MI 2023 PU3 H2 Econs EOY P1 Suggested Ans

[Turn over Suggested Answers – CSQ1 (a) (i) Using Figure 1, compare the trend in the prices of medical care and all goods and services between 2000 and 2023. [2] The prices of medical care and all goods and services have increased between 2000 and 2023. The prices of medical care increased at a faster rate as compared to the prices of all goods and services. General trend – 1 m Refinement – 1 m Markers’ Comments The question is generally well-attempted. Students are reminded not to compare period by period. (ii) How will the rise in price of prescription drugs af fect consumer’s expenditure on healthcare? [2] The demand for prescription drugs is price inelastic as they are necessities to treat illnesses. [1] The rise in price will lead to a less than proporti onately fall in quantity demanded. Hence, consumer expenditure will rise. [1] Markers’ Comments Students who understood the requirement of question brought in the relevant elasticity concept and link to expenditure. Those who did not, simply said expenditure had increased as consumers are buying more drugs. S tudents must read the question carefully. The cause is stated in the question  rise in price. (b) With reference to Extract 2, explain how price controls can make prescription drugs more affordable and how it will impact consumer surplus. [4] The government can impose price ceiling on prescrip tion drugs to make it more affordable. It is set by below the market equilibrium price which is deemed too high. With price ceiling, the price will drop from Pe to Pmax. The consumer surplus has increased from PeYE to PmaxYXW.

2 MI/9757/01/PU3/EOY2022 [Turn over Explanation of measure [1] Impact on the price [1] Impact on consumer surplus [1] Diagram [1] Markers’ Comments Common mistakes made by students - Diagrams are not labelled properly - Consumer surplus after the imposition is identifi ed incorrectly (c) With reference to Extract 3, explain two types of barriers to entry that pharmaceutical firms possess. [4] The first will be legal restrictions due to the law. Patents are exclusive rights given to production for drugs for a number of years. With patents, other firms are not allowed to produce the drugs or they can be subject to court action. [2] The second type of barrier to entry will be high set up costs such as the costs involved in research and development of new drugs and the ma nufacturing facility ($1.2 billion). [2] Hence, these two BTEs will prevent new firms from entering the market. Markers’ Comments Most students did well for this question. Those who did not, only brought in one BTE or did not bring in evidence from the extracts. Stu dents are reminded to complete the analysis to explain how the BTEs will prevent new firms from entering the market. (d) Discuss whether product innovation is the mos