YIJC H2 Econs 2024 Prelims P2 Ans (Compiled)

In 2022, the domestic price of rice in India increased drastically du e to poor monsoon rains and a rise in demand. In response, India, the world's largest rice exporter, has periodically imposed export bans. (a ) Explain the reasons for the significant increase in the price of rice in India. Suggested answer: Question Analysis: Command word: Explain – elaboration of reasons with relevant examples Content: Significant increase (magnitude of change in price) → suggesting use of elasticities / Use of demand/supply analysis or diagram Context: Market for rice in India R1: Explain demand and supply reasons for the increase in price R2: Explain how the demand and supply reasons lead to the significant increase in price of rice. The significant increase in the price of rice in India can be attributed to several demand and supply reasons. It can also be attributed to the price inelasticity of its demand and supply. R1: Explain demand and supply reasons for the increase in price - DD: In 2022, there is post -pandemic economic recovery in most countries. As countries open their borders, travel restrictions eased and improvement in trade → economic activities resumed, especially in food and beverage industry → see a rise in demand for rice globally as well as in India, since rice is a staple and essential input in the food and beverage market - SS: Due to poor monsoon rains (extreme weather conditions) → lack of rainfall, an important factor input to rice crops → this damaged crops, reduced yields, and led to lower rice output → reducing supply of rice in India. R2: Explain how the demand and supply reasons lead to the significant increase in price of rice. [10 ]

1. Reinforced effect: • The increase in the demand and fall in supply of rice will lead to a significant shortage of rice at the original price level. With a huge shortage, this will lead to significant increase in prices of rice in India to clear the shortage. • As seen from the diagram, the increase in demand and fall in supply creates a significant shortage. • As a result of a huge shortage of rice in the market, prices will have to increase significantly from P1 to P2 to clear the shortage in the market. 2. Elasticity • The demand for rice is price inelastic as it is a staple food in India and therefore a necessity. • The supply of rice is price inelastic as well as rice has a long gestation period. • The fall in supply and rise in demand has led to a shortage at the original price level. Given that both PED and PES of rice are likely to be low, quantity demanded and quantity supplied will not be responsive to price changes. Hence to eliminate the shortage of rice caused by the rise in demand and fall in supply of rice, price must increase significantly. In conclusion, the significant increase in the price of rice in India is the result of an interplay of factors. Markers’ Comment: - Que