RVHS_H1_ECONS_P1_Solutions

1 2018 RVHS Year 6 Prelims H1 Case Study Suggested Answers Question 1 (a) With reference to Table 2, state what is meant by the value of PED for chilled beef imported from the United States being -1.13. [1] A 1% increase in price of beef will lead to a 1.13% fall in quantity demanded for chilled beef imported from the US. (b) Suppose the price of imported chilled beef rises. Explain why the total spending by Japanese consumers on imported chilled beef from Australia and the Rest of the World might differ. [3] Given the PED values, the demand for import ed chilled beef from Australia is price inelastic while the demand for imported chilled beef from the rest of the world is price elastic. As such, an increase in the price of imported chilled beef from Australia will lead to a less than proportionate fall in quantity demanded of chilled beef from Australia while an increase in the price of imported chilled beef from the Rest of the World will lead to a more than proportionate fall in quantity demanded of chilled beef from the Rest of the World. Since total spending by consumers is given by the product of price and quantity, consumer spending for chilled beef from Australia increases while that from the Rest of the World decreases. (c) Using Extract 1, explain one demand factor and one supply factor that have affected the market for beef in Japan and comment on, with the aid of a diagram, the change in the price and quantity of beef. [8] Change in DD Change in income Given that there is rising income in Japan as mentioned in Extract 1. This will increase the purchasing power of consumers and lead to an increase in demand for normal goods such as beef which results in a rightward shift in demand curve from D 0 to D1. OR Change in taste and preferences: There has been a change in taste and preferences for meat products in Japan due to the shift in the diet of its citizens towards more meat products. This has been branded “diet westernisation” mentioned in Extract 1. This will lead to an increase in the demand for beef which results in a rightward shift in demand curve from D 0 to D1.

2 Change in SS No. of sellers According to Extract 1, there is an increase in number of beef sellers due to the increase in the number of super markets and convenience stores in Japan which leads to an increase in supply of beef. This results in a rightward shift in supply curve from S 0 to S1. Comment on the change in the price and quantity of beef. An increase in demand combined with the increase in supply causes an increase in equilibrium quantity from Q 0 to Q 1 while the change in equilibrium price of beef remains indeterminate as it depends on the relative extent of the shifts in demand and supply. Given that Japan has experienced the most dramatic shift in the diet of its citizen suggest that a significant proportion of the Japan