Practise distinguishing capital and consumer goods using definitions, GDP shares and sales data in country-based extracts.
Sources for use with Section C
The market for rice
Figure 1 Index of the world price for rice, July 2022 to July 2023 (July 2016 = 100)
Extract A Rice price rising
The global price of rice increased by over 19.6% between July 2022 and July 2023. Rice consumption in Africa and Asia is growing rapidly, as populations increase and incomes rise. In 2022 the population grew by 2.45% in Africa and by 0.83% in Asia. This compared to a 0.06% increase in Europe. In 2022 average real income growth was approximately 4% in Asia and 3.85% in Africa. In advanced economies the average increase in real incomes was only 2%.
Figure 2 Estimated price elasticities of demand in Japan for selected food groups
Extract B The impact of rice production
Rice production contributes 12% of global methane emissions and 1.5% of all greenhouse gas emissions. Vietnam’s paddy fields, where the rice is grown, produce more carbon emissions than the country’s transportation network. Producing one kilogram of rice requires 2 500 litres of water. Rice production uses over 33% of the world’s irrigation water.
Rice growers often use an insecticide to protect the crop from insects. In the USA these insecticides contributed to a 44% decline in the bee population in 2020. On average, 90% of rice is consumed in the country in which it is grown. This limits the environmental damage caused by transporting rice abroad.
Extract C Indian Government intervention in the market for rice The rice sector contributes $51.58 billion to the Indian economy. India exports rice to 150 countries. The Government supports rice growers by providing subsidies. These subsidies are used by farmers to invest in capital goods and to purchase fertiliser and water used in 5 production. This can lead to over-farming that results in lower quality rice crops. In 2021 the Indian Government spent $6.9 billion on subsidising rice production. In 2022 the Government decided to reduce expenditure on these subsidies. However, this caused mass protests from farmers that led to the Government increasing these subsidies to their previous levels. 10
Define the term 'capital goods'. (Extract C, line 5)
Knowledge 2
Up to 2 marks for understanding of 'capital goods.' e.g.:
- Man-made aids to production (1)
- Used in the production of other capital goods or consumer goods (1)
- Spending on machinery/buildings/vehicles (1)
- Goods that increase productive potential /shifts PPF to the right (1)
- Indian Government subsidies are used by farmers to invest in capital goods (1)
(2)