NYJC_H2_Economics_P2_Answers

Nanyang Junior College  2014 JC2 Prelim Examinations  H2 Economics Paper 2  Suggested answers:  Question 1:  2014 is the most profitable year ever for chicken producers. Fast food restaurants such as KFC, McDonalds, Wendy’s and Burger King are betting on the birds due to rising costs of other meats. However, the outlook is bearish outside the US as feed costs rise and an outbreak of avian influenza erode demand in China, the second- largest consumer. Bloomberg report, 2014 (a) Using economic analysis, explain how the above changes will affect the chicken market in US and in China. [10] (b) Discuss how different restaurants in China might respond to the challenges mentioned in the report. [15] (a) INTRO  Establish how chicken markets could be impacted o Changes in demand and supply factors o Effects on price and quantity on US and China’s chicken markets BODY Explain the effects on US Chicken Market  “Fast food restaurants such as KFC, McDonalds, Wendy’s and Burger King are betting on the birds due to rising costs of other meats.”  price of beef/pork rises  restaurants change their preferences towards substitutes of beef/pork  demand for chicken rises  demand curve shifts to the right from D0 to D1, shortage at price P0 results in upward pressure in price (explain using Fig. 1)  price and quantity rises

Explain the effects on China Chicken Market  “However, the outlook is bearish outside the U.S. as feed costs rise” feed costs rise  cost of production rise since cost of rearing chickens rise  supply of chicken falls as farmers are profit motivated (rise in cost of production which affects profitability makes farmers less motivated to increase production)  supply curve shifts to the left S0 to S1  price rises while quantity falls  “However, the … outbreak of avian influenza erodes demand in China”  consumers’ fear of contracting the virus from consuming chicken  demand for chicken falls  demand curve shifts to the left from D0 to D1  price and quantity falls  Combined effect: demand falls more than supply since the outbreak of avian influenza results in greater fear of consumers and China is the second-largest consumer  price and quantity falls (explain using Fig. 2)

CONCLUSION  Impact on chicken markets in China and US will differ as price and quantity of chicken rises in US while price and quantity falls in China.  The impact of such changes in China’s chicken market will affect the different types of restaurants that make use of chicken meat. L3 Clear detailed explanation of how the chicken markets in China and US are affected in terms of effects on price and quantity using both demand and supply factors. (US Chicken Market – 1 demand factor) (China Chicken Market – 1 demand and 1 supply factor) 7-10 L2 Undeveloped explanation of how the chicken markets in US and China are affected. 5-6 L1 Mere listing of factors with little reference to demand and supply