2.3 Demand

The World Trade Organization (WTO) estimates that India has the largest levels of trade protection of any major economy. The highest tariffs are imposed on products from the primary sector. For example, in 2018 India imposed a tariff of approximately 90% on imports of coffee to protect its coffee farmers. However, the markets for coffee substitutes and complements do not have such levels of government intervention.

b) Explain how the price of coffee substitutes and complements can affect the demand for coffee. [4]

The number of Chinese restaurants in the UK fell by approximately 7% in 2020 compared to the year before. Reasons for this include falling demand for Chinese food and increasing competition from other types of food. Some small firms selling Chinese food are also unwilling to invest in the latest technology because of the possible opportunity costs.

c) Analyse two causes of a fall in demand for a product such as Chinese food. [6]

In 2019, 70% of Swedish workers were members of a trade union. More than 85% of Swedish workers are employed in the tertiary sector, compared with only 2% in the primary sector. Swedish workers spend their incomes on a variety of products some of which, e.g. sweets, are demerit goods. Sweden has the 7th highest per head consumption of sweets in the world.

a) Identify two influences on what products a person buys. [2]

There is an area of rubbish, three times the size of France, floating in the Pacific Ocean called the Great Pacific Garbage Patch. It is made up of rubbish including old fishing nets but most is plastic waste. It is forecast that, by 2050, there will be more plastic in the Pacific Ocean than fish. A number of islands in the Pacific Ocean specialise in fishing. Greater pollution will increase the social cost of the fishing industry.

b) Explain two causes of a shift to the right in the demand curve for fish. [4]

Global spending on the health sector, by both the private and public sectors, is the highest compared with all other sectors including education and defence. Investment in education and the health sector has resulted in new life-saving technology being introduced. However, demand for certain vaccinations has decreased over the years, shifting the demand curve of vaccinations to the left.

b) Explain two causes of a shift to the right in the demand curve for fish. [4]

The population of Hungary is the most obese in Europe. Hungarians eat fewer vegetables than most Europeans and more food types that may be considered to be demerit goods. In 2017, the Hungarian government introduced a tax on unhealthy food, known as the chips tax. The tax has had some success in moving demand to healthier foods. Some economists suggest that governments should use price controls as well as taxes to influence the food market.

b) Explain the difference between an extension in demand and an increase in demand. [4]

There is a high level of division of labour in the United Kingdom (UK) energy industry. Cold weather in early 2018 caused very high demand for energy and a change in its price. This led to a temporary shortage of energy for firms and households in the UK. Part of the change in price may have been the result of UK energy firms abusing their monopoly power. This would be an example of market failure.

b) Explain two influences, other than weather, that could affect the demand for a product. [4]

In 2017, the Brazilian paper industry was booming. Its total revenue increased and it employed both more, and better quality, factors of production. Brazil's largest paper producer merged with an Indonesian paper-producing firm at the end of 2017. The performance of Brazil's coffee industry differed from its paper industry. Brazilian coffee experienced a fall in demand and a fall in total revenue.

d) Discuss whether or not demand for coffee is likely to rise in the future. [8]

In the UK, bus journeys outside London have fallen by nearly 40% since 1980. This fall in demand has been largely due to a rise in bus fares, a rise in income and changes in the price and quality of substitutes. On some routes there are monopolies operating and this lack of competition can push up the price.

a) Define a substitute and give an example. [2]

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.

b) Explain why the price of housing may increase. [4]