EJC Econs N2023 H2 EQ2 - students

2023 H2 A level Paper 2 Question 2 Bad weather and falls in consumer incomes can have different impacts on the prices of agricultural products such as vegetables, rice and grain. (a) Explain the different impacts on the prices of vegetables due to bad weather and falls in consumer incomes. [10] (b) Discuss the effectiveness of different measures that might ensure stability of food prices to consumers. [15] Part (a) - Question Analysis Approach Command Word Explain – Make clear Start point • Bad weather • Fall in consumer incomes End Point Different impacts on prices of vegetables Content and Context Content • Price mechanism • Price elasticity of demand (PED) • Income elasticity of demand (YED) or Price elasticity of supply (PES) Context Vegetables market. Introduction Equilibrium prices in a market are determined by interaction of demand and supply curves in the market. In this essay, the different effects on the changes in demand and supply on the equilibrium price for the market of vegetables will be elaborated. The events impacting the vegetables market include bad weather and falls in consumer incomes. Requirement 1: How bad weather impacted price of vegetables • The output of some agricultural products is severely affected by variation in weather conditions. • Bad weather conditions such as floods due to monsoons, soaring temperatures and drought because of global warming could bring a poor harvest and producers are now less able to produce vegetables at each and every price level. • Decrease in supply of fresh vegetables is represented by a leftward shift of the supply curve from SS0 to SS1. • In addition, the demand for vegetables is highly price inelastic due to the high degree of necessity as a source of fibre in one’s diet. • At the original price P 0, quantity supplied exceeds quantity demanded and a shortage exists leading to an upward pressure on prices. Since demand for vegetables is price inelastic, an increase in price leads to a more than proportionate decrease in quantity demanded of vegetables. • Hence, a sharp increase in price of vegetables is observed as seen by the increase in price from P0 to P1 in Fig 1.

Requirement 2: How falls in consumer incomes impacted price of vegetables • With a decrease in consumer incomes, perhaps due to an economic recession, there will be a decrease in disposable income (i.e., income after taxes and subsidies) and hence purchasing power. • Assuming vegetables are normal goods, this leads to a decrease in demand, and a decrease in equilibrium price. • Represented by a leftward shift of the demand curve from DD 0 to DD1. Use either the PES or YED explanation: • At the original price P0, quantity supplied exceeds quantity demanded and a surplus exists. Given that supply for vegetables is highly price inelastic due to the nature of vegetables as an agricultural good with long gestation period, even if price of vegetables were to