2023 ACJC H2 Prelims P2 ALL Ans

©ACJC 2023 Preliminary Exam 9570/02 1 Question 1 1 Prices of chicken in Malaysia increased drastical ly in 2022. To stabilise prices, Malaysia implemented a temporary export ban of fresh chicken to Singapore. Fresh chicken prices in Singapore are expected to rise since 34% of the fresh chicken in Singapore is imported from Malaysia. Source: The Strait Times, 24 May 2022 (a) Explain how an export ban on chickens from Malaysia will impact the revenue of chicken rice stall owners and other meat sellers in Singapore. [10] (b) In view of Malaysia’s export ban, discuss the measu res that the Singapore government may adopt to stabilise the price of fresh chicken in Singapore. [15] Question 1(a) Introduction  When Malaysia implemented an export ban on chicken to SG, it will reduce SS of chicken into Singapore.  Indirectly the revenue of chicken rice stall owner s while increasing the revenue of other meat sellers in Singapore. Require 1: impact on the revenue of chicken rice stall owner. [Topic sentence] An export ban on chicken from Malaysia will reduce the TR of chicken rice stall owners.  When Malaysia implemented an export ban on chicken to SG, it will reduce SS of chicken into Singapore. This is especially so when 34% of SG’s chicken comes from Malaysia.  A significant fall in SS of chicken  shortage of chicken at original price  upward pressure on P of chicken  price of chicken in SG.  Fresh chicken is a factor of production for chicken rice. Given that price of fresh chicke n increase  chicken rice stall owners will see an increase in their average COP  the chicken rice stall owners will be less willing and able to supply the same amount of chicken rice at every price  decreasing the SS of chicken rice from S0 to S1, with reference to the diagram below.  At the original price , P0, there is a shortage of chicken rice from Q0 to Qs  upward pressure on price of chicken rice  price of chicken rice will increase from P0 to P1.  As prices increase , Qdd will fall from Q0 to Q1 while Qss will increase from Qs to Q1 according to the Law of DD and Law of SS respectively.  This is because as prices of chicken rice increase , consumers will be less willing and able to consume chicken rice. On the other hand, produce rs will be more willing and able to produce chicken rice as prices increase.  Qdd will continue to fall while Qss will continue to increase until Qss=Qdd at the new output Q1.  But for general population, the DD for chicken ric e is price elastic . This is because there are other local dishes to substitute chicken rice.

©ACJC 2023 Preliminary Exam 9570/02 2 Note: students can also identify the DD for chicken rice as price inelastic given that chicken rice is an iconic dish in SG where there is little substitute for this dish. Even other local dishes such as Fried Kway Teow and Hokkien Prawn Mee are not close substitutes.  Given that there are other substitutes , for example Fried Kway Teow and Hokkien Prawn Mee, an increase in P of chicken rice will lead to a more than proportionate decrease in Qdd of chicken rice.  The increase in P will increase TR . But this is less than the decrease in TR due to decrease in Qdd (alternatively, students can also make reference to the diagram for the change in TR).  Overall, TR of the chicken rice owner decrease fro m OP0EoQ0 to OP1E1Q1. [Link] Thus, an export ban on chickens from Malaysia will reduce the revenue of chicken rice stall owners. Require 2: impact on the revenue of other meat sellers. [Topic sentence] An export ban on chicken from Malaysia will increase the TR other meat sellers.  Due to the export ban  prices of chicken in Singapore increase  consumers will switch from chicken to other substitutes .  Given that other meat such as pork, fish and beef have a positive cross elastic DD with chicken, an increase in price of chicken will lead to an increase in Qdd for substitutes as consumers switch to relatively cheaper meat.  Thus, DD for other meat such as beef would increase from D0 to D1, with reference to the diagram below  shortage of beef, QdQ0, at original price P0  upward pressure on price of beef  P of beef increase from P0 to P1.  As prices increase, Qdd will decrease from Qd to Q 1, according to Law of DD as consumers are less willing and able to consume beef.  On the other hand, Qss will increase from Q0 to Q1 with an increase in P of beef, according to Law of SS as producers are more willing and able to produce the meat at higher prices.  When DD for meat increase, the new equilibrium qua ntity will also increase.  As TR = P x Q

©ACJC 2023 Preliminary Exam 9570/02 3  An increase in both P and Q will increase TR. [Link] Thus, overall, there is an increase in TR for other meat sellers. Conclusion Thus, an export ban will benefit other beef seller by increasing their TR while harm the chicken rice stall owners by decrease the TR. Analysis Marks First requirement: Explain how export ban on chickens from Malaysia will impact the revenue of chicken rice stall owners. Candidates are required to use relevant economic analysis (demand-supply and PED) to explain impact on the TR of the chicken rice stall owners. Second requirement: Explain how export ban on chick ens from Malaysia will impact the revenue of other meat sellers. Candidates are required to use tools of analysis (d emand-supply and XED) to explain the impact of export ban on the TR of the o ther meat sellers. Note: the meat sellers can also be loosely defined as cooked meat sellers (e.g. steaks). L3 Band [8m – 10m] L2 Band [5m – 7m] L1 Band [1m – 4m]

©ACJC 2023 Preliminary Exam 9570/02 4 Question 1(b) Introduction  Due to the Malaysia’s export ban, prices of fresh chicken in SG increase.  To stabilise the price of fresh chicken in SG, the government could diversify the source of fresh chicken and encourage residents in SG to turn alternative source of meat protein. Requirement 1: diversification [Topic sentence] To stabilise prices of fresh chick en in SG, the government can diversify the country's source of chicken.  34% of the fresh chicken in Singapore is imported from Malaysia. This is approximately one third of the overall SS. Thus, a change in SS of ch icken will have significant impact on price stability.  To stabilise prices, SG government can source of a lternative source of chicken. For example, SG government could turn to Indonesia and Thailand to import fresh chicken.  Thus, in the face of falling SS of Malaysia chick en from S0 to S1, allowing import of chicken from Thailand and Indonesia would prevent the SS from falling significantly.  Thus, SS of fresh chicken would fall from S0 to S2 instead of S1  smaller shortage, Q0Qs2, at the original price P0 instead of QsQ0  weaker upward pressure on P  thus, P will increase by a smaller extent.  At the same time, with more sources of chicken  greater spare capacity to provide chicken for SG  SS of chicken in SG will be more price elastic. This means that when price increase  Qss will be able to increase more than proportionately.  Thus, when there is a shortage at original price, P0  price will only have to increase by a small extent to get the Qss to respond.  This will avoid a sharp increase in price to P2 in stead to P1  price will be less volatile  ensuring price becomes more stable.  Further, should there be panic buying in response to the chicken ban  shortage of chicken at original P, a more price elastic SS (less price inelastic SS) will make sure that only a small increase in P is needed to increase Qss to resolve the