NJC H2 Economics Prelim P1 Ans

National Junior College 2023 SH2 H2 Economics Preliminary Examinations Paper 1 – Case Study Question 1 Questions & Suggested Answers (a)(i) Using information in Extract 1, identify an d explain one demand factor that caused the change in volume of the coffee beans over the period January 2020 to March 2020. [2]  Fall in demand for coffee consumption was because consumers refrained from dining out due to fear of contracting the virus during Covid-19. This resulted in a fall in demand for coffee, thus a fall in demand for coffee beans, leading to a fall in volume of coffee beans. (a)(ii) Using information in a(i) and with the aid of a dia gram, explain how the change in demand in the coffee beans market has had an impact on the durian market. [4]  The fall in demand for coffee beans led to a fall in its price and a decrease in quantity supplied, ceteris paribus.  Given that coffee beans and durian cultivation are substitutes in production, when faced with falling prices, farmers diversified into more profitable crops such as durians.  This led to an increase in supply of durian from S 0 to S 1, thus a fall in the price and increase in quantity of durian. (b) Using information in Extract 2, explain why cof fee farmers took the decision to shut down production in the short run and leave the market. [3]  Fall in demand for coffee beans led to a fall in a verage revenue (AR).  Average variable costs (AVC) were rising given ris ing fertiliser costs.  This resulted in coffee farmers shutting down prod uction in the short run and leaving the market since AR is less than AVC. (c) Explain why Vietnam is likely to see a change i n its comparative advantage away from the production of coffee beans. [3]  Higher opportunity cost in the production of coffee is the reason behind Vietnam’s change in comparative advantage away from the production of land-intensive coffee bean.  This is because of the potential loss of natural resource land where total arable land is predicted to fall by 2050 if predictions of a 2 degree celsius temperature rise holds true. (d) Discuss the extent to which coffee shop chains like Starbucks and Luckin are likely to engage in non-price competition. [8] Introduction:  The mutual interdependence and the differentiated nature of product of competitive oligopolies like coffee shop chains Starbucks and Luckin makes it likely for these firms to engage in non- price competition, given the uncertainty of outcome from competitive tactics.  Price Competition, however, is not altogether absent. Body: Price Quantity 0 Market for durian S0 S1 P0 P1 Q1 Q0 D0

Thesis: Coffee shop chains like Starbucks and Lucki n are likely to engage in non-price competition  High barriers to entry and a few large firms domina ting the market in the coffee shop chains industry mean that the decisions of these firms are mutually interdependent. Expl