In February 2017, Europe experienced a shortage of fresh vegetables due to bad weather. For a period of time, the markets for a number of vegetables, including broccoli and lettuces, were not in equilibrium. The price of food tends to fluctuate more than the price of manufactured goods and services. These fluctuations influence the rate of inflation.

Mark scheme

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

1. When demand equals supply / when there is no pressure for price to change (2). When it is in balance (1).
2. CPI is a measure of inflation (1) Demand for food is inelastic / necessity (1).
3. A rise in price of food would cause an increase in inflation / CPI (1). Food is an item in the CPI (1) it has a relatively high weighting (1) people spend a relatively high proportion on food (1) proportion declines as income rises (1).
4. Up to 4 marks for the diagram:
5. Axes correctly labelled – price and quantity or P and Q (1).
6. Demand and supply curves correctly labelled (1).
7. Supply curve shifted to the left (1).
8. Equilibriums – shown by lines or e.g. E1 and E2 (1).
9. Up to 2 marks for written comments:
10. Bad weather will destroy crops / reduce supply of broccoli / quantity traded falls (1).
11. Weather is an important influence on the supply of agricultural products / cost of producing broccoli will rise / price will rise (1).
12. Up to 5 marks for why it might:
13. Producers may receive higher prices / revenue for their products (1) if costs rise by less (1) profits will rise (1) may encourage investment (1) expand the business (1).
14. Producers may be able to borrow more cheaply (1) the burden of past debts will fall (1) if the rate of inflation is above the rate of interest (1).
15. An inflation rate may rise from a low or negative rate (1) and this would provide a greater incentive for producers (1).
16. Higher inflation rate in other countries (1) will make this country's products more competitive (1).
17. If demand is inelastic (1) a rise in price will increase revenue (1).
18. Higher inflation will reduce the cost of borrowing (1).
19. Up to 5 marks it might not:
20. If cost of production rises (1) output may fall (1) firms' profits may fall (1).
21. Producers may have to spend time adjusting prices (1) menu costs (1).
22. A lower and stable rate of inflation (1) may increase the confidence of producers (1).
23. Producers may find it more difficult to export abroad / exports may fall (1) lower revenue (1).
24. Producers may find it harder to assess relative prices (1) and so may make inefficient decisions (1).