2016 H2 Economics Paper 1 Case Study 1: Suggested Answers
The case study examines India's rise as a major agricultural exporter, using it to test minimum support prices and price floors, the terms of trade, comparative advantage, and whether India's farm subsidy policy can be justified.
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A two mark calculation comparing the value of India's total agricultural imports in 2013 with that in 2005, derived from the figure showing total exports and net exports.
India's imports of agricultural products rose markedly over the period. Imports can be found by subtracting net exports from total exports for each year.
In 2005, total exports were about US$10 billion and net exports about US$5 billion, giving imports of around US$5 billion. In 2013, total exports were about US$35 billion and net exports about US$19 billion, giving imports of around US$16 billion. Imports therefore rose by roughly US$11 billion over the period.
Use total exports minus net exports for each year and state the comparison.
Tests: Balance of payments
A four mark question asking, with a supply and demand diagram, how the government's purchase of grains at artificially high minimum support prices contributed to the changes in stocks and exports shown in the figure.
The figure shows that both exports and stocks of wheat and rice increased, but the rise in stocks was far greater than the rise in exports.
This can be illustrated with a price floor diagram. A minimum support price set above the free market equilibrium, at Pf, raises the quantity supplied while reducing the quantity demanded by the domestic market. Output expands from Q0 to Q2, but the gap between quantity supplied (Q2) and quantity demanded (Q1) is a surplus. The government buys up this surplus, so its stocks build up rapidly. Only a portion of the surplus is exported, which is why stocks rose by a much larger volume than exports.
Identify the price floor above equilibrium, show output rising and a surplus emerging, and link the surplus to rising stocks.
Tests: Government intervention in markets, Demand and supply analysis
A two mark question asking for two ways in which changes in the prices of exports and imports might have produced the change in India's terms of trade between 2005 and 2013.
One way is that export prices rose while import prices fell or stayed constant, raising the ratio of export to import prices and so improving the terms of trade.
An alternative is that both export and import prices fell, but import prices fell by more than export prices, which would also raise the ratio and improve the terms of trade.
Two distinct combinations of export and import price movements, each consistent with a rise in the index.
Tests: Balance of payments
A four mark question explaining how a rise in the terms of trade can be consistent with a strong rise in the value of India's net exports of agricultural products.
A rise in the terms of trade can sit alongside rising net export value through two channels that turn on price elasticity of demand.
First, if export prices are rising and demand for India's agricultural exports is price inelastic, the rise in price causes a less than proportionate fall in quantity demanded, so export revenue rises rather than falls.
Second, a higher terms of trade may reflect falling import prices. If demand for imports is also price inelastic, the fall in price raises quantity demanded only slightly, so total import expenditure falls. Higher export revenue together with lower import spending raises the value of net exports, consistent with the improvement in the terms of trade.
Tie the terms of trade movement to inelastic export and import demand, and trace the effect on export revenue and import spending.
Tests: PED and PES, Balance of payments
An eight mark discussion of how far comparative advantage explains whether India should specialise in agricultural products or in other goods.
- Define comparative advantage and set up the specialisation question in terms of relative opportunity cost.
- Build the case that India's factor endowments point towards specialising in agriculture, and identify what it would import in exchange.
- Introduce the complication that government support may create an artificial rather than a genuine advantage, and reason through the distortion.
- Weigh the resource argument against the distortion and the risk of crowding out other sectors.
- Reach an evaluative judgment on the extent, stating what a balanced specialisation strategy would require.
This part is gated. The full model answer with the worked comparative advantage analysis and the evaluative judgment, with the diagrams and the full evaluation, is in the ETG TYS Answers book from SAP and is worked live in the TYS Crashcourse. ETG students also get the AI TYS coach that guides them through this exact question. Message the team to find out more.
Tests: Comparative advantage, Government intervention in markets
A ten mark question weighing whether India's support measures for its farming sector are defensible.
- Frame the question and set out the grounds on which intervention in agriculture might be justified.
- Develop the case for the policy through farmer incomes, equity and food security, citing the relevant mechanism.
- Build the counter case around the fiscal cost, the surplus and the misallocation of resources.
- Add the international dimension and the risk of retaliation against trade distorting support.
- Weigh the justifications against the costs and reach a supported judgment on a more balanced approach.
This part is gated. The full model answer with the worked welfare analysis and the evaluative judgment, with the diagrams and the full evaluation, is in the ETG TYS Answers book from SAP and is worked live in the TYS Crashcourse. ETG students also get the AI TYS coach that guides them through this exact question. Message the team to find out more.
Questions students ask
Where can I get the full worked answers to the 2016 H2 Economics paper 1 case study 1?
The full model answers, with the diagrams and the higher mark evaluation, are in the ETG TYS Answers book published by SAP and sold at Popular, and are worked live in the TYS Crashcourse. Every ETG student also gets the AI TYS coach on our learning management system, which guides you through how to tackle every essay and every case study question from the last ten years.
Are these the official 2016 A Level Economics answers?
No. SEAB sets and marks the A Level paper. These are suggested answers by Mr Eugene Toh, author of the H1 and H2 A Level Economics TYS answer keys, published by SAP and sold at Popular.
How are these case study suggested answers structured?
The lower mark parts are answered in full. The higher mark parts are outlined here, with the full worked answers reserved for the ETG TYS Answers book and the TYS Crashcourse.
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