NYJC_H1_ECONS_P1_8823_Suggested_Answers

Suggested Answer: CSQ 1 Qn Questions a)(i) Why might the changes shown in Table 1 have led to a decrease in the world price of sugar? [2] Greater surplus of sugar in the world markets. (1m) Surplus in 2016/17 = 173,980 – 170,773 = 3,207 (,000 metric tons) Surplus in 2017/18 = 191,823 – 174,125 = 17,688 (,000 metric tons) The surplus grew bigger thus adding more pressure for prices to decrease in the price of sugar. (1m) a)(ii) Given the information contained in Table 1, identify the country that has had the greatest impact on world prices. Justify your answer. [3] The country with the greatest impact would be the one with the greatest change to supply or demand for cotton on the world market. (1m) 2016/1 7 2017/1 8 2016/1 7 2017/1 8 2016/1 7 2017/1 8 China 9,300 10,250 15,600 15,700 -6,300 -5,450 India 22,200 32,445 25,500 26,500 -3,300 5,945 Europea n Union 18,313 21,150 18,700 18,800 -387 2,350 Pakistan 6,825 7,425 5,100 5,400 1,725 2,025 United States 8,136 8,393 10,979 11,181 -2,843 -2,788 India has had a large impact as it changed from a net importer (-3,300 000 metric tons) to a net exporter (5,945 000 metric tons) (From adding to supply to adding to demand). (2m) b) Using diagrams, explain what determines the extent of the change in the quantity of soft drinks consumed by the different types of consumers following the imposition of the sugar tax in UK. [4] • Identify the “different types of consumers”; those with price elastic dd vs those with price inelastic dd. • - PED<1 include consumers with high income (expenditure on sugar is a small proportion of income). • - PED>1 include consumers with low income.

• The factor that determines the extent of the change in price when an indirect tax is imposed is the PED. • Define PED. (1m) • Show the contrast in Price when PED>1 and when PED<1. (Q to Qi vs Q to Qe) (3m) c) Extract 2 refers to the effects of removing quota on sugar production. Using a supply and demand diagram, explain the effect on the market for sugar in UK of such quota removal. [3] -Define ‘Quota’ (1m) -Price & Quantity with quota is Pq and Qq. (1m) -After the removal of the quota, Price will fall to Pe and quantity will rise to Qe. (1m) d) Explain the determinants of a rational consumer’s decision on whether to consume sugary drinks. [6] - Explain what constitutes ‘rational’ decision making (to maximize net benefits) (1m) - Relate ‘utility’ to consumer’s benefit. (1m) - Explain the marginalist principle: (2m) • Define marginal cost and marginal benefit. • Explain why net benefits is maximized at the consumption level where marginal benefit equals marginal costs. - Explain the determinants of marginal benefit. (tastes, price of substitutes, complements, intended and unintended benefits etc) (1m) - Explain the determinants of marginal costs. (price paid for the good, time given up for the co