Economics 9708/23 — October/November 2022
Cambridge AS Level · AS Level Data Response and Essays · worked solutions for every part, with the mark scheme
Topics International Trade and Comparative Advantage · Methods of Government Intervention in Markets · Protectionism · Scarcity, Choice and Opportunity Cost · Balance of Payments · Elasticities of Demand · +4 more
Pakistan’s agriculture survives on subsidies
As in most developing countries, the agricultural sector in Pakistan is heavily dependent on subsidies. Agriculture is an important activity, employing 45% of the population. Domestic production is vital in providing food for its growing population. Farming in Pakistan is not very profitable and without subsidies, many farmers would be forced to leave their farms.
Despite subsidies, as shown in Table 1.1, the cost of production in Pakistan is much greater for a range of staple products than it is in India where farmers are more heavily subsidised.
Table 1.1: Cost of production after subsidies of selected products in Pakistan and India, 2018 (Pakistan Rupees per unit)
| Pakistan | India | |
|---|---|---|
| Wheat | 76 | 51 |
| Cotton | 127 | 88 |
| Rice | 124 | 68 |
| Sugar cane | 222 | 142 |
| Maize | 119 | 53 |
The higher cost of production in Pakistan has serious implications for Pakistan’s participation in global trade in agricultural products. This problem is particularly critical as Pakistan seeks to increase exports to reduce a deficit on the current account of the balance of payments.
A complaint of farmers is that GST, a sales tax, is charged when they purchase fertilisers. In May, the government gave in to pressure and cut GST on fertilisers from 17% to 2%. Farmers’ leaders want the tax to be completely removed from fertiliser sales. Their priority, however, is for a large increase in the subsidy paid to farmers to a level comparable to that paid to farmers in India. In Pakistan’s current economic position this prospect appears to be remote.
Pakistan’s farmers also complain about the subsidies that are paid to farmers in richer neighbouring countries. They strongly argue that these subsidies are unfair on farmers from developing countries and are holding back their economic development.
Source: Agriculture survives on subsidies, Amjad Mahmood, Dawn, 27 May 2019
Explain what might be the opportunity cost if the Pakistan government agreed to pay subsidies to Pakistan’s farmers comparable to those paid to India’s farmers.
With reference to Table 1.1, state in which product group Pakistan’s farmers are most disadvantaged.
Explain how the lower level of subsidy currently paid to Pakistan’s farmers is likely to affect Pakistan’s trade in agricultural goods when competing with India in international markets.
Analyse, with the help of a diagram, how the sales tax on fertilisers affects the market for fertilisers in Pakistan.
Explain two other ways, apart from subsidies and reductions in sales tax, in which the government might support Pakistan’s farmers.
Discuss whether agricultural subsidies should not be paid to farmers in countries which have lower opportunity costs in other areas of production.
The rest of this paper
3 more questions- Q2Classification of Goods and Services · Methods of Government Intervention in Markets20M
- Q3Fiscal Policy · Monetary Policy · Price Stability20M
- Q4International Trade and Comparative Advantage · Protectionism20M