H1 Economics

Case Study Skills

Workshop 2017

Part 2

Miss Jenny Wang

The Impending Global Food Crisis

Case Study (TYS N2009)

Case Study Skills

Content (DD,SS. Elasticity and applications)

• Typical command words

- Describe, compare, identify, state, define, explain, consider, comment

• 1 to 6 marks

Lower Order Questions

Higher Order Questions

• Typical command words

- Discuss, assess, evaluate, to what extent do you agree, justify, “Explain.. andcomment on [>=7m]”

• 7 to 12 marks

• To be written like a mini essay

CASE STUDY

ANSWERS:

Economic analysis,

SUPPORTED BY

CONTEXTUAL

EVIDENCE from

CASE

(except for 12m, usually

need to use own

knowledge as well)

Video

• https://www.youtube.com/watch?v=b0XP1i1oP_I&t

=186s

(d) Explain two possible measures that the government

can implement in response to the threat of food

shortages and comment on their effectiveness. [7]

Table 1: Indices of selected primary

commodity pricesAll Primary

Commodities

Food Petroleum

Weights

Year

100.0 21.7 39.9

1995 100.0 100.0 100.0

2000 116.0 78.9 164.1

2001 105.6 79.1 141.4

2002 105.9 81.8 145.0

2003 119.7 86.0 167.9

2004 151.5 98.3 219.5

2005 195.7 97.9 310.1

2006 238.6 107.6 373.6

2007 273.2 126.5 427.6

Material in a raw or unprocessed state, such as an ore

fresh fruit, which is extracted or harvested and requires

minimal processing before being used.

(a) Compare the change in food prices between

2000 to 2007 with the change in petroleum

prices over the same period. [2]

A. Both the price of food and petroleum increase from 78.9 to 126.5 and from 164.1 to 427.6 respectively. However, the price of petroleum increases more than that of food.

B. Both the price of food and petroleum increase. However, the price of petroleum increases more than that of food.

C. Both the price of food and petroleum increase. However, the price of food is consistently lower than that of petroleum.

D. Both the price of food and petroleum increase. However, the price of petroleum increases faster than that of food.

(a) Compare the change in food prices between 2000

and 2007 with the change in petroleum prices over

the period. [2]

Similarity

The prices of both food and petroleum have risen. [1]

Difference

However, the prices of petroleum have risen much faster than

food. [1]

Examiner’s Report:

This was well answered by most candidates. Very few now provide

descriptive, chronological approaches to this type of question, and very few

fail to make explicit points of comparison. The most common comparative

points provided were that while the price of both commodities had risen,

petroleum prices had risen most rapidly.

Source: The Guardian, 3 November 2007

Which of the following explains the correct

effect(s) of introduction of food price

controls as described in Extract 1?

I. Black market arose.

II. Food riots arose

III. Shortage of food (e.g. bread, chicken and milk in Venezuela)

arose

IV. Price of food became lower than the market equilibrium price

A. III only

B. I,II, III and IV

C. II and III

D. III and IV End

(b) With the help of a diagram explain the effect of

the introduction of food price controls as described in

extract 1. [5m]

• Extract 1 makes references to price controls on food items

e.g. milk, bread, beef and chicken in countries like Russia and

Venezuela which resulted in food shortages.

• With reference to figure 1, assuming a maximum price or

ceiling price is imposed at (Pc) below the prevailing market

equilibrium price (P), sellers cannot sell legally at any price

above Pc.

• At Pc, the quantity demanded (q2)

exceeds quantity supplied (q1) in

the market thus creating food

shortages. [3m for explanation]

End

(c) Explain why an increase of 70 million mouths to feed each

year may cause food prices to rise, showing how low stocks of

food would affect the extent of this rise in the short run. [4]

• Focus of Qn: EXTENT of increase in Price of food in

SR

• How does ‘increase of 70m…” affect DD &/or SS of

food?

• “Low stocks of food” – implications on PED or PES?

(c) Explain why an increase of 70 million mouths to feed each

year may cause food prices to rise, showing how low stocks of

food would affect the extent of this rise in the short run. [4]

• With rising population the demand for food increases, shifting the DD curve rightwards.

• With reference to Figure 2, the supply of food tend to be a very price inelastic. • This is because due to the low stocks of food i.e. Suppliers

do not keep sufficient stocks as reserve. Suppliers cannot easily respond to an increase in price of food due to a rise in demand in the short run.

• The combined effect of an price-inelastic S curve and a rightward shift of the D curve causes the price of food to rise sharply to P1. In contrast, if supply is relatively price-elastic as depicted by S2, prices should rise moderately to P2

(d) Extract 3 describe the use of subsidies in the market

for bio-fuels. With the use of diagrams, explain the way

in which subsidies affect the allocation of resources

between bio-fuels and food. [4]

Extract 3

(d) Extract 3 describe the use of subsidies in the market

for bio-fuels. With the use of diagrams, explain the way

in which subsidies affect the allocation of resources

between bio-fuels and food. [4]

(d) Extract 3 describe the use of subsidies in the market

for bio-fuels. With the use of diagrams, explain the way

in which subsidies affect the allocation of resources

between bio-fuels and food. [4] --> [5]

• Impact on market for bio-fuels• The land and other forms of resources such as

labour for growing crops has alternative uses.They could be used either to grow food cropsor biofuel crops. In other words, food cropsand biofuel crops are in competitive supply. Asubsidy for growing biofuel crops, ceterisparibus lowers unit cost of production andhence increases profit. This increasesproducers willingness to produce and sellbiofuel crops. In figure 3, this is shown by arightward shift of the S curve from S1 to S2(subsidy)

• As a result more resources are allocated toproduce biofuel crops and hence an increasein the equilibrium quantity from Q1 to Q2.

• Impact on the market for food crops

• As more land is devoted to produce

biofuel crops, less is available for

producing food crops. This is

illustrated in Figure 4 by a leftward

shift of the supply curve from S3 to S4

. As a result the market equilibrium

quantity for food crops contracts from

Q3 to Q4. Hence, less resources are

allocated to producing food crops.

Case Study SkillsHigher Order Questions

(e) As a consultant economist, what options would

you present to the world’s governments as possible

responses to the threat of food shortages and what

would you recommend? Justify your answer. [10]

(e) Explain two possible measures that the

government can implement in response to the threat

of food shortages and comment on their

effectiveness. [7]

Separate mark allocation for ‘comment’, with either 2 or 3m, never >

50% of total marks

Evaluation:

- Evaluate critically contemporary issues, perspectives

and policy choices

- Recognise unstated assumptions and evaluate their

relevance

- Synthesise economic arguments to arrive at well-

reasoned judgements and decisions.

(e) Explain two possible measures that the

government can implement in response to the threat

of food shortages and comment on their

effectiveness. [8]

End

(e) Explain two possible measures that the

government can implement in response to the threat

of food shortages and comment on their

effectiveness. [8]

• The threat of food shortages is essentially, in theory a

problem related to a market in disequilibrium. Increase

in DD >> increase in SS

(there are times where SS drops as well due to ss shocks)

• What are the solutions to tackle the root cause(s) of

problem?

• For EV: To what extent is it effective? Are there other

issue(s) that need to be resolved? Is it a short term or

long term solution?

Some possible solutions1. Increase SS of food• Subsidies for R&D aimed at raising productivity in

agricultural sector (esp poorer regions) – faster growing seeds, technology aimed to improve on irrigation methods

• Prevent worsening of climate condition – reduce global warming thru’ reducing carbon emission (reduce ss shocks)

• Subsidise other forms of alternative fuel (increase substitutes of energy sources, apart from biofuel)

2. Reduce DD for food• Change consumption habits• Population control in regions where there is rapid

population growth• Reduce food wastage

Scientists Found A 'Wonder Gene' That Boosts Rice

Growth

(e) Explain two possible measures that the

government can implement in response to the threat

of food shortages and comment on their

effectiveness. [8]

One measure is to subsidise research and development

e.g. to develop food crops grows faster. Subsidy lowers

the cost of research and hence incentivise research. If

research is successful, this will result in increase in

supply of food crops and hence reduce threat of food

shortage, ceteris paribus.

Another measure is to encourage lesser consumption of

meat through education and campaigns. Such measures

aim to change taste and preference in reducing

desirability of meat consumption. Production of meat

requires grains as animal feeds. Should it be successful,

this will help to slow down the rising demand of food

crops, and reduce the severity of food shortage.

(e) Explain two possible measures that the

government can implement in response to the threat

of food shortages and comment on their

effectiveness. [8]

• However, effectiveness of both solutions isconstrained by the success of R&D as well ascampaigns/education. These are also long termsolutions as research and education/campaignefforts usually takes many years to showresults.

• Given that it is demand for food is still likely togrow due to rising affluence, policy that isaimed at increasing agricultural productivity islikely to be more effective.

(e) Explain two possible measures that the

government can implement in response to the threat

of food shortages and comment on their

effectiveness. [7]

(e) As a consultant economist, what options would you present

to the world’s governments as possible responses to the threat

of food shortages and what would you recommend? Justify

your answer. [10]

• The threat of food shortages is essentially, in theory a

problem related to a market in disequilibrium. Increase

in DD >> increase in SS

(there are times where SS drops as well due to ss shocks)

• What are the solutions to tackle the root cause(s) of

problem?

• For EV: To what extent is it effective? Are there other

issue(s) that need to be resolved? Is it a short term or

long term solution?