Edexcel AS Economics unit 1: fluctuating pricesWatch
I am taking my unit 1 economic test on Monday, I've been doing past papers and found a question saying "Evaluate the likely consequences of fluctuating prices for cocoa producers" (14 marks). June 2013
I have looked at the mark scheme and past answers but still do not really understand it as it doesn't want anything about how to fix it.
If some could help me by telling how to approach a question like this involving fluctuating prices it would be hugely appreciated
Anyway, regarding your question for fluctuating prices (I found this question a tough one... I just did this paper).
I'm going to use quick points.
To approach this question, I would first:
Talk about the effects of fluctuating prices:
-Reference from the Article:
Fluctuating prices cause uncertainty in the future. According the extract 1, "Fluctuating prices for cocoa produces creates instability in income, employment and investment among cocoa farmers".
(Then state the effects. Just go straight in for it)
-Fluctuating prices affect the income of producers. Low prices may cause decrease in revenue for producers, lowering incomes for farmers. High prices may increase revenue for producers, increasing the income for farmers
-Fluctuating prices also cause employment to be seasonal and unstable. High cocoa prices causes firms to make more profit, therefore firms may employ more to increase productivity and output. However when cocoa prices are low, this causes firms to make a lower profit or even make a loss, therefore firms may cut losses by firing workers, increasing unemployment
-(Another point which is related to employment), Low cocoa prices may also cause farmers to exit the market and fall into poverty, increasing unemployment.
-Fluctuating prices also causes unstable investment. This is because producers may be more inclined to save money rather than invest to improve production as when prices for cocoa fall, producers can support themselves and not go bankrupt. Therefore less investment goes to improving production.
then evaluate the fluctuating prices:
-Talk about time: Looking at figure 1, there is long term trend in the price of cocoa which may be due to the rapid growth of emerging economies such as China and India. Therefore, producers can expect significant profits in the long run
-Talk about magnitude of price fluctuations: It also depends on the magnitude of the price fluctuations. If prices fluctuate by a small amount/marginally, it may not have a massive impact on cocoa farmers. It also depends on how frequent price fluctuations are. If prices fluctuate very frequently, this may have a bigger impace on producers.
-Government intervention can also reduce price fluctuations, the use of buffer stock and minimum prices can reduce the price fluctuations. (you can expand this point)
Anyway, thats all I got....
I hope this helped.. If you need anything else, please feel free to ask on the thread that I created. If you're still struggling, you can look at the examiners report. I'd recommend doing so as they contain tips for the exam and can show you how to structure your answers
Good luck on monday!