RVHS 2023 J2H2 Prelim P2_EQ SAMS

1 2023 RVHS J2 H2 Prelim Paper 2 EQ 1 Suggested Answers Malaysia is introducing an export ban on chicken, in addition to the existing price ceiling to keep chicken prices low domestically. Singapore imports live chickens from only Malaysia and this makes up 34% of its overall chicken supply - the most widely consumed meat here. Concurrently, there are also campaigns encouraging Singaporeans to consume vegan meat for health and ethical reasons. a) Explain how the above events will lead to a shar p increase in the price of chicken in Singapore. [10] Intro Chicken is the most widely consumed meat in Singapo re and the prices of chicken has been affected by the various events mentioned in the preamble. Requirement 1: Firstly, with the imposition of export ban by Malaysia, there will be a fall in number of sellers in Singapore. This will cause a fall in supply from S 0 to S 1 as shown in Figure 1. Secondly, with campaigns in SG that encourage consu mers to consume vegan meat, this will change consumers’ taste and preferences away from consumption of chicken. As such, this will lead to a fall in demand for chicken. With fall in supply much larger than the fall in demand, there will be a shortage at the original price P 0, as quantity demanded (Qd) is more than quantity supplied (Qs) as shown in Figure 1. As such, there is an upward pressure on price of chicken. As price increases, quantity demanded will fall while quantity supplied will increase until the new equilibrium, Q 1, is reached where quantity demanded equals to quantity supplied. As such, equilibrium price will experience a sharp increase from P 0 to P 1. Requirement 2: As chicken is the most widely consumed meat in Singapore, demand for chicken is price inelastic as the degree of necessity is hi gh. When supply falls by a large extent from S 0 to S 1, there will be a shortage at the original price P 0, as quantity demanded (Qd) is more than S1 S0 Price D0 P1 P0 Quantity Q1 Q0 Fig 1: Market for chicken in Singapore 0 D1 Qs Qd

2 quantity supplied (Qs) as shown in Figure 2. As suc h, there is an upward pressure on price of chicken. As price increases, quantity demanded will fall while quantity supplied will increase until the new equilibrium, Q i, is reached where quantity demanded equals to quantity supplied. With a large fall in supply, reinforced by a price inelast ic demand, there will be a sharp increase in equilibrium price from P 0 to P i compared to increase in price from P 0 to P e if demand is price elastic. Conclusion As such, since the fall in supply is much larger th an the fall in demand, reinforced by a price inelastic demand, the above events will lead to a sharp increase in price of chicken in Singapore. Level Knowledge, Application, Understanding, Analysis Mar ks L3 For an answer that explains the extent of shifts in dem