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NATIONAL JUNIOR COLLEGE
SH1 Common Test for General Certificate of Education Advanced Level
Higher 1

ECONOMICS 8843/01
Paper 1 27 June 2022
1 hour 10 minutes

No Additional Materials are required.

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Answer all questions.

The number of marks is given in brackets [ ] at the end of each question or part question.

This document consists of 4 printed pages.

NATIONAL JUNIOR COLLEGE

Economics Department

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Answer all questions.

Question 1: Cotton and Apparels

Figure 1: World Cotton Production and Consumption

Millions. bales (bundles)

Source: United States Department of Agriculture

Extract 1: High cotton prices cause apparel costs to surge globally

Cotton prices around the world have been on the rise since the beginning of 2021 and have recently crossed
the $1 per pound mark, the highest in this decade. The price rise can be attributed to the growing demand
for apparel as countries recover from the COVID-19 pandemic due to rapid vaccinations.

Consistently rising shipping costs and the United States (US) ban on Xinjiang cotton are also major reasons
for the unexpected surge in cotton prices, which has, in turn, caused the retail price of cotton apparel and
clothing to increase the world over. Between the year 2020 to 2021, the world’s cotton production declined
by 7.4 % over the previous market year due to the pandemic, resulting in an erosion of cotton stocks around
the world. High production of cotton in countries like US, Australia and Argentina could not offset the reduced
production of cotton due to unfavourable weather conditions in India, Togo, Greece and Benin.

Banking analysts said the retailers expected to be hardest hit by the rising commodity prices are those that
specialise in denim such as denim jeans. Cotton accounts for more than 90% of the raw materials used to
make jeans and other denim goods.

Source: CNBC, 10 October 2021

Extract 2: What the spike in cotton prices to a 10-year high means

Every few years the cotton industry likes to remind the world that it is an agricultural crop, not something
manufactured in a factory. This is one of those times. This month the price of a pound of cotton rose to its

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highest level in a decade. This spike represents a hefty boost in the 30% range, a substantial increase even
in the always volatile world of commodities. So far, in the current climate of higher prices for many consumer
products, manufacturers and retailers have been able to pass along at least some of the increases to
consumers.

But looking back a decade, the massive spike in cotton prices had a profound impact on the kinds of products
Americans bought and used. On the apparel side, sales of cotton-made apparels such as denim jeans which
had been in decline even before all of this slowed even further and the rise of athleisure wear which uses
only synthetic fabrics really began to accelerate. In home textiles, cotton’s share of market declined, replaced
by sheets and towels labeled as “micro-fiber” which were essentially 100% polyester. Even as sales of cotton
products in both fashion and home have regained market share, those alternatives remain significant factors
in the marketplace.

Source: Forbes, 12 October 2021

Extract 3: Cotton Crisis

The cotton Crisis has destroyed jobs tied to Pakistan’s biggest cash crop. Pakistan, one of the world’s largest
cotton producers, is finding it increasingly hard to meet its own needs, a problem that could push up import
bills and further hurt its fragile economy. Years of bad weather, pest outbreaks and better margins on other
crops have hurt the quality and quantity of harvest. And the scale of damage is accelerating as the production
in the current fiscal year is set to tumble to the lowest level in about three decades.

Cotton is one of the most important cash crops for Pakistan and commonly referred to as “white gold” by the
1.5 million farmers that depend on it for a living. It serves as the raw material for the textile industry, which
provides employment to 40% of the workforce and generates more than half of foreign exchange earnings.
Low cotton output has forced many firms to completely shut their factories in the past three years, leaving
hundreds of thousands of farmers and textile workers out of work.

To revive production, the government plans to offer subsidies for cotton seed and pesticides and may unveil
a minimum price for the first time to support farmers, Fakhar Imam, Pakistan’s food security minister, said in
February. “The cotton production crisis is deepening in Pakistan. We will have to prevent the farmers who
are shifting from cotton to other crops,” he said.

Source: Bloomberg, 24 April 2021

Extract 4: The mysterious Chinese fashion app that is as popular as Amazon

The platform which belongs to a Chinese brand called Shein is a mysterious online shopping upstart that has
made headlines recently for surpassing Amazon in app downloads in the United States, and creating a cult
following for its fast fashion apparel sold all over the world. "They're making fast fashion look slow," said Erin
Schmidt, a senior analyst at Coresight Research, a global advisory and research firm specialising in retail
and technology. "They've changed the model." Shein awards points to customers for everything from opening
the app to watching live streams and entering outfit design contests. They are so far ahead in terms of user
experience as they mix media and entertainment into the experience. For example, the company relies
heavily on influencer marketing, teaming up with internet stars and celebrities to expand its reach.

At first, the company only sold wedding dresses, said Schmidt. It later branched out to general womenswear,
adopting the name "Sheinside." In 2015, the company rebranded again, saying it wanted a name that was
easier to remember and search for online. Shein positions itself firmly as a global business, with an emphasis
on distribution: It ships to more than 220 countries or territories. Its website has no mention of its backstory
or even where it's based, stating only that it is "an international" firm. In recent months, that has led to some
suggestions that the retailer deliberately downplays its Chinese roots amid rising biases and political
controversy.

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"Given the current climate of geopolitical tensions, it makes sense for Chinese entities to lay low," said
Matthew Brennan, who writes about Chinese mobile technology and is the founder of research firm China
Channel. "They just want to do business. This is something that they don't want to have to deal with. And so
I don't think we can blame Shein for taking that option." The murkiness, however, can be off-putting. Some
customers have expressed concerns over the firm's lack of transparency around how it produces its goods
and sells them at a low price as well as where it sources its materials.

Source: CNN, 14 August 2021

Extract 5: Plastics tax urged for UK fast fashion brands 'fueling runaway climate change'

Most of fast fashion apparels sold are made entirely from non-recycled plastics like polyester, a spokesperson
of a research institute said on Friday as it urged the government to slap a tax on such garments. Most of the
clothes contain synthetic fabrics like nylon, acrylic and elastane, which are made with fossil fuels and damage
the environment through emissions and waste, the Royal Society of Arts, Manufactures and Commerce (RSA)
said. These fabrics form part of a petrochemical economy which is fuelling runaway climate change and
pollution.

Britain’s throwaway culture means most fast fashion will end up in a landfill where it could take thousands of
years to break down, said the RSA, which works to find solutions to social challenges. Published ahead of
the start of London Fashion Week on Saturday, the report said fast fashion companies were too slow to adopt
recycled materials. The RSA said income from a tax on clothing containing brand new plastics could be
invested by the government in creating new materials, recycling and boosting more sustainable production.
Most shoppers were unaware of the scale of plastic use in fast fashion and brands should publish regular
statistics on how much plastic goes into their garments and explore ways of promoting second-hand clothing.

Source: Reuters, 11 June 2021

(a) With reference to Figure 1, compare the levels of consumption and production of cotton over the period
2016 to 2021. [2]

(b) (i) With reference to Extract 1, explain two reasons for the rise in the price of cotton in the year
2021. [5]

(ii) Using a relevant elasticity concept, explain why cotton as an agricultural crop can be used to
explain the spike in cotton prices (Extract 2). [2]

(c) With reference to the data, explain how the price mechanism is able to perform any of its three functions
efficiently in the cotton market. [2]

(d) Using demand and supply diagrams, explain how an increase in the price of cotton-made apparels
such as denim jeans could affect the amount of athleisure wear. [5]

(e) Comment on the effectiveness of the government’s plan to unveil a minimum price to support cotton
farmers’ revenue in view of the cotton crisis (Extract 3). [6]

(f) Discuss whether enhancing the user experience (Extract 4) is the best strategy for Shein to increase
its sales revenue. [8]

(g) Discuss how the government’s imposition of a tax on fast fashion apparels could reduce pollution and
consider the extent to which such an intervention will be most successful. [10]

[Total: 40]

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