In May 2017, the price of olive oil rose by more than 10%. This was caused by a drought in Greece, Italy, Spain and Tunisia, the major producing countries. Global supply was forecast to fall by 14% in 2017. Demand for olive oil fell in Europe, but rose in a number of other countries including Australia, Brazil and China. Some basic food items, including bread and rice, are taxed in some countries but are subsidised in other countries.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2019). The mark or mark type is shown in brackets.

1. [1] (a) soil
2. [1] (a) water
3. [1] (a) natural fertiliser
4. [1] (a) seeds
5. [1] (a) weather
6. [1] (b) A subsidy is aimed at increasing supply / lowering price
7. [1] (b) If supply is elastic, supply will change by a greater
8. [1] (b) percentage than price. Should subsidise production of the product.
9. [1] (b) If supply is inelastic, supply will change by a smaller
10. [1] (b) percentage than price. Should not subsidise production of the product.
11. [1] (c) Incomes may be higher
12. [1] (c) allowing people to buy more of the product
13. [1] (c) There may be a larger population
14. [1] (c) more potential buyers
15. [1] (c) The product may be more to the taste of people in that country
16. [1] (c) example e.g. falafel is popular in the middle east
17. [1] (c) The product may be more heavily advertised
18. [1] (c) which may increase the attractiveness of the product
19. [1] (c) Price may be lower
20. [1] (c) due to lower costs of production / government subsidy / lower (indirect) taxes
21. [1] (c) Price of substitutes may be higher
22. [1] (c) example
23. [1] (c) Credit may be more available / interest rate lower
24. [1] (c) making it easier for people to borrow to buy the product
25. [1] (d) The poor may spend a higher proportion of their income on food
26. [1] (d) a subsidy on food
27. [1] (d) may reduce poverty
28. [1] (d) lower indirect tax may reduce poverty
29. [1] (d) lower price
30. [1] (d) basic food items / bread / rice may be regarded to be a basic necessity
31. [1] (d) There may be market failure
32. [1] (d) bread may be overconsumed
33. [1] (d) this may cause obesity
34. [1] (d) a tax will raise price
35. [1] (d) this may discourage demand for basic food items / bread / rice
36. [1] (d) reduce obesity
37. [1] (d) it may also reduce wastage
38. [1] (d) Regulation may be needed
39. [1] (d) to ensure the basic food / bread / rice is produced under clean conditions / with safe ingredients
40. [1] (d) Basic food items / bread / rice may be produced by a monopoly
41. [1] (d) which could use its power to restrict supply
42. [1] (d) push up price
43. [1] (d) regulation may be need to prevent this
44. [1] (d) Demand for basic food items / bread / rice may be inelastic
45. [1] (d) firms may take advantage of this to push up price
46. [1] (d) Market forces may produce an efficient output
47. [1] (d) the profit motive
48. [1] (d) may encourage producers to respond to changes in consumer demand
49. [1] (d) surpluses and shortages will be eliminated by changes in prices
50. [1] (d) There may be a high level of competition in the industry
51. [1] (d) encouraging producers to make basic food items / bread / rice of a high quality
52. [1] (d) An indirect tax will be regressive
53. [1] (d) fall more heavily on the poor
54. [1] (d) A subsidy will involve an opportunity cost
55. [1] (d) example
56. [1] (d) Reducing an indirect tax will lower tax revenue
57. [1] (d) lowering government's ability to spend on e.g. healthcare
58. [1] (d) Government discouragement of production of basic items may result in more being imported
59. [1] (d) which will harm the balance of payments