India is one of the largest markets for gold

Question 1
“India is one of the largest markets for gold. Jewelry demand in India between July to September
fell 48% year-on-year to 52.8 tonnes from around 101.6 tonnes a year earlier, the [World Gold
Council] said in a report. But demand for gold as an investment rose 52% to 33.8 tonnes on-year.
[…] The precious metal plays an important role in India’s culture — it’s considered auspicious to
buy gold during festive occasions or to give gold jewelry as a gift at weddings. It is also seen as a
symbol of affluence and a safe investment. [Somasundaram PR, managing director for India at
the World Gold Council] explained that demand for gold between July to September tends to be
relatively low, driven by seasonal factors such as monsoons and inauspicious periods. The drop
in demand for gold jewelry was also due to many festivals and weddings being canceled or
postponed due to the coronavirus pandemic that has infected more than 8 million people in
India. “On the other hand, gold’s safe haven attributes and an anticipation of price rise paved the
way for an increase in investment demand for gold bars and coins,” he added.” (www.cnbc.com,
accessed on 30
th October 2020)
REQUIRED:
Demand for gold arises from both consumption and investment reasons. How does a drop of
demand for consumption of gold (as the one experienced in India between July to September
2020) affect the price of gold? You are required to illustrate your answer also through diagrams
(i.e., demand and supply curves).
30 marks (approx. 800 words)
Question 2
“Aging of the population is a cause of the rising costs of healthcare but a minor one compared
with the main driver that much more can be done and that most of what can be done costs more
than what used to be possible. This is what economists call “supply-drive demand.” You build
hospitals, intensive care units, roads, prisons, and medical schools and they promptly fill up. You
develop new, highly-expensive treatments, and people want to use them. As a healthcare leader
once said to me, “The main cause of the increase in healthcare costs is the National Institutes of
Health.” (Richard Smith, former editor of the British Medical Journal; https://blogs.bmj.com,
accessed on 30th October 2020)
REQUIRED:
Explain why, according to the ‘supply-drive demand’ argument, an increase of supply triggers an
increase of demand for a good or service. Does this argument always hold across industries and
services – such as, for example, hospitals, intensive care units, roads, prisons, and medical
schools? You are required to illustrate your answer also through diagrams (i.e., demand and
supply curves, cost curves).