Rising demand from China has turned New Zealand into the world’s largest exporter of dairy products. Its milk exports to China rose by 45% in 2013. Since 2000, more than 300 000 hectares of land in New Zealand have been switched from other farming and forestry uses to dairy use. The rise in milk output has reduced the average cost of production, and changes in production methods have influenced the price elasticity of supply of milk.
(a)[2]
Why could producing more milk mean that less wheat is given up as the opportunity cost?
(b)[4]
Explain two reasons why the supply of a product can be price-inelastic.
(c)[6]
Analyse how a rise in exports could raise a country’s employment rate and inflation rate.
(d)[8]
Discuss whether the average cost of production always falls when a firm raises the total output it produces.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “Opportunity cost refers to the next best alternative that is sacrificed” …