PJC_H1_ECONS_P1_Q1

PIONEER JUNIOR COLLEGE (E CONOMICS DEPARTMENT ) 1 PJC 2017 H1 Prelim Exam Paper 1 Question 1: The impact of climate change (a) Using Table 1, compare the overall change in food p rices between 2006 and 2010 with that between 2011 and 2015. [3] Suggested answer: Food prices from 2006 to 2010 has been increasing w hile food prices from 2011 to 2015 has been falling. Food prices rose at a faster rate (47%) from 2006 to 2010 while food prices from 2011 to 2015 fell at a slower rate (28.6%). There was a fall in food prices from 2008 to 2009 w hile the fall in food price trend from 2011 to 2015 has been consistent. (b) With reference to Extract 2, define opportunity cost and give an example. [3] Suggested answer : Opportunity cost is the next best alternative foregone. Firms have to choose between investing in clean ene rgy sector and investing in capital good to increase output. If firms choose to invest in clean energy sector, they would forgo the profit that they would earn from increasing their output. Or Governments have to choose between spending in clea n energy to reduce negative externalities and promote steady sustainable growth , and to spending to promote actual economic growth. If they choose spend to ensure sus tainable growth, they would forgo current growth. Note: Due to question requirement ‘reference to extract 2’, answers from extract 1 or not related to climate change/growth will not be accepted. (c) With reference to Extract 3, explain whether supply or demand factors are likely to be more important in explaining changes in the price of food. [6] Suggested answer : With reference to Extract 3, changes in food prices can be affected by reasons such as rising population, weather changes, price elasticity of demand and supply and R&D. Demand factor As world population rises, there will be more mouths to feed and this will lead to a rise in demand for food as food is necessary for survival. The rise in demand for food will lead to a shortage at the original price, and with an up ward pressure on price, price of food will increase. As food crops require time for gesta tion and as a perishable good (mentioned in Extract 3 Para 1), the rise in demand against a price inelastic supply curve will cause food prices to rise significantly. Supply factor Poor weather conditions have made food crop cultiva tion unfavourable. This implies that food production will be disrupted, leading to a fal l in supply for food in the market for food. With demand for food being price inelastic as it is a necessity to all and supply falling drastically, the price of food will increase significantly. Overall judgement/conclusion

PIONEER JUNIOR COLLEGE (E CONOMICS DEPARTMENT ) 2 In the short run, supply side factors seem to be more influential in terms of affecting food prices as producers and countries may not be abl