Definition Data Diagram

Econ 1 June 2011

Definition (5)

• A clear and concise definition will be enough to secure full marks. An example from the text may be used where appropriate.

– The equilibrium price is achieved at a level where quantity demand of a product is equal to quantity supplied. +5

Data Question (8)

Observation 1

Both commodities rose in price between the start and end of the period shown +2. Coffee went from $1.15 per kilo at the start of 2000 to $1.55 per kilo by the end of 2009, whilst sugar went from $0.13 per kilo to $0.40 per kilo over the same period. +1 data +1 units

Observation 2

The range of price fluctuation in absolute terms is greater in Coffee than sugar +2. Coffee experienced its highest price of $2.60 per kilo in 2008 and its lowest price of $0.50 at the end of 2001 giving it a range of $2.10 per kilo over the period consider. Sugar experience its highest price of $0.40 per kilo in 2005/6 and at the end of 2009 and its lowest price of $0.12 per kilo in 2000, giving a range of $0.28 per kilo over the same period. +1 data +1 units

Diagram (12)

Start with basic definitions +2

• Demand is the quantity that consumers are willing to buy and a range of different prices in a given period of time. Supply considers the amount producers are willing to sell at a range of different prices in the same time period. The market takes the interaction of buyers and sellers of a particular product, such as sugar and allows good to be exchanged at an agreed or determined price.

Highlight the factors in context +6

• Extract B refers to both demand and supply side factors affecting the price of sugar. On the supply side line 10 mentions the failure f the Indian sugar crop which would decrease the available supply resulting in a leftward shift of the curve and a rise in price. The upward moving in price is reinforced by the actions of speculators in New York and London whose buying pushed the demand curve to the right and price up 52% in 2009 (line 7).

Diagram +4

Validation +2

• The increase in demand and decrease in supply highlight in the previous paragraph creates Qs Qd excess demand or shortage at the original price of P. Thus price rises to an new equilibrium of P1Q1.

Extension +4

• The inelastic nature of demand as this is a key input with few substitutes and supply as this is a natural occurring commodity with a set growing cycle, means that price reacts significantly. The high price may in the longer term encourage farmers to turn more of their land over the sugar production and consumers and industry to consider alternative products. Thus price may ease in the medium to long term, but this is by no means certain.

• = 16/12