2023 RI H2Econs Prelims Answers

ECONOMICS Higher 2 Syllabus 9570 Examiner’s Report Year 6 Preliminary Examination 2023 R a f f l e s I n s t i t u t i o n N u r t u r i n g t h e T h i n k e r , L e a d e r & P i o n e e r TEL: 65 6419 9888 ● FAX: 65 6419 9898 http://www.ri.edu.sg ● One Raffles Institution Lane, SINGAPORE 575954

Y6/9570/Prelims/2023 2 © RI 2023 [Turn Over ECONOMICS Y6 H2 Preliminary Examination 2023 Paper 9570/01 Paper 1 Question 1 The Cotton Market (a) (i) With reference to Figure 1, identify the y ear in which cotton prices rose the most. [1] Cotton prices rose the most in 2021. Mark Scheme: - Correct identification – 1m (ii) Using a diagram, explain the reason for such a change in price. [3] - Prices rose most significantly in 2021. - From Extract 1, there were heavy rainfalls in Ind ia in 2021. This led to a fall in world supply, causing the supply curve to shift leftwards from S0 to S1, as shown in Figure 1. A shortage results, and prices are bided up. - From Figure 2, India is the world’s second larges t producer of cotton. The fall in supply will have a huge impact on the total world supply. In this reg ard, the huge shortage that ensues will causes prices to rise very significantly in 2021. - Alternative Approach: Demand for cotton is price-inelastic as it is an essential input for clothing and furniture. As shown in Figure 1, the price is likely to rise more than proportionate from P0 to P1 compared to the fall in equilibrium quantity from Q0 to Q1. Mark Scheme: - use of case evidence to explain fall in supply - 1m - justify using either PED or Figure 2- 1m - diagram to show shift in supply curve - 1m - No brief adjustment process - Max 2 m Figure 1: World Market for Cotton

Y6/9570/Prelims/2023 3 © RI 2023 [Turn Over (b) Explain whether the use of subsidies can help the U S develop comparative advantage in cotton production. [5]  Comparative advantage in cotton production means t he country can produce cotton at a lower opportunity cost i.e. less of another good is foregone. Comparative advantage is dynamic and can be changed with government policies or with changes in quantity or quality of resources. Thesis:  As the US subsidises cotton production, its supply rises - causing prices to fall. But this ‘artificial’ reduction in price has nothing to do with improving comparative advantage  Comparative advantage may be developed if the firm s were to use the excess profits arising from the subsidies or from the rise in quantity dem anded for exports (due to fall in price) to invest in research and development. This may facili tate the development of new technology and lead to better production processes and even cu ltivation that uses less water and land. The subsequent fall in MC and AC for firms leads to a fall in production cost for the US and allow it to gain comparative advantage