EJC Econs 2021 A-Level H2 P1 Q1 SAMS

Suggested Answers for 2021 A-Level H2 P1 Qn 1: Changes in the market for seafood (a) Using a demand and supply diagram, explain why the rise in the price of salmon led to the change in the price of cod in Norway. [2] Salmon and cod have a positive cross elasticity of demand (XED) as the 2 goods are substitutes. Hence, t he rise in the price of salmon leads to a rise in demand for cod as consumers switch from consuming the relatively more expensive salmon to the relatively cheaper cod. Figure 1: Market for cod With a rightward shift of the demand curve from DD0 to DD1, a shortage exists at the current market price P0, causing an upward pressure on prices. Hence, the price of cod rose in Norway. (b) With reference to Extract 1 and Figure 1: (i) Using a diagram, explain the likely impact of the disagreement between fishing workers and boat owners in Iceland on the market for cod in 2017. [2] The disagreement between fishing workers and boat owners in Iceland would have caused a fall in supply of cod as ‘fishing boats were left idle for over two months’ meant that no fisherman was fishing and thus lowering supply of fish including cod. This is reflected by a leftward shift of the supply curve from SS0 to SS1. Figure 2 At original price P0, quantity demanded Qd exceeds quantity supplied Qs, creating a shortage that exerts an upward pressure on price. As price increases, quantity supplied rises while quantity demanded falls. Price continues to increase until the shortage is eliminated. As a result, equilibrium price rises and equilibrium quantity falls.

(ii) Suppose a maximum price of Iceland cod of €2.25 per kg had been operating since March 2016. Explain the impact of such a maximum price would have had on the market for Iceland cod. [2] Between March to June 2016, the maximum price had no impact as the market equilibrium price was below €2.25 per kg. After June 2016, the maximum price would have been effective , and price of Iceland cod would fall to €2.25 per kg since the market equilibrium price was above the maximum price. (iii) Explain how ‘large stockpiles of frozen cod in Iceland’ can be used to keep cod prices stable, and identify two difficulties in operating such a scheme. [4] The ‘large stockpiles of frozen cod in Iceland’ can be released onto the market to increase supply, preventing a shortage from arising and pushing prices up. Since February to April is the peak cod -fishing season, the disagreements between fishing workers and boat owners have caused delays in fishing. This would affect the amount of stockpiles accumulated, which would in turn reduce Icelandic government’s ability to release the stockpiles to stabilise prices. Another difficulty is the high costs incurred for storage of frozen cod. (c) Explain why man