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EcoHL P3 N05 TZ0 - 2 hours IB0 IB DIPLOMA PROGRAMME...

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I B 0 IB DIPLOMA PROGRAMME - PROGRAMME DU DIPLOME DU BI - - PROGRAMA DEL DIPLOMA DEL BI ECONOMICS HIGHER LEVEL PAPER 3 Tuesday 15 November 2005 (morning) 2 hours INSTRUCTIONS TO CANDIDATES Do not open this examination paper until instructed to do so. Answer three questions. Use fully 1 abelled diagrams and real - world examples where appropriate. 11 pages
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N05/3/ECONO/HP3/ENG/TZ0/XX 8805-5103 – 2 – Answer three questions. Each question is worth [20 marks]. 1. Study the extract below and answer the questions that follow. Demand for chicken up after price cut There has been a fall in the demand for chicken following the avian flu 1 scare which led to people being afraid to eat chicken for fear of becoming ill. In response to this, chicken farmers reduced the selling price. Yesterday, there was a 10 per cent increase in the sales of both processed chickens and live chickens, with some 800 000 birds sold in the market nationwide. The price cuts were agreed upon at a meeting of the Federation of Livestock Farmers’ Association, Malaysia (FLFAM). The FLFAM is a cartel, which sets prices for livestock sales in Malaysia. It controls 80 % of the suppliers in the country. Processed chicken now costs only RM 2 3.20 per kg and live chicken RM 2.80 per kg. Previously, the prices were RM 4.00 and RM 3.50 respectively. “The response is good and we hope that consumers now realise that chicken sold in Malaysia is safe to eat,” said a FLFAM spokesperson, adding that the industry was worried when chicken sales dropped by 300 000 a day following the avian flu outbreak in neighbouring countries. Some 1.1 million chickens are available daily to meet consumer demand. The spokesperson said that the drop in prices was to overcome the excess supply of chicken in the market, adding that poultry farmers in the country were holding an “Eat Chicken” campaign and were considering other marketing schemes. “We will continue with the current production of chicken,” he said, “we have decided not to reduce the supply as planned earlier when sales dropped.” It was feared that, if the supply were reduced, then the maximum price of chicken that had been fixed by the Agriculture Ministry, would have to be increased. The FLFAM was considering getting their baby chick supply for production from abroad, especially from Australia and the European Union countries. These would take the place of supplies from neighbouring countries, although the prices of the new imports would be higher. Cattle farmers were initially hoping that the misfortune of the chicken farmers might lead to a bonus for them. However, a positive cross elasticity of demand and a fall in the price of chicken is now likely to hurt suppliers of beef and lamb if the demand for chicken continues to rise.
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