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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
The change in the Chile peso exchange rate between 2013 and 2015 can be attributed to fluctuations in copper prices, as seen in Figure 1. As the global price of copper decreased, the income from copper exports — which is vital for Chile's economy — also fell, triggering a depreciation of the peso. This decline in income led to reduced demand for the peso due to lower confidence from investors and limited foreign capital inflows.
Step 2
Examine the likely impact of externalities of copper mining on firms and communities within Chile.
Answer
The externalities of copper mining have both positive and negative impacts on firms and communities. On the positive side, mining activities create job opportunities and stimulate local economies, as businesses supply goods and services to the mining sector. However, the negative externalities include environmental degradation, such as water shortages and pollution, which can affect agriculture and fisheries. Communities may also face social issues, including workplace safety and health problems, leading to long-term economic challenges.
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 poses several significant problems. First, it creates economic vulnerability; fluctuations in global copper prices can lead to unstable national revenues and economic growth. Furthermore, over-reliance on a single commodity inhibits diversification in other sectors, making the economy less resilient to shocks. Additionally, there's a concern about the sustainability of resources, as continuous mining can deplete natural reserves and lead to long-term environmental consequences. Finally, this dependency can also lead to social inequality, where wealth generated from mining does not benefit all segments of society equitably.