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Supply · Paper 2 — Free Economics SL Practice Questions
1MasteryLAQLaw of supply and its determinants14 marksPaper 2~21 min
In 2023, the global price of coffee beans fell by due to a bumper harvest in Brazil. In response, the government of Vietnam introduced a subsidy of Vietnamese dong per kilogram for coffee farmers. Vietnam's coffee production subsequently increased by .
(a)
State the Law of Supply. [1 mark]
(b)
Using a fully labelled , explain the effect of the subsidy on the supply of Vietnamese coffee. [3 marks]
(c)
Identify and explain two determinants of supply, other than subsidies, that could have caused the actual supply increase to differ from the observed. [4 marks]
(d)
Evaluate whether the subsidy or other supply determinants is likely to have been the dominant influence on Vietnamese coffee farmers' supply decisions in 2023. [6 marks]
Solutions
2MasteryLAQLaw of supply and its determinants10 marksPaper 2~15 min
In 2024, the price of lithium — a key input for electric vehicle (EV) battery production — increased by due to mining disruptions in Chile. At the same time, battery manufacturer CATL announced a new production technology that reduces battery production time by . Industry analysts recorded that global supply of EV batteries increased by overall.
(a)
State the Law of Supply. [1 mark]
(b)
Using a fully labelled supply and demand , show the separate effects of the lithium price increase and the new production technology on the supply of EV batteries. [3 marks]
(c)
Using the from (b), explain why the global supply of EV batteries increased by despite the rise in lithium prices. [2 marks]
(d)
Evaluate whether the net increase in EV battery supply would have been larger, smaller, or reversed if CATL's technology had not been adopted. Justify your answer with reference to the determinants of supply. [4 marks]
Solutions
3ChallengeLAQLaw of supply and its determinants10 marksPaper 2~15 min
The global market for flu vaccines is characterised by a fixed production lead time of six months. In 2023, the World Health Organization (WHO) announced a particularly severe predicted flu strain for the Northern Hemisphere winter. Simultaneously, the government of Japan announced a subsidy of JPY 1500 per dose to domestic vaccine manufacturers for each dose produced above their 2022 output levels. In the European Union, new regulations required all vaccine production facilities to install advanced cold-chain storage systems, increasing fixed costs by an estimated 20 percent.
(a)
Using a supply and demand , explain how the Japanese subsidy and the EU cold-chain regulation each affect the supply of flu vaccines. Explain also why the WHO announcement does not shift the supply curve. [4 marks]
(b)
Evaluate the view that the law of supply predicts that the total quantity of flu vaccines brought to market in 2023 will necessarily increase. [6 marks]
Solutions
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