EJC H2 Economics Examiners' Report 2024

EJC 2024 H2 Examiners’ report 1 Question 1: Towards sustainable fashion (a) With reference to Table 1, what can be concluded about the change in world price of cotton in 2022. [2] Production increase indicating an increase in supply while consumption fell indicating a decrease in demand resulting in a surplus [1]. Hence overall price of cotton in 2022 fell [1]. Or In 2022, there is a surplus as production is more than consumption [1]. A surplus result in a downward pressure on price hence overall price of cotton in 2022 fell [1]. (b) With reference to Figure 1 and Extract 1, explain one demand and one supply factor that could impact world cotton prices. [4] DD factor: “Shoppers have increasingly opted for alternative fabric” (Extract 1). Polyester, which is a substitute for cotton, is “ cheaper and quicker to produce”, hence the lower cost of production increases supply of polyester resulting in a decrease in price of polyester [1]. Since polyester and cotton are substitutes, the lower price of polyester (increases quantity demand of polyester and decreases the demand for cotton leading to a decrease in world cotton prices [1]. SS factor: As mentioned in Extract 1, “low prices for corn have pushed farmers in Brazil to plant cotton instead, resulting in a sharp rise in cotton production.” This has increased the number of sellers producing cotton since cotton and corn are in competitive supply as they use the same resources for production. This increases the world supply of cotton leading to a decrease in world cotton prices [1]. (c) Some governments thus implement programs such as minimum support price to support farmers (Extract 2). Explain how the above price control supports farmers and one possib le unintended consequence of the policy. [4] A price floor is a legally established minimum price. F armers affected are permitted to sell the goods at prices at or above the minimum price. A price floor is only effective if it is set above the equilibrium price (or shown on diagram) [1]. A price floor that is set below the market equilibrium price has no effect at all because the market equilibrium price is still attainable. With the implementation of price floor, price of cotton increase from P to Pf. Quantity demand fell from Q to Q1 and quantity supplied increases from Q to Q2. There is a surplus of Q1Q2. Initially the farmers income is 0PEQ. Assuming the government buys back the surplus Q1Q2, the income of farmers increases to 0PfBQ2 [1].

EJC 2024 H2 Examiners’ report 2 Or Assuming that demand of cotton is price inelastic as with agricultural goods, The increase in price, because of the price floor, decreases quantity demanded less than proportionately. Overall income of farmers will increase to 0PfAQ1 [1]. Unintended consequence (2m) • Allocative inefficiency - deadweight loss of area CE due to changes in consumer and prod