SECTION A
Read the following passage, and then answer the questions which follow on
Page three
.
World Food Prices Soar
Food prices have risen significantly in recent months. Reasons include extreme
weather conditions, the use of food crops to produce biofuels and growing demand from
emerging economies
. The short-run price inelasticity of demand and supply in this
market has led to sharp price rises.
Additionally, speculation about future food prices has helped exaggerate price rises.
Speculators treat commodity shortages as an investment opportunity. They buy and
sell “futures contracts”, which are agreements to sell a commodity at a certain price at a
future date. The World Development Movement suggests that trading these contracts
like stocks and shares is pushing food prices up to unsustainable levels. This is to the
detriment of the poorest consumers all over the world.
The President of the World Bank said that countries in North and Sub-Saharan Africa
are among those most exposed. This is because much of their food is imported and food
bills make up a large proportion of average household spending. Some governments
have reacted to food price rises by introducing export bans or introducing maximum
prices for staple foods. Whilst this helps protect the urban poor, some believe that the
introduction of maximum prices does more harm than good.
Under US law, 40% of the corn (maize) harvest must be used to make biofuel, a quota
which the UN says could contribute to a food crisis around the world. Some economists
believe that there is a large opportunity cost in the production of biofuels which diverts
resources away from the production of food. They believe that the high subsidies
which biofuels receive, particularly in the US, are having a negative impact on the food
market and are unjustifiable. On the other hand, some economists support subsidies
for biofuels and green technologies because they will ultimately reduce dependency on
non-renewable and environmentally damaging sources of energy. They believe the
biggest
market failure
facing the world is climate change.
Adapted from various BBC news articles August 2012
1.
Explain what is meant by the following terms as used in the passage.
(
a
)
Emerging economies (line 3).
(
b
)
Market failure (line 25).
2.
(
a
)
Explain why the demand
and
supply of food in the world market tends to be
price inelastic in the short-run.
(
b
)
Use a diagram to show the effects of market changes on world food prices.
3.
Explain the role of speculation in the world food market.
4.
Explain why rising food prices are most detrimental to the poorest consumers.
5.
Explain why the imposition of a maximum price in the market for staple foods
might do more harm than good. Use a diagram to support your answer.
6.
Describe the reasons why some economists believe that the production of biofuels
is unjustifiable.
7.
Given the controversy surrounding biofuels, suggest and justify other economic
measures which governments can introduce to reduce the effects of climate change.
You Want A Similar Paper Done? Don’t be stressed, Click Here To Order this essay!!!
ScholarMatic: Explanation & Answer
Your ready answer from a verified tutor is just a click away for as little as $14.99
Click Order Now to get 100% Original Answer Customized to your instructions!
