Practise applying externalities to transport, education, tourism, pollution and electric vehicles using extracts, tables and diagrams.
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
With reference to Extract B, examine two external costs associated with rice production.
QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms
Knowledge 2, Application 2, Analysis 2, Evaluation 2
Knowledge and Analysis
2 knowledge marks for identifying external costs and 2 analysis marks for linked explanation of each external cost, e.g.:
- Additional emissions may cause global warming (1K) this may increase the risk of flooding as water levels rise/ increase the risk of wildfires as global temperatures rise causing damage to peoples' homes (1AN)
- Rice production leaves less water in the natural environment (1K) meaning animals and humans find it more difficult to find water for consumption (1AN)
- Insecticides kill off insects/ bees reducing the amount of honey/crops produced (1K) reducing the revenue and profits of beekeepers/farmers (1AN)
- Respiratory problems (1K) resulting in additional health costs to the individual and government (1AN)
- Up to 1 mark for definition of external costs or accurate diagram showing external costs of production
Application
Up to 2 marks for external costs with application to Extract B
- 12% of global methane emissions/ 1.5\% of all greenhouse gas emissions/ Vietnam's paddy fields produce more carbon emissions than its transport network (1AP)
- 1 kg of rice requires 2500 litres of water/ Rice uses 33\% of the world's irrigation water (1AP)
- Insecticides resulted in a 44% decline in bee population in the USA (1AP)
Evaluation
Up to 2 marks for evaluative comments ( 2+0 or 1+1 ), e.g.:
- 90% of rice is consumed within the country reducing emissions from transporting rice (1)
- Difficult to quantify external costs, putting a value on the impact on third parties e.g. farmers, bee keepers (1+1)
- Substantial impact e.g. 12% global methane emissions/ 2500 litres of water (1+1)
- The external costs may only be experienced in the long-run as it takes a long time for the third party impact to emerge e.g. climate change (1+1)
- There may be external benefits, such as employment associated with rice production (1+1)
- The magnitude of the external costs may be small as only 1.5% of global emissions contributed by rice (1+1)
(8)