YIJC 2023 JC2 H2 Prelim 9570 P2 SAMS

©YIJC2023 9570/02/Prelim/23 1 The increase in energy prices have increased compet ition between sugar and sugarcane-based biofuel such as ethanol, as farmers divert resources away from sugar crop to ethanol production. Together with sustained economic expansion, these have led to a spike in sugar prices. In some countries s uch as India, where sugar is a prevalent component in people’s everyday diet, gove rnments are considering sugar reduction strategies and price controls to ease the spike in sugar prices. Source: Adapted from OECD-FAO Agricultural Outlook 2021-2030 (a) With the aid of diagrams, explain how the increase in energy prices and economic expansion are each likely to impact consumer expenditure on sugar, in a country such as India. [10] (b) Discuss the policies a government could implement t o ease the spike in sugar prices in the domestic market. [15] Part (a) Command Word ‘Explain’ – Give reasons, establish causal links. Content / Concept Words ‘consumer expenditure CE ’ – P x Q. ‘Demand & Supply factors’ – factors affecting market DD and market SS / elasticity Context India Qns Requirement R1: Increase in energy prices – Candidates are expecte d to explain the impact on CE because of a rise in energy prices. A good tool of analysis is dd/ss analysis with a diagram illustrating a leftward shift of the supply curve with an inelastic demand curve. R2: Economic expansion – Candidates are expected to exp lain the impact on CE because of an economic expansion. A good tool of analysis is dd/ss analysis with a diagram illustrat ing a rightward shift of the demand curve. L3 Band [8 - 10] L2 Band [5 - 7] L1 Band [1 - 4] Suggested Answers Requirement 1: Explain how an increase in energy prices affect consumers’ expenditure on sugar Rise in energy prices would mean that it is more profitable to produce sugarcane crops for biofuel such as ethanol rather than producing sugar for consumption. Hence, farmers divert resources away from the production of sugarcane cro ps for sugar consumption to the production of sugarcane crops for ethanol prodcution since sugar and ethanol are competitive in supply . This will reduce the supply of sugar for consumpt ion, creating a shortage in the market.

The shortage will create an upward pressure on P. As P increase, quantity demanded will decrease while quantity supplied will increase, unt il quantity demanded equals quantity supplied at a new equilibrium where prices are higher and market quantity is lower. Since sugar is a prevalent component in people’s everyday diet, it is deemed as a necessity. This suggest that demand for sugar is price inelastic / PED<1 . As prices increase, this will lead to a less than pr