Price Changes (CIE IGCSE Economics)

The markets for cars and tyres are closely related. The five largest tyre firms used to make 66% of all tyres. The entry of more than 250 Chinese firms has reduced the global market share of the largest five firms to less than 50%. This also changed the price elasticity of demand (PED) for individual firms’ tyres. Some of these firms are state-owned enterprises and some are in the private sector.

Analyse, using a demand and supply diagram, the effect of an increase in demand for cars on the market for tyres
 

The food items people buy can be influenced by taxes, subsidies and health reports. A report published in 2017 outlined the health benefits of eating tomatoes including improved vision and reduced risk of heart disease. Egypt is a major producer of tomatoes and it also produces a large amount of cement. Cement is a product with price-inelastic demand. Egyptian cement producers have introduced more capital-intensive production methods.

Analyse, using a demand and supply diagram, the effect a report stating that eating tomatoes is good for health will have on the market for tomatoes.

In February 2017, Europe experienced a shortage of fresh vegetables due to bad weather. For a period of time, the markets for a number of vegetables, including broccoli and lettuces, were not in equilibrium. The price of food tends to fluctuate more than the price of manufactured goods and services. These fluctuations influence the rate of inflation.

Analyse, using a demand and supply diagram, how bad weather is likely to affect the market for broccoli.

The South Korean economy was dominated by many family-owned firms which have now become large public limited companies. The government provided subsidies and imposed trade protection to help their domestic firms to grow. Since 2010, average earnings have risen in South Korea.

Analyse, using a demand and supply diagram, how government subsidies help firms grow.

Indian Railways is a state-owned enterprise, owned and operated by the Ministry of Railways. There is currently only one privately-owned railway line in India. The market for rail travel is influenced by changes in the markets for other forms of transport. For instance, changes in the supply of oil and petrol influence the market for car travel.

Analyse, using a demand and supply diagram, how the market for oil would be affected when the demand for oil increases by more than the supply of oil.

In 2016, there was a global surplus in the steel market pushing down steel prices. This situation led to various calls for protectionist measures by other steel producers such as those in the EU and the USA. However, such measures were not supported by car producers as approximately 22% of a car manufacturer’s costs depend on steel prices.

Analyse, using a demand and supply diagram, the effect of falling steel prices on the market for cars.

Analyse, using a demand and supply diagram, the effect of an increase in income on the market for ice cream.

Refer to the source material in your answers.

The state of California has the most progressive tax system in the USA. The tax system helps reduce high poverty rates. Policy makers are considering reforming sales tax in the state to include services, while reducing the use of direct taxes.

Analyse, using a supply and demand diagram, the effect of increasing a sales tax.

The price elasticity of demand (PED) for sugar in most countries is less than 1. In 2017, the price of sugar fell. However, the price of specialised, higher quality sugar grown in countries such as Mauritius fell by less than the average global price. Efficient producers, such as some farmers in Brazil that have a low fixed cost of production, were also less affected by the fall in price.

Explain two reasons why the price of sugar may fall
 

Explain, using information from the extract, two reasons for falling oil prices.

Refer to the source material in your answers.

Explain, using information from the extract, two reasons why the price of rubber fell between 2011 and 2016.

Refer to the source material in your answers.

Explain, using information from the extract, two reasons why a rise in the price of vanilla might not cause an increase in the price of ice cream.

Refer to the source material in your answers.

In October 2015, the Chinese government switched from its one child policy to a two child policy partly because of the challenges caused by an ageing population. The birth rate was falling anyway due to rising female participation in the labour force, improvements in education, later marriages and the rapidly rising price of housing.

Explain why the price of housing may increase.