(2018) 8823 H1 Econs Paper CSQ 1 Suggested Answers by Mr Eugene Toh (A Level Economics Tutor)

(2018) A Level H1 Econs Paper 1 CSQ Q1

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ai.

The Production Possibility Curve (PPC) visually illustrates the potential combinations of two goods that can be produced, in this case, fish for food use and fish for non-food use. If we are currently at Point A with an equal amount (10 units) of fish for both uses, a move towards Point B to add one more unit to non-food fish production necessitates a decrease in food fish by one unit. This exemplifies the concept of opportunity cost, highlighting the inevitable trade-offs in resource allocation.

aii.

Opportunity cost represents the lost potential of an alternative when a choice is made. Overfishing, especially of young, under-sized fish, foregoes the opportunity of their potential maturation and breeding, crucial for replenishing the fish population. This implies a potential decrease in future fish catches, which represents the opportunity cost of this practice.

b.

There has been an overall increase in the total quantity of fish farmed for food, caught in the wild for food, and caught in the wild for both food and non-food uses. The growth in farmed fish for food outstrips that in wild-caught fish for food. Although the total quantity of fish farmed for food & fish caught in the wild for food use have steadily increased from 1985 to 2025, the total wild-caught fish for both uses only rose between 1985 and 1995, stabilizing thereafter.

c.

Publicity around the health benefits of eating fish will likely shift consumer tastes and preferences, prompting an increase in demand for wild-caught fish. This results in a rightward shift of the demand curve from DD0 to DD1. Simultaneously, more efficient measures against illegal fishing will decrease the number of suppliers in the world market, inducing a leftward shift of the supply curve from SS0 to SS1. Consequently, there is a certain increase in price from P0 to P1. The impact on output, however, is more ambiguous.

While it is suggested that fish stocks have depleted, Chinese fishing may not have declined much due to subsidies by the government due to political reasons.

If the increase in demand outweighs the decrease in supply, we might still observe a marginal increase in output, which would align with the observation of relatively constant wild fish output.

d. 

The two main characteristics of a public good are ‘non-excludability’ and ‘non-rivalry in consumption’.

Non-excludability refers to the inability to exclude any specific groups from consuming the good once it is provided for.

When a good is said to be ‘non-rival’ in consumption, the consumption of the good by one additional user does not diminish the quantity or quality made available to the next user.

The Irish SFPA is effectively an enforcement agency. Its primary objectives are to prevent overfishing and ensure seafood safety.

The Irish SFPA's services of preventing overfishing and ensuring seafood safety demonstrate these traits. These benefits are non-excludable, as they are available to all stakeholders – farmers, consumers, etc., regardless of their contribution. Furthermore, these services are non-rival, as their consumption by one individual does not diminish their availability to another. Thus, the Irish SFPA's services can be deemed as a public good.

ei.

One unintended consequence of the subsidies is that they incentivise Chinese fishermen to increase their catch which resulted in them exceeding annual sustainable catch limits by 30% or more. Yangtze River produces less than a quarter of the fish compared to 60 years ago and many fish species are not facing extinction.

This unintended consequence cascades to another unintended consequence, the likely increased activity by Chinese fishermen has also damaged coral reefs.

eii.

Reducing subsidies will likely lead to a decrease in supply in the market for wild-caught fish, as represented by a leftward shift in the supply curve from SS0 to SS1. This will result in higher prices and a decrease in output. 

Given the importance of fish as a staple in China, the change in supply could lead to a steep increase in price (as demand is price inelastic).

Moreover, with the high weightage of fish in the Consumer Price Index (CPI), the increase in fish prices could contribute to an uptick in inflation. Companies using fish as a primary input will see a rise in production costs, potentially causing a leftward shift in the short-run aggregate supply (SRAS), leading to cost-push inflation. 

As fishing constitutes 3% of China's total GDP, a reduction in fish production might have noticeable impacts on economic growth and employment. However, the actual impact will depend on the price elasticity of demand for fish. If demand is price inelastic, the decrease in quantity demanded might be less than proportional to the price increase, resulting in higher total revenue for the fishing industry. Thus, the impact on the economy may not be severely negative.

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