Practise analysing supply curves, supply shifts and price elasticity of supply using extracts, diagrams and numerical market data.
Sources for use with Section C
The markets for copper, electricity and battery electric buses (BEBs)
Figure 1 World price of copper, $ per metric tonne, March 2020 to December 2020
Extract A Copper prices rise
Between May and December 2020 the world price of copper increased significantly. Speculators expected the global rate of economic growth to recover from the global health crisis and started to buy more copper. In addition, the Chinese Government made a substantial investment in infrastructure that required copper. Output of electric vehicles also increased. Each vehicle requires approximately 59 kg of copper in its production. Most plumbers prefer to use copper pipes rather than plastic pipes. With the increased demand for copper for other purposes, it is likely that the price of copper pipes will increase significantly in the future.
Figure 2 Electricity generation by different sources in Denmark, 2018
Extract B Battery electric buses (BEBs)
Diesel buses are used in city locations with large concentrations of people. They create external costs, including reducing air quality. Children who ride the bus to school are more likely to develop respiratory diseases, such as asthma, and to have higher rates of cancer.
BEBs are powered by electric batteries that run an electric motor. Bus batteries are recharged using the national electricity grid. BEBs do not have engines that use fossil fuels. Therefore, BEBs help to reduce greenhouse gas emissions and pollution in city centres. They also produce much less noise pollution than diesel buses.
In 2018 the price of a diesel bus was $480 000, whereas the price of a BEB was $887 000. This price difference has started to decrease. For a transport company, it is 2.5 times cheaper to run a BEB than a diesel bus. The maintenance costs are also far lower for a BEB as there are fewer component parts within the motor. On average, a BEB can travel 150 miles on a fully charged battery, whereas a diesel bus can travel 690 miles on a full tank of diesel.
In 2018 there were 386 000 BEBs globally. 99% of these were in China and 0.09% were in the USA. In response, the US Government allocated $979 million of subsidies to increase the number of BEBs.
With reference to Extract A, examine two likely effects of an increase in the price of copper on plumbing firms that replace water pipes in customers' homes.
Sources for use with Section C.
The markets for rubber, tyres (tires) and rubber gloves
Figure 1 World price of rubber, US$ per kg, May 2019–May 2020
Extract A Rubber price falls as car and tyre production fall
Between January and May 2020 the world price of rubber fell from $1.67 to $1.35 per kg. This was caused by a significant decrease in demand for tyres that are made from rubber. Tyre production uses 75% of the world’s natural rubber.
Over the same period, tyre sales fell by 35% in Europe, 42% in North America and by 33% in South America. There was a large decrease in car production in all of these regions as a result of the temporary closure of car factories. Car usage also fell, resulting in fewer tyres needing to be replaced. Cars and tyres are complementary goods.
Extract B Rubber production and pollution from tyres
Rubber trees grow best in a climate where there is heavy rainfall and temperatures between 20°C and 35°C. Farmers in Thailand, Indonesia, China and West Africa provide 85% of the world’s natural rubber supply. Rubber trees take 6 years to produce their first crop. Consequently, the supply of rubber is price inelastic.
Between 2000 and 2019 the demand for rubber tyres increased resulting in deforestation. 3 million hectares of forests in the Mekong region of South East Asia were lost to make space for rubber plantations.
A research study into car emissions found that tyres emitted 1 000 times more PM2.5 particles than emissions from exhaust fumes. This study was based on testing one fully loaded car and one type of road surface.
Long-term exposure to PM2.5 results in respiratory diseases and reduced lung function in children and adults, increased risk of lung cancer, and cardiovascular disease affecting the heart and causing strokes.
Further problems are caused when tyres are sent to landfill. Tyres contain chemicals and heavy metals that are released into the environment over time. These cause cancer and genetic mutations.
Tyre recycling has helped to reduce the number of tyres in landfill from one billion in 1991 to 60 million in 2018. In the USA 43% of the recycled tyres are used to produce energy. These recycled tyres produce 25% more energy than coal. The ash from the tyres is less polluting than burning coal.
Extract C Profits of manufacturers of rubber gloves
Rapidly rising demand for rubber gloves across the world enabled the Malaysian rubber glove manufacturer, Top Glove, to achieve a 366% increase in profits in the second quarter of 2020. This was caused by a substantial increase in sales of rubber gloves to the healthcare sector.
With reference to the first paragraph of Extract B, explain what is meant by 'the supply of rubber is price inelastic'.
Sources for use with Section C.
The market for sugar
Figure 1 World price of sugar, US$ per kg, June 2016–June 2019
Extract A Global production of sugar
Between August 2017 and August 2018 the world price of sugar fell as a result of favourable weather leading to good harvests. In 2018, India, the world’s second largest sugar producer, and Thailand, the world’s fourth largest sugar producer, had record levels of production. In 2018 global production was 11% higher than in 2017. In 2018 world production was so high that there was a surplus of 17 million tonnes. This led to large quantities of sugar being held in storage.
In recent years, consumption of sugar has fallen because of increasing health concerns. There is also competition from substitutes such as artificial sweeteners. In the USA, Europe, China and Australia sugar consumption has fallen or remained unchanged.
Sugar is grown in 119 countries. It takes sugar cane one year to mature in countries with warm temperatures and two years in cooler countries.
Extract B Overconsumption of sugar
In the USA the recommended maximum amount of sugar consumption is 50 grams per day. In the USA average consumption is 73 grams per day. The human body can comfortably process 25 grams a day. However, any sugar consumption in excess of 25 grams per day will normally be processed into body fat. This is contributing to obesity. One study found that a high sugar diet increased the risk of heart disease by 38%. Another study found that excess sugar consumption caused an increased risk of many types of cancer. A further study found that men who consumed 67 grams or more of sugar per day were 23% more likely to experience depression than men who consumed less than 40 grams per day.
Extract C Indian subsidy for sugar production
The Indian Government subsidises sugar growers that export sugar. Before the subsidy, exports were 620 000 tonnes per year. After the subsidy was introduced exports rose to 3.3 million tonnes per year, helping to make India the world’s second largest producer of sugar. The size of the subsidy will increase from 55 rupees a tonne in 2018 to 138 rupees a tonne in 2019. This increase in subsidy is expected to increase exports to over seven million tonnes per year. Production in India was 20.3 million tonnes in 2017 and increased to 33.0 million tonnes in 2019.
The Governments of Brazil and Australia have complained to the World Trade Organization that these subsidies give Indian producers an unfair advantage. They argue that these subsidies contribute to lower world prices, making the market unprofitable for many growers outside India.
With reference to Extract A, explain one factor that is likely to influence the price elasticity of supply for sugar.
