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1 (a) With reference to Figure 2, explain one likely reason for the change in the Chile peso exchange rate between 2013 and 2015 - Edexcel - A-Level Economics A - Question 1 - 2017 - Paper 3
Question 1
1 (a) With reference to Figure 2, explain one likely reason for the change in the Chile peso exchange rate between 2013 and 2015. (b) Examine the likely impact of e... show full transcript
Worked Solution & Example Answer:1 (a) With reference to Figure 2, explain one likely reason for the change in the Chile peso exchange rate between 2013 and 2015 - Edexcel - A-Level Economics A - Question 1 - 2017 - Paper 3
Step 1
With reference to Figure 2, explain one likely reason for the change in the Chile peso exchange rate between 2013 and 2015.
Answer
One likely reason for the change in the Chile peso exchange rate between 2013 and 2015 can be attributed to fluctuations in the global market demand for copper, which is a key export of Chile. From 2013 to 2015, copper prices experienced significant variation, peaking in early 2014 and falling towards 2015, which likely led to depreciative pressures on the Chilean peso as exports declined in value, impacting overall economic confidence.
Step 2
Examine the likely impact of externalities of copper mining on firms and communities within Chile.
Answer
The externalities of copper mining in Chile can have profound impacts on both firms and communities. Environmentally, mining operations can lead to water shortages and soil degradation, affecting agriculture and local ecosystems. Firms that rely on natural resources may face increased costs due to regulatory measures implemented in response to environmental degradation, leading to reduced profits. On a community level, health issues may arise due to pollution, leading to increased healthcare costs and reduced quality of life for local residents. The economic benefits of mining may be undermined by these negative externalities, creating a complex interplay between industry and community welfare.
Step 3
Apart from externalities, discuss the problems that Chile faces as a result of dependency on copper mining.
Answer
Chile's dependency on copper mining presents several challenges. Firstly, economic volatility is a significant risk; fluctuations in global copper prices can lead to unstable income for the national economy. Secondly, over-reliance on one commodity makes Chile vulnerable to market shifts, which can impede diversification efforts and long-term economic sustainability. Additionally, social issues such as income inequality and regional disparities can be exacerbated by the concentration of wealth in mining areas, leading to conflicts and tensions between different sectors of society. Finally, as global demand shifts toward sustainable practices, there is a pressing need for Chile to consider alternative industries, highlighting the potential for adverse long-term impacts on the economy's structure.