DHS 2023 H2EC Prelims Paper 2 Answers (for sharing)

1 Ques5gN4-on 1 Consumers in Thailand are snapping up crocodile meat due to a significant increase in the price of pork which is a staple in the Thais’ diet. This was due to African swine flu affecMgD2↓ng pigs in the country and a post-pandemic economic recovery. (a) With reference to the above events, explain the likely changes in the consumer expenditure on pork and crocodile meat in Thailand. [10] QuesMgD2↓on analysis Command Word Explain (consumer expenditure) Give economic reasoning Content Required Changes in consumer expenditure (P x Q), non -price demand and supply factors Context Market for pork and crocodile meat in Thailand Approach 1. Explain the change in consumer expenditure on pork due to disease and economic recovery; and 2. Explain the change in consumer expenditure on crocodile meat due to changes in the price of pork (subsMgD2↓tute) Introduc5gN4-on  Consumer expenditure refers to the amount spent on a parMgD2↓cular good or service. It is calculated by price mulMgD2↓plied by quanMgD2↓ty of a good. De fine key term of quesMgD2↓on Requirement 1: Market for Pork  The market for pork has been affected by the African swine flu and the post-pandemic economic recovery.  The emergence of African swine flu has affected the ability of pork producers to supply pork. Pigs affected by the disease would not be suited for sale and as the disease can be contagious, this can easily affect ot her pigs in the farms. This would lead to a ↓supply of pork.  The post-economic recovery refers to Thailand enjoying economic growth aMgqqIer a period of recession or slowdown. There would be a rise in naMgD2↓onal income leading to greater purchasing power. Pork is likely to be considered a normal good with a posiMgD2↓ve value YED as it is considered a staple. This means as income increases, the demand for pork would increase as well.  A fall in supply of pork would lead to a shortage of pork. This would cause upward pressure on prices. As the price rises, uMgD2↓lity-maximising consumers, constrained by their budget, reduce quanMgD2↓ty demanded, and the units of output that can only be produced at higher marginal cost now become profitable at higher prices , incenMgD2↓vising firms to increase quanMgD2↓ty supplied to capture the posiMgD2↓ve marginal profits. Explain the change in supply and demand for pork. State and explain assumpMgD2↓ons e.g., normal good Provide a detailed market adjustment process

2  The process will conMgD2↓nue unMgD2↓l the price eventually reaches P1 where quanMgD2↓ty demanded exactly balances quanMgD2↓ty supplied and the shortage is removed, removing further pressure on the market to adjust. The new equilibrium quanMgD2↓ty rises to Q1.  As pork is a staple food in Thailand, the demand is likely to be price inelasMgD2↓c (PED<1) based on its high degree of necessity (or due to its low subsMgD2↓tutability with other meats). A rise in price of pork would result in a less than proporMgD2↓onate fall in quanMgD2↓ty demanded of pork. This means that given a fall in supply, the consumer expenditure on pork would rise as the increase in expenditure due to the increase in price is larger than the fall in expenditure due to the less than proporMgD2↓onate fall in quanMgD2↓ty.  The rise in demand would lead to an increase in price and quanMgD2↓ty of pork. This would cause expenditure to rise.  Both the shiMgqqIs in demand and supply have led to a rise in expenditure, contribuMgD2↓ng to an overall increase in expenditure on pork. Analysis of change in expenditure should be rigorous (including the use of PED) Link back to the quesMgD2↓on Requirement 2: Market for crocodile meat  Consumers in Thailand are switching over to crocodi le meat as the price of pork rises. This suggests that pork and crocodile meat are considered subsMgD2↓tutes, as they are both sources of protein, with a cross elasMgD2↓city of demand that is posiMgD2↓ve (XED>0).  With a rise in pork prices, this would lead to a fa ll in quanMgD2↓ty demanded of pork as consumers switch to an alternaMgD2↓ve protein such as crocodile meat. There is a ↑demand for crocodile meat.  Given the rise in income due to the economic recovery, there would also be a rise in demand for crocodile meat, assuming it is a normal good as well.  Given the overall increase in demand, there would be a rise in consumer expenditure as there is an increas e in both price and quanMgD2↓ty of crocodile meat. Explain the change in demand for pork, include the explanaMgD2↓on of the relaMgD2↓onship between both markets. Link back to the quesMgD2↓on LORMS L3 Answer is relevant to the context provided and the changes in consumer expenditure using the demand and supply framework for both the markets for pork and crocodile meat are ri gorously analysed with appropriate use of elasMgD2↓city concepts where relevant. 8 – 10

3 L2 Answer is relevant to the context and either lacks scope, i.e., only one market is analysed, or lacks rigour, i.e., cons umer expenditure is asserMgD2↓ve, lacking in use of relevant economic concepts. There may also be some errors present in the explanaMgD2↓on. 5 – 7 L1 Answer is irrelevant and/or there are gross conc eptual errors in the explanaMgD2↓on. 1 – 4 (b) Discuss the policy opMgD2↓ons the Thai government can implement to address the rising price of pork. [15] QuesMgD2↓on analysis Command Word Discuss (policy opMgD2↓ons) Provide mulMgD2↓ple perspecMgD2↓ves (policies) Content Required Policies that address rising prices of a good Context Market for pork in Thailand Approach 1. Explain at least 2 policies that would address then rising price of pork in Thailand. There should be scope demonstrated in selecMgD2↓ng the policy opMgD2↓ons e.g., demand-related, supply-related or price control policies. 2. Provide an evaluaMgD2↓ve conclusion on the policy opMgD2↓ons. Introduc5gN4-on  Given that pork is a staple in Thailand, the govern ment may be concerned about the rising prices. The government may thus consider opMgD2↓ons to arrest/reduce the price increases. Op5gN4-on 1: Increasing supply via subsidies  The government could consider providing indirect subsidies for pork. This involves payments from the government to pig farmers to reduce the unit cost o f producing pork. This would lead to an increase in supply of pork, addressing the shortage created.  A rise in the supply of pork would lead to a surplu s causing price of pork to fall.  Strengths: This would work quickly and not reduce consumpMgD2↓on of pork.  LimitaMgD2↓ons: The use of indirect subsidies is a costly policy. However, given that demand for pork is pric e inelasMgD2↓c, the extent of the subsidy required would be small to achieve a significant fall in price of pork . Thus, this would mean the cost to the government may not be so large. The suscepMgD2↓bility to disease would is sMgD2↓ll present, which would reduce the effecMgD2↓veness of the policy to raise supply given the MgD2↓me required. Define, Provide an example and explain how the policy works. Explain the strengths/ limitaMgD2↓ons of the policy opMgD2↓on

4 Alterna/g415ve supply -related policies: Investment by the government to increase the supply of pork (long-ter m) e.g., alloca/g415ng more land, R&D to reduce the impact of swine flu on pig farms. Policy 2: reducing demand via developing other subs5gN4-tute proteins  As seen in the preamble, consumers would switch to other protein alternaMgD2↓ves given the rising price of pork. The government could also consider expanding the producMgD2↓on of alternaMgD2↓ve proteins to reduce the demand for pork, and keep pork prices low.  The government could explore expanding the producMgD2↓on of other tradiMgD2↓on