CAIE A-Level Economics 2 The Price System and the Microeconomy Question Bank

A global olive oil shortage

Almost every kitchen in the United States (US) will pay the price for the intense heat and drought in Europe in the summer of 2023. Olive harvests in key countries were so poor that some analysts were concerned that there would be a shortage of olives to produce enough olive oil to meet the demand around the world. The dramatic reduction in output of this typical household cooking oil has resulted in the consumer price of olive oil rising between 30% and 50% across the US. At the same time, the US dollar has fallen in value against Europe's main currency (the euro), further adding to the price increase of olive oil.

In Spain, olive production was forecast to be down by about 50% in 2023, which would make it the lowest since 2008. The wide-scale drought conditions across Southern European and other Mediterranean countries significantly impacted on the global supply of olives, since about 80% of global output comes from these regions.

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Restaurants and commercial kitchens are desperately trying to find a solution to the olive oil shortage, but alternatives are scarce too. Sunflower oil is a top choice for an olive oil replacement, but the conflict in Ukraine, which is the biggest producer of sunflower oil, has made this substitute increasingly difficult to access.

Previously, the US would look to other countries for olive oil, but supply chains have been severely disrupted. Olive oil does not store very well as its quality deteriorates over time, so increasing stocks does not solve the problem. It is perhaps unsurprising that analysts are recommending investment into new methods of storage that will preserve the quality of the olive oil. This would allow stocks to increase after good harvests to help stabilise prices during future periods of poor harvests.

What ensures that demand for a product is effective?

Which statement defines market equilibrium?

What is consumer surplus?

In 2022 the supply of root ginger from Nigeria, Africa's biggest producer, fell by 20%. Market demand was expected to grow by more than 5%.

With the help of a demand and supply diagram, explain how the market equilibrium for root ginger in Nigeria is likely to change and consider how certain you are of the new market price.

What can be measured by cross-elasticity of demand?

The diagram shows a market supply curve (S).

What is measured on the X -axis and the Y -axis?

What is price elasticity of supply?

Four firms produce furniture. The table shows the price elasticity of supply (PES) for each firm.
If the price of furniture rises by 5% which firm would experience an increase in quantity supplied of 2.5% ?

The diagram shows the demand for and supply of a product.

Which area shows producer surplus?