TMJC_2023_H2 EC_P1_Ans

TMJC JC2 H2 Economics 9570 2023 Prelim Exam Paper 1 Suggested Answers 1 TMJC Economics Unit 2023 JC2 H2 Economics 9570 Suggested Answers for Prelim Exam Paper 1

TMJC JC2 H2 Economics 9570 2023 Prelim Exam Paper 1 Suggested Answers 2 Question 1: Global warming and the ice cream industry Suggested answer (a) Using Table 1, explain why the demand for Blue Bell ’s ice cream is likely to be price -inelastic. [3] Demand is likely to be price inelastic, as despite the fall in quantity sold as seen by the fall in unit sales of 4.8%, revenue as indicated by dollar sales has increased by 4.5%. When PED<1, the rise in price will bring about a less than proportionate fall in quantity demanded. Since TR = P x Q, the fall in quantity did not result in a fall in TR because the fall in TR due to the fall in quantity < rise in TR due to the rise in price. [Or TR increased despite the fall in Q because the fall in TR due to the fall in Q < rise in TR due to the rise in P, implying that P rose by a larger proportion/percentage.] (b) Explain how the production of fossil-fuel-generated energy can be a source of negative externalities. [2] ‘Effects of climate change arising from greenhouse gas emissions due largely to the burning of fossil fuels for energy’ (Ext 2)  affects 3 rd party such as Olympic athletes who are not involved in the production of fossil-fu el-generated energy as they incur medical costs due to heat exhaustion as a result of exposure to heatwaves without compensation. (c) “And as temperatures soar, so do sales of a snack f or which the Japanese notoriously have a sweet spot — ice cream.” (Extract 2) Using a demand and supply diagram, explain the role of prices in restoring equilibrium in the Japanese ice cream market when ‘ temperatures soar’. [5] Initial eqm E1 with price P1 & quantity Q1. The ‘soaring temperatures’ will lead to a favourable change in tastes and preferences. Consumers signal greater demand for ice cream by ca sting more dollar votes, represented by a rightward shift in DD curve to D2. The market is in disequilibrium as there is a shortage (Qd is more than Qs), resulting in an upward pressure on price. As price rises, this rations consumers who are unab le to afford the goods out of the market ( rationing function) leading to a fall in quantity demanded r epresented by a movement along D2. As price increases, this acts as a signal to producers to increase production ( signaling function). The rise in price also has an incentive function as producers w