 1.7 set buyer limits 2.0 2.3 Supermarket Chain 2 2.1 1.8 Not hold price and not set buyer limits 2.2 2.4 (g) (i) Use game theory to explain the likely action of Supermarket Chain 2. ___________________________________________________________________________________________________ ___________________________________________________________________________________________________ ___________________________________________________________________________________________________ ________________________________________________________________________________________ (2 marks) (ii) Explain why Supermarket Chain 2 must consider the actions of Supermarket Chain 1 when deciding whether to hold prices and set buyer limits. ___________________________________________________________________________________________________ ___________________________________________________________________________________________________ ___________________________________________________________________________________________________ ________________________________________________________________________________________ (2 marks) page 7 of 10 PLEASE TURN OVER 2. Source E Frozen fries are generally deep fried in oil. Health groups in Country A have highlighted the benefits to society of a reduction in the consumption of deep fried foods such as fries. These health groups have stated, ‘Reduced consumption of fries will minimise obesity and related issues, thus decreasing the opportunity cost to government of addressing these issues’. The following data relates to the consumption of fries in Country A in kilograms per person per year. Mean consumption 18 kg Median consumption 17 kg Income quintile Consumption of fries (kg per person per year) Bottom 20% 24 Second 20% 22 Middle 20% 17 Fourth 20% 15 Top 20% 12 (a) (i) Explain why the consumption of fries creates a market failure. ___________________________________________________________________________________________________ ___________________________________________________________________________________________________ ___________________________________________________________________________________________________ ___________________________________________________________________________________________________ ___________________________________________________________________________________________________ ________________________________________________________________________________________ (3 marks) (ii) Complete the diagram below to illustrate the market failure discussed in part (a)(i). Clearly label the deadweight loss (DWL). Market for fries P MPC = S Pe MPB = D Qe Q (2 marks) page 8 of 10 (b) (i) Explain what the difference in values for the mean and median suggests about the consumption of fries. ___________________________________________________________________________________________________ ___________________________________________________________________________________________________ ___________________________________________________________________________________________________ ________________________________________________________________________________________ (2 marks) (ii) State the nature of the relationship between income and consumption of fries shown in the table on page 8. ___________________________________________________________________________________________________ _________________________________________________________________________________________ (1 mark) (c) Suggest one strategy that the government could use to address the market failure discussed in part (a)(i) and evaluate its likely effectiveness. ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ _____________________________________________________________________________________________ (5 marks) page 9 of 10 PLEASE TURN OVER You may write on this page if you need more space to finish your answers to any of the questions in this question booklet. Make sure to label each answer carefully (e.g. 2(c) continued). _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ page 10 of 10 — end of booklet  Economics 2023 Question booklet 2 Questions 3 and 4 (39 marks) Answer all questions Write your answers in this question booklet You may write on page 9 if you need more space Allow approximately 65 minutes 2 © SACE Board of South Australia 2023 Copy the information from your SACE label here CHECK SEQ FIGURES LETTER BIN 3. Source F Country X’s price stability objective is to maintain an inflation rate of between 2–3% over the course of the business cycle. A government spokesperson has stated that long-term economic growth and higher living standards could be achieved if inflation was low and stable but not if inflation was high. An increase in aggregate demand driven by higher consumption spending has led to Country X experiencing an inflationary gap and an inflation rate above 7.3%. Several groups have suggested that the government of Country X should not intervene in this inflationary economy, but a government spokesperson disagreed and argued that it was necessary to implement contractionary monetary policy to reduce inflation. The spokesperson also stated that contractionary monetary policy is currently the most effective demand management policy to achieve price stability in Country X. (a) Explain one possible reason why Country X’s inflation target is not 0%. ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ _____________________________________________________________________________________________ (2 marks) (b) Evaluate the statement by the government spokesperson that long-term economic growth and higher living standards could be achieved if inflation was low and stable, but not if inflation was high. ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ _____________________________________________________________________________________________ (4 marks) page 3 of 9 PLEASE TURN OVER (c) With reference to AD–AS theory, explain the likely long-run adjustments to economic conditions in Country X if the government does not intervene in the economy. Fully label and complete the AD–AS diagram below to support your answer. 7.3% ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ _____________________________________________________________________________________________ (3 marks) (d) Explain how contractionary monetary policy could help achieve price stability in Country X. Fully label and complete the AD–AS diagram below to support your answer. ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ _____________________________________________________________________________________________ (3 marks) page 4 of 9 (e) Analyse the likely impact of contractionary monetary policy on Country X’s exchange rate ($X). Complete the diagram below to support your answer. Market for $X P S D Q ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ _____________________________________________________________________________________________ (4 marks) (f ) Evaluate the government spokesperson’s statement that contractionary monetary policy is currently the most effective demand management policy to achieve price stability in Country X. ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ _____________________________________________________________________________________________ (5 marks) page 5 of 9 PLEASE TURN OVER 4. Source G Refer to the following information for Country W. Since Year 1, the government of Country W has used fiscal policy to increase economic growth. While these policy measures were successful, there are concerns that economic growth in Year 3 (which is above the target rate of 3–4%) is now too high. Year 1 Year 2 Year 3 Real GDP growth (% change) –1.9 2.8 5.9 Budget balance ($billion) –$160 –$110 –$100 Figure 1: Business investment Figure 2: Building approvals (% annual growth) (per month, in thousands) % ’000 8 20 6 15 4 10 2 5 0 0 Year 1 Year 2 Year 3 Year 1 Year 2 Year 3 Figure 3: Consumer confidence Figure 4: Retail sales (% deviation from average) (annual % growth) % % 24 8 6 18 4 12 2 6 0 –2 0 –4 –6 –6 –12 –8 Year 1 Year 2 Year 3 Year 1 Year 2 Year 3 (a) Explain how it was possible for real GDP growth to be negative in Year 1, despite an increase in business investment. ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ _____________________________________________________________________________________________ (2 marks) page 6 of 9 (b) (i) On the diagram below, indicate the likely phase of the business cycle of Country W in Year 2. Real GDP % change Year 1 (1 mark) (ii) Justify your answer to part (b)(i). ___________________________________________________________________________________________________ _________________________________________________________________________________________ (1 mark) (c) Predict the likely change in economic activity in Year 4. In your answer, refer to one of the leading indicators from the figures on page 6. ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ _____________________________________________________________________________________________ (2 marks) (d) The government of Country W intends to reduce the size of the budget deficit by decreasing discretionary government spending in Year 4. Evaluate the appropriateness of this decision. ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ _____________________________________________________________________________________________ (4 marks) page 7 of 9 PLEASE TURN OVER (e) Additional information has now been provided. From Year 1 to Year 3, Country W’s exchange rate appreciated by more than 10%. Discuss whether this appreciation would be likely to affect the appropriateness of the government’s decision to decrease discretionary government spending in Year 4. ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ _____________________________________________________________________________________________ (4 marks) (f ) A significant proportion of government expenditure in the budget deficit in Year 1 to Year 3 was on improving health and education services in the economy. Explain how the increased expenditure on education and health is likely to contribute to both short-run and long-run economic growth. Fully label and complete the AD–AS diagram below to support your answer. AD (Year 1) ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ _____________________________________________________________________________________________ (4 marks) page 8 of 9 You may write on this page if you need more space to finish your answers to any of the questions in this question booklet. Make sure to label each answer carefully (e.g. 3(f ) continued). _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ page 9 of 9 — end of booklet