1. Answer all the questions. Answers must be written within the answer box Country X is a low-income economy situated in Africa. Its main export is coffee, which accounts for 20.2% of its export earnings. Figure 1 illustrates the market for coffee in Country X. Dd and Sd represent domestic demand and supply per year, in thousands of kilograms (kg), while Pwis the world price in US dollars (USS) per kg. Figure 1 5 Sd 3 Pw Price (US$ per kg) N 2 1 Dd 0 0 50 100 150 250 300 200 Quantity of coffee (thousands of kg) (a) 0 Calculate the value of coffee exports per year from Country X. [2 (This question continues on the following page) M (Question 1 continued) (IT) Calculate the social community surplus earned by stakeholders in the coffee market in Country X under conditions of free trade. [3] The government of Country X is concerned about the future of the coffee market for three reasons. Several coffee-producing countries have announced plans to increase output. Political changes abroad are expected to bring about trade protection. Some coffee-producing countries are likely to introduce export subsidies for coffee. It is believed that the world price of coffee could decrease by as much as US$0.80 per kg. (H) Calculate how much the revenue earned by coffee producers in Country X would decrease if the world price of coffee falls by US$0.80 per kg. [2] (This question continues on the following page) tinued) Table 1 shows selected economic data for Country X (2016 unless stated). Table 1 Country X Comparison (world average) 1717 18000 Gross domestic product (GDP) per capita at purchasing power parity (US$ PPP) % of GDP from agriculture % of labour force working in agriculture Gini coefficient Current account balance (US$) (2015) % of population below poverty line 26.7 3.9 40 19.8 0.41 -2.35 billion 19.7 (2013) (iv) In 2016 the population of Country X was 41.5 milion. Using information from Table 1, calculate the GDP (US$ PPP) for 2016. 10.68 [1 ] Define the term current account balance. (2) (This question continues on the follow (vi) Using an example, explain the importance of presenting "GDP per capita statistics at purchasing power parity (PPP). [4] The minister of finance for Country X has stated that one of our problems is that our citizens view coffee as an export crop only, and we do not do enough to develop our domestic market. Indeed, many coffee drinkers in our country buy imported products rather than domestic coffee, and their demand is not price-sensitive". (vi) Assume the price of coffee is US$2.20 per kg. Using Figure 1. calculate the price elasticity of demand (PED) for coffee in Country Xif the price were to fall from US$2.20 per kg to US$1.40 per kg. [2] (vii) Using at least two items of information provided, explain why the government of Country X should be very concerned at the prospect of a fall in world coffee prices. [4] This question continues on the following page) (Question 1 continued) (b) Using the data provided and your knowledge of economics, recommend a policy which could be introduced by the government of Country X in response to the expected fall in the world price of coffee. [10
