EJC Econs 2022 A-Level H2 P1 Q1

Suggested Answers for 2022 A-Level H2 P1 Qn 1: Economic problems caused by drought and the coronavirus (COVID-19) pandemic (a) Use a demand and supply diagram in each case to explain why: (i) the price of fresh fruit and vegetables in Australia has risen as a result of the drought. [2] • Australia’s lengthy drought has damaged crops (extract 1) thus lowering crop yield and the amount farmers could produce. This caused supply of fresh fruit and vegetables to fall, and this is reflected by a leftward shift of the supply curve from SS0 to SS1. Market for fresh fruit and vegetables in Australia • At original price P0, quantity demanded Qd exceeds quantity supplied Qs, creating a shortage that exerts an upward pressure on price. As a result, equilibrium price rises. (ii) International tourist arrivals into Australia are expected to fall as a result of the bush fires. [2] • International tourist arrivals into Australia are expected to fall as a result of the bush fires due to a fall in demand. This is because tourists have a change in taste & preference away from visiting Australia as they are concerned with their health and safety caused by the bush fire and the resultant smoke haze (extract 1). • With a leftward shift of the demand curve from DD0 to DD1, a surplus exists at the current market price P 0, causing a downward pressure on prices. As prices decrease, quantity demanded increase while quantity supplied increase until Market for Tourism in Australia P0 0 Quantity Price SS0 DD0 P1 Q DD1 Q0 Q1 Surplus

quantity demanded equals quantity supplied. Hence, the equilibrium quantity falls from Q0 to Q1, explaining the fall in international tourist arrivals into Australia. (b) With reference to the data, explain one possible reason for the change in Australia’s budget balance from February to June 2020. [2] • Australia’s budget balance worsened as the budget surplus in February 2020 fell into a budget deficit in June 2020. • This could be due to an increase in government spending to deal with the damages caused the bush fire (extract 1) and to support business and individual during the COVID -19 pandemic (extract 2) Or • This could also be due to a fall in tax revenue as unemployment increase due to the recession caused by the bushfire and COVID-19 pandemic, hence government would be able to collect less income tax and goods and services tax. (c) With reference to Extract 2, explain why a nominal rate of interest of 0.25% in March 2020 would be describe as being “negative” in real terms. [2] • Real interest rate = nominal interest rate - inflation rate • According to extract 2, the inflation rate in Australia in the 12 months to March is 2.2%. Since inflation ra