ITEM A
Read the passage below and then answer the questions which follow.
Commodity Price Rises in 2010
Following the devastation of the Russian crop, wheat prices rose by 50%. The cost of the
wheat in a loaf of bread in the UK has risen by 7 pence. All 3 major bread producers in the
UK are likely to pass this on to customers.
Analysts also reported that the prices of metals were set to change further as a result of
increased demand from China. Due to production problems, the prices of copper and
platinum were likely to be most affected.
In previous years guaranteed minimum prices for cotton growers in the USA have resulted
in overproduction. This overproduction caused the lowering of world cotton prices.
However, in 2010 rising global demand caused West African cotton prices to increase by
80%. Clothing retailers such as Primark and Next have announced that
profit margins
will
come under pressure and their prices will increase. Despite this rise, cotton prices have still
declined in
real terms
since the 1950s.
)
Define the following terms,
as used in the passage
:
(i)
“real terms”;
(ii)
“profit margins”.
(
b
)
(i)
Explain
one
factor that makes the demand for bread price inelastic.
(ii)
Explain how the total revenue of bread producers will be affected by the
increase in the price of bread.
(
c
)
Draw
one
diagram to show how both production problems and China’s economic
growth could cause a change in the price of copper.
(
d
)
Explain how the price of China’s imports of raw materials would be affected if the
exchange rate of China’s currency were to rise.
(
e
)
Explain
one
factor that will affect the
price elasticity of supply
of copper.
(
f
)
(i)
Draw a diagram to show how guaranteed minimum prices to cotton farmers in
the USA can lead to the overproduction of cotton.
(ii)
Suggest
2
trade barriers that can be used to reduce imports and explain how
they would work.
(
g
)
Explain
2
measures that companies such as Primark and Next could take to maintain
profit margins without increasing retail prices.
[Turn over
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