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 proportionate decrease in qty demanded. Prices are likely to increase much more to clear the shortage in the market. The increase in CE from the increase in P is therefore greater than the decrease in CE from the decrease in market quantity, resulting in an increase in consumers’ expenditure . Requirement 2: Explain how economic expansion affect consumers’ expenditure Economic expansion implies an increase in RNY , i.e. household income levels increased. As households’ purchasing power increases, this will l ead to an increase in demand for normal goods such as food and beverages that uses sugar in the production process. The increase in demand for such food and beverages will increase the demand for sugar, shifting the demand for sugar to the right. This creates a shortage in the market and an upward pressure on P. Market quantity will also increase. As a result, consumers’ expenditure will rise as well. [Optional]: since sugar is a necessity, demand for sugar is likely to be incom e inelastic (YED<1). This could imply that the demand for sugar will rise less than proportion ately. The increase in CE from economic expansion may therefore be less significant. Knowledge, Understanding, Application, Analysis L3 Analysis & Application For an analytical answer that addresses the question thoroughly with clear explanation well supported by tools of analysis , Answer is well-focused on question , with the good use of relevant economic concepts, theories or principles. Knowledge & Understanding For an answer that demonstrates an accurate knowledge and understanding of economic concepts, theories related to question. Note: To enter L3, answer should be applied to the contex t of the sugar market and information given in the preamble. 8-10 L2 Analysis & Application For an under-developed answer that attempts to address the question Answers may be descriptive , lack an analytical approach (e.g. not supported with tools of analysis, incomplete use of graph) or is incompletely explained with gaps in analysis, e.g. missing links. [Or For a one-sided analytical answer that address only one of the two question requirement. For an answer that is supported with some application to the context of the question. There is limited ability to organise ideas or disc riminate between relevant and irrelevant materials. Answer has some relevance to the question context but is generic (e.g. pre-learn t answer that is not focused on addressing the question specifically) or addresses only selected parts of the question. Knowledge & Understanding 5-7

©YIJC 9570/02/Prelim/23 For an answer that demonstrates largely accurate knowledge and understanding of economic concepts, theories related to question (i.e. no major conceptual errors) L1 Knowledge & Understanding For an answer that shows limited knowledge and understanding of relevant economic concepts and theories (e.g. basic description or definitions). Few valid points made which are scan t and inadequately explained. Answers are mostly irrelevant and inaccurate. Answer demonstrates that the meaning of question is not properly grasped or may contain basic errors of theory. Marks within L1: Note: K=1 - For basic and unexplained knowledge, e.g. an unexplained statement or definition of a concept that sho wed some correct knowledge but no understanding K=2 - For some additional explanation that shows an understanding of the concept that is not applied to the context o f question but show limited knowledge and understanding 1-4 Annotation Level Marks out of 10 A + A L3 10 A + C L3 8-9 A + K L2 7 A + 0 L2 6 C + C L2 6 C + K L2 5 C + 0 L1 4 K + K L1 2-4 K + 0 L1 1-2

Markers’ Comments: Content: Demand-supply analysis - Majority of students were able to use dd/ss analy sis to answer the question. They were able to recognise that the factors have led to the fall in supply and increase in demand for sugar. These students were also able to explain the impact on market P and Qty by using the price adjustment process, i.e. recogni se that there is a shortage created in the market as a result from the fall in supply a nd increase in demand. [These answers are at least a L2 answer.] - Majority of students who were able to correctly a pply dd/ss analysis were also able to recognise the need to use elasticity to explain the impact on CE, especially from the rise in energy prices. Most were able to explain that demand for sugar is price inelastic as sugar is a prevalent component of individual’s d iet. However, not all were able to explain in detail how the value of PED will affect CE. i.e. Some just stated that since PED<1, CE increases without any illustration on dia gram or explanation. Some even stated that CE decreases showing the lack of understanding