Stronger demand from China has pushed New Zealand into the position of 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 production. The growth in milk output has reduced its average cost of production, and changes in production techniques have influenced the price elasticity of supply of milk.
(a)[2]
Why might less wheat represent the opportunity cost of producing more milk?
(b)[4]
Explain two reasons why the supply of a product may be price-inelastic.
(c)[6]
Analyse how an increase in exports could increase 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.