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 demand and supply and also price elasticity of demand to explain the sharp inc rease in price of chicken in Singapore, including the price adjustment process in either R1 or R2. 8 - 10 L2 For an answer that explains the extent of shifts in demand and supply but does not or gives an undeveloped explanation of price el asticity of demand to explain the sharp increase in price of chicken in Singapore. OR For an answer that only explains a fall in supply and price elasticity of demand to explain the sharp increase in price of chicken i n Singapore, together with the price adjustment process. 5 - 7 L1 For an answer that may show little knowledge on relative shifts in demand and supply and also price elasticity of demand. 1 - 4 S1 S0 Price De Pi P0 Quantity Qi Q0 = Q d Fig 2: Price inelastic demand for chicken in Singapore 0 Di Qe Pe Qs

3 b) Discuss whether the imposition of the price ceiling or the export ban is more effective in bringing about a fall in price of chicken in Malaysia. [15] Requirement 1: Firstly, the imposition of the price ceiling will lead to a fall in the price of chicken in Malaysia. A price ceiling is defined as the maximum permissible price that producers can legally charge. For a price ceiling (P c) to be effective, it must be charged below the equilibrium price. Fig 3: Price Ceiling in Market for Chicken in Malaysia However, while a price ceiling artificially keeps prices lower, it creates a shortage (Q sQd) as the quantity supplied (Q s) by the producers is lower than the quantity deman ded (Q d) by the consumers, resulting in a black market where those who cannot get their hand on chicken turn to an illegal market where prices are charged higher than the initial equilibrium price. Requirement 2: With the export ban on chicken, chic ken suppliers in Malaysia will channel the chicken stocks which was initially exported to other markets to their local market. This will increase the supply of chicken in Malaysia from S 0 to S 1 as seen in Figure 4. An increase in supply, ceteris paribus, would lead to a fall in equilibrium price from P 0 to P 1 and an increase in equilibrium quantity from Q 0 to Q 1..

4 Fig 4: Market for Chicken in Malaysia However, prices have an influence on the allocation of resources. Producers may perceive the fall in price as a signal of falling demand for chicken, thus they look to reallocate their resources to other markets where profitability is higher. Whe n this happens, it reduces the extent of the increase in supply brought about by the export ban from S 1 to S 2 and leads to an increase in price from P 1 to P 2. Synthesis / Evaluation Whether a price ceiling or export ban is more effective to bring down the price of chicken in Malaysia, the root cause of the spike in price needs to be considered. Should the rise in price be due to a fall in supply, price ceiling would be rather ineffective in dealing with the price ceiling as it only artificially lowers the price. An export ban which would increase the domestic supply would hence be more effective.

5 Level Knowledge, Application, Understanding, Analysis Mar ks L3 For an answer that can analyze how both policies would be able to lower the price of chicken in Malaysia and some possible limitations 8 - 10 L2 For an answer that only analyze how either polic y would be able to lower the price of chicken in Malaysia and some possible limitations OR For an answer that can analyze how both policies would be able to lower the price of chicken BUT does not consider limitations 5 - 7 L1 For an answer that may show little knowledge on how the policies may affect price in Malaysia. 1 - 4 E3 Analytically well-reasoned judgement about the r elative effectiveness of the policies; in bringing about a fall in price of chicken in Malaysia 4 - 5 E2 Some attempt at a judgement about the relative e ffectiveness of the policies; in bringing about a fall in price of chicken in Malaysia 2 - 3 E1 Unsupported statement about the effectiveness of the policies in bringing about a fall in price of chicken in Malaysia. 1

2023 J2H2 Prelim EQ2 Mkt Structure Technology has disrupted many industries across dif ferent market structures, affecting revenue, costs and profits of firms. Faced with constraints of a tight labour market and an increasingly competitive business environment, firms have turned to using technology to improve their outcomes. (a) Explain how technology has affected market structures and resulted in differing abilities of firms to earn supernormal profit. [10] (b) Discuss whether the use of technology is better than the use of a pricing strategy to improve the outcomes for firms. [15] (a) Explain how technology has changed market struc tures and resulted in differing abilities of firms to earn supernormal profits. [10] Industries can be categorised into four types of