Photo AI
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
With reference to Figure 2, explain one likely reason for the change in the Chile peso exchange rate between 2013 and 2015. Examine the likely impact of externaliti... show full transcript
Worked Solution & Example Answer: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 is the fluctuation in the value of copper prices, which directly impacts Chile’s economy given that it is a major copper producer. The depreciation of the peso during this period can be attributed to declining copper prices in the global market, as depicted in Figure 1. The revenue from copper exports is a significant portion of Chile's GDP, affecting the overall economic stability and currency value.
Step 2
Examine the likely impact of externalities of copper mining on firms and communities within Chile.
Answer
Copper mining in Chile generates both positive and negative externalities. On the positive side, mining provides local employment opportunities and stimulates economic growth as mining firms invest in surrounding communities. However, negative externalities include environmental degradation, such as water scarcity and pollution, which can adversely affect local agriculture and the health of residents. Communities often bear the burden of these impacts while mining companies profit, leading to social tensions and long-term sustainability issues.
Step 3
Discuss the problems that Chile faces as a result of dependency on copper mining.
Answer
Chile faces several significant problems due to its dependency on copper mining. First, economic vulnerability arises from dependence on global copper prices, which can lead to instability during price downturns. Additionally, the resource curse phenomenon can create a lack of diversification in the economy, limiting growth in other sectors. Environmental challenges, such as water depletion and pollution, directly affect agricultural sectors and local communities, raising concerns about sustainability. Moreover, reliance on a single commodity can lead to social inequalities and conflicts over resource management.