A coffee roaster buys beans from farmers in several countries. New globalisation agreements have reduced import taxes, and imported beans are now cheaper th...
Question 1 Report
A coffee roaster buys beans from farmers in several countries. New globalisation agreements have reduced import taxes, and imported beans are now cheaper than locally grown beans. The firm must decide its purchasing policy.
(a) State what is meant by allocating resources through the price mechanism. [2]
(b) Use the information to explain why the roaster may increase its imports. [2]
(c) Explain one reason why the government may still support local coffee growers. [2]
Answer Details
(a) Allocation through the price mechanism means that prices signal demand and supply conditions. [1] Resources move towards goods or activities that are more profitable or have higher demand. [1]
(b) Reduced import taxes lower the cost and price of imported coffee beans. [1] The roaster may therefore import more because this can increase profit or allow lower prices for consumers. [1]
(c) The government may support local coffee growers to protect their employment and income. [1] It may also wish to preserve domestic supply and reduce dependence on imports. [1]
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