2023 DHS Prelims Paper 2 Answers

1 Question 1 Consumers in Thailand are snapping up crocodile meat due to a significant increase in the price of pork which is a staple in the Thais’ diet. This was due to African swine flu affecting pigs in the country and a post-pandemic economic recovery. (a) With reference to the above events, explain the likely changes in the consumer expenditure on pork and crocodile meat in Thailand. [10] Question analysis Command Word Explain (consumer expenditure) Give economic reasoning Content Required Changes in consumer expenditure (P x Q), non-price demand and supply factors Context Market for pork and crocodile meat in Thailand Approach 1. Explain the change in consumer expenditure on pork due to disease and economic recovery; and 2. Explain the change in consumer expenditure on crocodile meat due to changes in the price of pork (substitute) Introduction • Consumer expenditure refers to the amount spent on a particular good or service. It is calculated by price multiplied by quantity of a good. Define key term of question Requirement 1: Market for Pork • The market for pork has been affected by the African swine flu and the post-pandemic economic recovery. • The emergence of African swine flu has affected the ability of pork producers to supply pork. Pigs affected by the disease would not be suited for sale and as the disease can be contagious, this can easily affect other pigs in the farms. This would lead to a ↓supply of pork. • The post-economic recovery refers to Thailand enjoying economic growth after a period of recession or slowdown. There would be a rise in national income leading to greater purchasing power. Pork is likely to be considered a normal good with a positive value YED as it is considered a staple. This means as income increases, the demand for pork would increase as well. • A fall in supply of pork would lead to a shortage of pork. This would cause upward pressure on prices. As the price rises, utility-maximising consumers, constrained by their budget, reduce quantity demanded, and the units of output that can only be produced at higher marginal cost now become profitable at higher prices, incentivising firms to increase quantity supplied to capture the positive marginal profits. Explain the change in supply and demand for pork. State and explain assumptions e.g., normal good Provide a detailed market adjustment process

2 • The process will continue until the price eventually reaches P1 where quantity demanded exactly balances quantity supplied and the shortage is removed, removing further pressure on the market to adjust. The new equilibrium quantity rises to Q1. • As pork is a staple food in Thailand, the demand is likely to be price inelastic (PED<1) based on its high degree of necessity (or due to its low substitutability with other meats). A rise in price of pork would result in a less than proportionate fall in quantity demanded of pork. This means that given a fall in supply, the consumer expenditure on pork would rise as the increase in expenditure due to the increase in price is larger than the fall in expenditure due to the less than proportionate fall in quantity. • The rise in demand would lead to an increase in price and quantity of pork. This would cause expenditure to rise. • Both the shifts in demand and supply have led to a rise in expenditure, contributing to an overall increase in expenditure on pork. Analysis of change in expenditure should be rigorous (including the use of PED) Link back to the question Requirement 2: Market for crocodile meat • Consumers in Thailand are switching over to crocodile meat as the price of pork rises. This suggests that pork and crocodile meat are considered substitutes, as they are both s ources of protein, with a cross elasticity of demand that is positive (XED>0). • With a rise in pork prices, this would lead to a fall in quantity demanded of pork as consumers switch to an alternative protein such as crocodile meat. There is a ↑demand for crocodile meat. • Given the rise in income due to the economic recovery, there would also be a rise in demand for crocodile meat, assuming it is a normal good as well. • Given the overall increase in demand, there would be a rise in consumer expenditure as there is an increase in both price and quantity of crocodile meat. Explain the change in demand for pork, include the explanation of the relationship between both markets. Link back to the question LORMS L3 Answer is relevant to the context provided and the changes in consumer expenditure using the demand and supply framework for both the markets for pork and crocodile meat are rigorously analysed with appropriate use of elasticity concepts where relevant. 8 – 10

3 L2 Answer is relevant to the context and either lacks scope, i.e., only one market is analysed, or lacks rigour, i.e., consumer expenditure is assertive, lacking in use of relevant economic concepts. There may also be some errors present in the explanation. 5 – 7 L1 Answer is irrelevant and/or there are gross conceptual errors in the explanation. 1 – 4 (b) Discuss the policy options the Thai government can implement to address the rising price of pork. [15] Question analysis Command Word Discuss (policy options) Provide multiple perspectives (policies) Content Required Policies that address rising prices of a good Context Market for pork in Thailand Approach 1. Explain at least 2 policies that would address then rising price of pork in Thailand. There should be scope demonstrated in selecting the policy options e.g., demand-related, supply-related or price control policies. 2. Provide an evaluative conclusion on the policy options. Introduction • Given that pork is a staple in Thailand, the government may be concerned about the rising prices. The government may thus consider options to arrest/reduce the price increases. Option 1: Increasing supply via subsidies • The government could consider providing indirect subsidies for pork. This involves payments from the government to pig farmers to reduce the unit cost of producing pork. This would lead to an increase in supply of pork, addressing the shortage created. • A rise in the supply of pork would lead to a surplus causing price of pork to fall. • Strengths: This would work quickly and not reduce consumption of pork. • Limitations: The use of indirect subsidies is a costly policy. However, given that demand for pork is price inelastic, the extent of the subsidy required would be small to achieve a significant fall in price of pork. Thus, this would mean the cost to the government may not be so large. The susceptibility to disease w ould is still present, which would reduce the effectiveness of the policy to raise supply given the time required. Define, Provide an example and explain how the policy works. Explain the strengths/ limitations of the policy option

4 Alternative supply -related policies: Investment by the government to increase the supply of pork (long -term) e.g., allocating more land, R&D to reduce the impact of swine flu on pig farms. Policy 2: reducing demand via developing other substitute proteins • As seen in the preamble, consumers would switch to other protein alternatives given the rising price of pork. The government could also consider expanding the production of alternative proteins to reduce the demand for pork, and keep pork prices low. • The g overnment could explore expanding the production of other traditional proteins such as chicken or beef, and can also look into less traditional options such as crocodile meat. By raising the supply of these alternatives, this would reduce the price of the alternatives. Consumers will then switch over from pork