Fig. 1 shows the domestic market for coffee beans. Globalisation allows local cafés to import beans at the world price Pw, below the original domestic equil...
Question 1 Report
Fig. 1 shows the domestic market for coffee beans. Globalisation allows local cafés to import beans at the world price Pw, below the original domestic equilibrium price.
(a) Use Fig. 1 to show why coffee-bean imports occur at Pw. [2]
(b) Explain two effects of imports at Pw on domestic coffee growers. [4]
Answer Details
(a) At \(P_w\), quantity demanded is \(Q_d\) and domestic quantity supplied is \(Q_s\). [2]
Since \(Q_d\) is greater than \(Q_s\), domestic producers cannot meet all demand at the world price. Imports fill the gap:
\[\text{imports}=Q_d-Q_s\]
(b) Two explained effects on domestic coffee growers are: [4]
- Domestic growers sell a lower quantity because consumers and cafés can buy imported beans at the lower world price. [2]
- The lower market price reduces growers' revenue and profit. [2]
- Some inefficient growers may leave the market, which can cause unemployment. [2]
Any two of these developed effects gain credit. Imports benefit buyers through lower prices, but the question asks specifically about domestic growers.
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