Supply — practice question

Read the source material thoroughly before you answer Question 1. Source material: Changes in the Malawian economy Malawi is a low-income country in East Africa. It is frequently struck by natural disasters, including droughts, floods and storms. In January 2022, Storm Ana hit Malawi. This damaged agricultural crops, factories, forests and power stations. More than three-quarters of Malawi’s labour force work in agriculture. Two of the country’s major crops are tea and sugar. The quantity of tea supplied for sale is influenced by weather conditions, government subsidies and the price of fertilisers. The world market for sugar has been affected by health reports that identified the possible harmful effects of consuming too much sugar. Three of the Malawian Government’s priorities are to develop new industries, improve education standards and create more sustainable sources of energy. The proportion of Malawian children who complete their primary education (5-11 years of age) is relatively low. Table 1.1 shows GDP per head and the percentage of children who complete primary education in selected countries in 2022. Only a small share of Malawi’s population has access to electricity. Most households depend on wood and charcoal for cooking and heating. Using wood as a fuel contributes to the destruction of the country’s forests and lowers air quality. However, the country receives 3000 hours of sunshine a year. This means it could develop solar energy. There would be an initial expense to install solar panels and to reduce the risk of storm damage. Solar energy plants (also known as solar farms) can take up a large area and cause visual pollution. Even so, a successful solar energy industry could reduce Malawi’s imports of fuel and might affect its exchange rate. Malawi’s foreign exchange rate fell in 2022. The country’s currency, the kwacha, bought fewer US dollars. This depreciation affected Malawi’s current account of the balance of payments, its inflation rate and its economic growth rate. Some economists suggested that the Malawian Government should prevent the kwacha from falling further in value.