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Tutor 2u Mock 2888 Paper June 2009 Mark Scheme
1) Using Fig 1.3 and Fig 1.4 (Extract 1) compare the average price of fertilizer
and the average price of feed wheat in the UK between October 2006 and
October 2007. [6]
Candidates are not expected to explain why the relationship occurs. Marks
are awarded for comparison backed up with numerical quantification.
Marks are not awarded for analysis of data outside of the time period under
consideration.
Applicable points may include:

The price of feed wheat and fertilizer has both risen across the time period.

The price of feed wheat was £60 per tonne higher in October 2007
compared with October 2006.

The average price of fertilizer was £40 per tonne higher in October 2007
than in October 2006.

Both feed wheat and fertilizer prices rose sharply between June and
September 2007.

The price of feed wheat grew faster than the fertilser during this time
period (June- September 2007). The average price of feed wheat grew by
nearly £80 per tonne, whereas fertilizer by £30 per tonne, a difference of
£50.
1 mark for each direct comparison, with additional mark for each
quantification.
For candidates who look at either feed wheat or fertilizer prices a maximum
of three marks can be awarded.
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2) Analyse, using an appropriate supply and demand diagram, why food
prices rose in the EU during 2007/08. [9] (Extract 2 and 3)
Candidates can consider either demand or supply side factors. The majority of the
analysis focuses on supply side issues.
Given that the question refers to Extract 2 and 3, candidates can be rewarded for
analysis of Russian prices.
Content points may include:
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
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Shortage of butter stocks, following end of intervention buying (extract 2),
some candidates may link answer to data provided in extract 1.
Rising wheat prices increasing raw material prices for producers. Supply
shifts left rising prices. (Russia)
Monopoly producers limiting supply, prices rise.
Import tariffs imposed on all cereals except oats into the EU. Increasing
costs of production and limiting supply.
Poor European harvest, restricting supply, and increasing price.
Level 3: For an analysis of the possible reasons why food prices rose in the EU
during 2007/08, with effective use of a diagram. [7 -9]
Level 2: For application of knowledge and a critical understanding of possible
reasons (s) why price. Poorly labeled/inaccurate diagram would score max of
5. [4 -6]
Level 1: For knowledge and understanding only. No use of diagram. Only
one reason identified. [1-3]
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3) Comment upon the potential effectiveness of the price controls put
forward by the EU and Russia governments to control food price inflation.
[10] (Extract 3)
Content: reduced tariffs by the EU


Reduction in import tariffs, reduces price of raw materials such as cereals,
this reduces costs of production and puts less upward pressure on final
selling prices.
Some candidates may use a tariff diagram to show how the removal of
tariff, leads to a rise in imports and changes to economic welfare (increase
in consumer surplus, reduction in domestic producer surplus, fall in EU
tax revenue). This approach is likely to gain strong analysis marks, if done
well.
Content: maximum prices in Russia


Maximum prices impose a price ceiling, hence negating any possible rise
in price.
Again candidates may use a diagram to show a price floor set up the free
market equilibrium. Points to consider would include the possible
emergence of a shadow market for the products concerned, politically how
popular (return to centralist planning?).
To score Level 4 candidates will be making a judgment as to how effective
policies may be. Possible points to consider would be the length of time the
policy will be imposed for, depends upon the level that maximum price is set
etc.
Level 4: For a commentary on extent to which price controls are an effective
way of reducing food price inflation. Candidates will have considered the
pros and cons of tariffs and maximum prices and reached an informed
judgment. [8-10]
Level 3: For analysis of the reasons why price controls would be effective or
the reasons they would not. Limited judgment shown. [5 -7]
Level 2: For application of knowledge and critical understanding of reason (s)
why price controls will reduce food price inflation e.g. reduction of EU tariffs
will reduce costs of raw materials therefore reducing price [3-4]
Level 1: For some knowledge and understanding of one policy measure.
Advantages and disadvantages not considered. [1-2]
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4) Discuss the economic consequences of the EU and US biofuels policy for
the global economy [15] (Extract 4a and 4b)
Level 4: For a commentary as to the effects of EU and US biofuels policy on
the global economy. There must be a two sided argument that considers the
positive and negative implications with an informed judgment drawn. For
12+ marks judgment must be present.
Level 3: For an analysis of the positive or negative consequences of biofuel
policy for the global economy.
Level 2: For an application of knowledge and critical understanding of the
problems or benefits biofuel policy may bring.
Level 1: For knowledge and understanding of some benefits or problems.
Content: Benefits of Policy
Possible answers may include:
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
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Reduced C02 emissions and greater production of more carbon neutral
forms of transport. Reduction in negative externalities, limiting extent of
market failure. Candidates may make use of externality and market failure
diagrams for which analysis marks can be gained.
Green policies promoted by governments as a root to fiscal stimulation.
Investment in green technology can act as a stimulant to economies in the
midst of current economic down turn.
Helps reduced Co2 emissions in line with the Kyoto Protocol.
Content: Problems of Policy
Possible answers may include:
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
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Food price inflation, resources are transferred from food to biofuel
production. Limited supply of crops for food production increases prices.
Hitting low income households.
Limited supply of cereals makes global food prices more susceptible to
demand and supply side shocks.
How realistic is the Kyoto Protocol, chasing an impossible dream?
How effective are biofuels at really reducing Co2 emissions (see extract 4b)
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5) Is EU intervention to reduce C02 emissions through the Emissions
trading scheme always for the best? Discuss [20] (Extract 5)
Level 4: For a discussion of the extent to which the ETS is the best way of
reducing CO2 emissions in the EU.
Band 1 [12 – 16] Benefits and costs of ETS with supporting analysis
Band 2 [17 – 20] Benefits and costs of ETS and discussion as to the extent it
can/can’t be successful, alternative solutions offered
Level 3: For the analysis of the benefits or costs of the ETS policy. [5-11]
Level 2: For application of knowledge and critical understanding of the
benefit and/or cost of the ETS as a route to reducing CO2 in the EU.
Level 1: For knowledge and understanding of ETS.
Content
Emissions Trading Scheme (ETS) – a market-based system of trading pollution
permits introduced by the EU in January 2005. Emissions trading give EU businesses
operating within the system the flexibility to meet carbon reduction targets according
to their own strategy, by reducing C02 emissions on site, or by buying allowances
from other companies who have excess allowances.
Permit Price (Euro per tonne of C02)
EU Carbon Trading Market in Theory
Supply
2012
Supply
2010
Price
2012
Demand
2012
Price
2010
Demand
2010
Cap
2012
Cap
2010
Quantity of Permits
The aim of carbon trading is to create a market in pollution permits and put a price
on carbon. In this way, policy can help internalize the environmental costs of firms’
production and encourage lower carbon emissions as a way of tackling climate
change.
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In a cap and trade system, the number of available permits would gradually decline
(the extract mentions ‘cutting down on the number of allocations’ during phase 2 of
ETS) forcing businesses that participate to buy the increasingly scarce and more
expensive carbon permits to cover their needs. Effectively the open market is creating
a price for carbon (which did not exist before ETS started). As the price of the permits
rises, so the economics of investing in cleaner technologies and in finding ways of
cutting C02 emissions from existing production methods and processes will change.
The hope is that businesses will look for ways of reducing c02 emissions in the most
efficient way possible – therefore mitigating the flow of c02 in the least-cost manner.
Content: Against Carbon Trading

The system has suffered from government failure because of the over-allocation
of carbon quotas and national freedom to allocate carbon permits.

In recent times, the carbon price collapsed with the effect of driving up the
demand for coal fired energy! – a dirtier fuel! (this is another example of the law
of unintended consequences)
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Uncertainty of future of the ETS makes it less likely that businesses will invest in
greener technologies

Politicians are also unlikely to set the C02 emissions cap low enough to drive
carbon prices to right level

Carbon prices have fallen further because of the recession hitting the European
Union economy. The recession has caused reductions in output in steel, paper,
cement and glass and a sharp decline in production has led to a sell off of carbon
credits

That has caused a big drop in the market value of carbon permits from Euro 35 to
Euro 9 - there is less incentive for companies to stop polluting and there are fears
for the future of many clean energy projects.
Content: alternatives to carbon trading
Candidates may consider some of these alternatives in their answer.
1. Green taxes (e.g. the landfill tax and a tax on plastic bags introduced in Ireland)
2. Directives on environmental issues including laws on disposal of household products at
end-of-life
3. Tougher regulations e.g. on c02 emissions per km for all new cars
4. Improving the flow of information to consumers about the carbon impact of their
purchases and use of different products
5. Promoting renewable energy sources
6. Promoting carbon capture and carbon neutralization schemes
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