Paper 2

Question 1
Droughts in the Pacific Coast region of the US and regulations, in the forms of limits on the
amount of salmon that can be caught in the wild, have reduced the supply of wild salmon.
These limits were imposed to avoid the over-fishing of salmon. However, the effect of this
on the revenue of salmon producers is uncertain. In addition, producers of farmed salmon in
the US states of Washington and Alaska have received subsidies from the US government.

(a) Define supply. [2]

(b) Explain two reasons why supply may fall. [4]
(c) Analyse how information on changes in a firm’s revenue can be obtained from price
elasticity of demand calculations. [6]
(d) Discuss whether or not government subsidies are beneficial to producers. [8]

Question 2
Productivity has fallen recently in Finland particularly in the public sector. The country has
also experienced a sudden decrease in demand. In recent years the price elasticity of
demand and the price elasticity of supply of the products made by Finnish firms have
changed.

(a) Define private sector. [2]

(b) Define public sector. [2]
(c) Explain two reasons why demand may fall. [4]
(d) Analyse how an increase in the price elasticity of demand (PED) and the price
elasticity of supply (PES) of its products could benefit a firm. [6]
(e) Analyse the factors that can make the supply of a product more price-elastic. [6]

Question 3
In 2016, there was a global surplus in the steel market pushing down steel prices. This
situation led to the equilibrium price to rise

(a) Define surplus. [2]

(b) Explain the difference between market equilibrium and market disequilibrium. [4]
(c) Analyse, using a demand and supply diagram, the effect of falling steel prices on the
market for cars. [6]
(d) Discuss whether or not ____ [8]