World Food Prices Soar

World Food Prices SoarSECTION ARead the following passage, and then answer the questions which follow onPage three.Food prices have risen significantly in recent months. Reasons include extremeweather conditions, the use of food crops to produce biofuels and growing demand fromemerging economies. The short-run price inelasticity of demand and supply in thismarket has led to sharp price rises.Additionally, speculation about future food prices has helped exaggerate price rises.Speculators treat commodity shortages as an investment opportunity. They buy andsell ?futures contracts?, which are agreements to sell a commodity at a certain price at afuture date. The World Development Movement suggests that trading these contractslike stocks and shares is pushing food prices up to unsustainable levels. This is to thedetriment of the poorest consumers all over the world.The President of the World Bank said that countries in North and Sub-Saharan Africaare among those most exposed. This is because much of their food is imported and foodbills make up a large proportion of average household spending. Some governmentshave reacted to food price rises by introducing export bans or introducing maximumprices for staple foods. Whilst this helps protect the urban poor, some believe that theintroduction of maximum prices does more harm than good.Under US law, 40% of the corn (maize) harvest must be used to make biofuel, a quotawhich the UN says could contribute to a food crisis around the world. Some economistsbelieve that there is a large opportunity cost in the production of biofuels which divertsresources away from the production of food. They believe that the high subsidieswhich biofuels receive, particularly in the US, are having a negative impact on the foodmarket and are unjustifiable. On the other hand, some economists support subsidiesfor biofuels and green technologies because they will ultimately reduce dependency onnon-renewable and environmentally damaging sources of energy. They believe thebiggestmarket failurefacing the world is climate change.Adapted from various BBC news articles August 20121.Explain what is meant by the following terms as used in the passage.Emerging economies (line 3).Market failure (line 25).2.Explain why the demand and supply of food in the world market tends to be price inelastic in the short-run.Use a diagram to show the effects of market changes on world food prices.3.Explain the role of speculation in the world food market.4.Explain why rising food prices are most detrimental to the poorest consumers.5.Explain why the imposition of a maximum price in the market for staple foodsmight do more harm than good. Use a diagram to support your answer.6.Describe the reasons why some economists believe that the production of biofuels is unjustifiable.7.Given the controversy surrounding biofuels, suggest and justify other economic measures which governments can introduce to reduce the effects of climate change.SECTION B1.In the UK, the market for gas and electricity is dominated by six major firms who have been criticised for all raising their prices in a short period of time.Describe why the market for gas and electricity is oligopolistic.Discuss measures the UK government could take to ensure that the gas and electricity market operates more in the interests of consumers.Explain why the existence of large firms may not always be detrimental to consumers.2.In Africa, some countries have recently experienced higher rates of economic growth than others.Discuss reasons why some countries in Africa have experienced higher rates of growth than others.Many African countries still receive foreign aid, although its effectiveness has been questioned. Discuss the effectiveness of foreign aid.Apart from aid, describe other measures that could be taken to raise economic growth rates in low income countries.3.Some commentators are more optimistic than others about the survival of the Eurozone.Explain measures that have been taken, or could be taken, to ensure the survival of the Eurozone.Some economists believe that the Eurozone remains fundamentally flawed. Discuss this view.Describe the possible consequences for a country leaving the Eurozone.!

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