(2017) 9757 H2 Econs CSQ 1 Suggested Answers by Mr Eugene Toh (A Level Economics Tutor)
(2017) A Level H2 Econs Paper 1 CSQ Q1
Question 1
a. Negative externality (definition) – cost imposed on 3rd parties who are not directly involved in the consumption or production of the good.
The ‘diet westernisation’ refers to the consumption of more meat and animal products which increases the incidence of obesity. The increase incidence of obesity in turn creates more health problems such as heart disease and diabetes, which results to lower productivity of the labour force – this can have an impact to both employers and the economy.
b. Poultry. It has the lowest income elasticity of demand value which means that it is least affected by income changes, indicating it is more of a necessity to consumers in Japan.
c. Since demand for chilled beef from Australia is 0.92, it is price inelastic which means an increase in price will lead to a less than proportionate decrease in quantity demanded, total spending will increase.
Demand for chilled beef from the rest of the world is 1.18 which means it is price elastic, an increase in price will lead to a more than proportionate fall in quantity demanded, total spending will decrease.
d. XED = %change in qdd of Good A / $ change in price of Good B
XED between Australian chilled beef and US chilled beef
= 0.0074/0.01 = +0.74
They are substitutes
XED between Australian chilled beef and chilled beef from the rest of the world
=0.0134/0.01 = +1.34
They are substitutes
Chilled beef from the rest of the world appears to be closer substitutes than chilled beef from US, for Australian beef.
e. Subsidies for agricultural production
1. Lowers COP à Increases supply as farmers will be encouraged to produce more
2. Costly, burden on fiscal position (Japan already has huge debt.
Technology & R&D
1. Encourage farmers to Invest in R&D / Technology
2. Find more efficient ways of production given that land cost is very high in Japan
Is the aim of self-sufficiency achievable?
1. Depends whether growth in demand for food will outpace the increase in supply driven by the ways discussed above
2. As evident in extract, even as population declines, the per capita demands for meat consumption is expected to rise.
3. Based on present trends and the expected effectiveness/limitations of policies suggested, it is unlikely that the food self-sufficiency aim will be met in the short term.
f. Gains outweigh losses
1. Removal of tariffs will allow for exports to become more competitive, Px will fall for exporting countries
a. (X-M) will increase
b. AD will increase à real NY increase à higher growth & lower unemployment
c. BOT will improve à BOP improves
2. Theory of CA would suggest that liberalization of trade through the removal of tariffs is beneficial to society because it allows for increased output and consumption (brief explain CA theory)
3. Specifically, it is mentioned in Extract 3, US farm products will benefit tremendously as tariffs will be removed from US farm products
Losses may outweigh gains
1. Trade diversion possible as tariffs are removed, where demand for exports shift because of changes in prices due to tariffs removal, some countries’ exports may become less competitive
2. FTAs may come with the liberalization of labour movements as well which may allow influx of foreign labour into a country. This may displace local workers who may become unemployed as a result.
Answer should provide evidence of gains & losses of existing FTAs to help pivot an argument to make an assessment on whether gains > losses or losses > gains
Note: Answers above are in key point and need to be fully elaborated on
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