Study changes in consumer and producer surplus in Pearson Edexcel A Level Economics through supply and demand shifts, labelled diagrams, market prices and applied data.
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.
Examine the effect on producer surplus of the change in market conditions for rubber gloves as described in Extract C. Include a diagram in your answer.
