RI Y5 H2 2023 CT Examiner's Report

ECONOMICS Higher 2 Syllabus 9570 Examiner’s Report Year 5 Common Test 2023 R a f f l e sI n s t i t u t i o n N u r t u r i n g t h e T h i n k e r , L e a d e r & P i o n e e r TEL: 65 6419 9888 ● FAX: 65 6419 9898 http://www.ri.edu.sg ● One Raffles Institution Lane, SINGAPORE 575954

Y5/9570/CT/2023 2 © RI 2023 [Turn Over ECONOMICS Y5 H2 Common Test 2023 Paper 9570/01 Paper 1 Case Study (a) With reference to extract 1, explain one fixed and one variable cost that a hawker food vendor faces. [4m] - Fixed cost is cost that does not vary with output, where output can be defined as the number of meals produced. For instance, Rental cost, the hawker food stall vendor would still have to incur rental payment even though no meals are produced as the stall may close and shut down operations. [2m] - Variable cost is cost that varies with output (being the number of meals produced). For instance, the cost of ingredients used in cooking. As more meals are produced, more of such ingredient costs will be incurred to prepare them. [2m] Examiners’ Comments • Most candidates were able to correctly explain fixed and variable costs in relation to output and give relevant examples. AFIs (Area for Improvements) • However, some did not link fixed and variable costs explicitly to output. • Several candidates wrongly cited staff salaries as a variable cost. In the given context, staff salaries were clearly stated as an overhead cost which is a fixed cost. • A few candidates were confused about the difference between output and demand. The demand for a good can increase or decrease, but reference must be made to the effect on output that is produced eventually. (b) Explain which market structure a hawker food stall is likely to operate in. [2m] State the likely market structure: MPC [1m] Explain: Extract 1 suggests that with the “highly fragmented” nature of the hawker food industries with “many small…hawker food vendors”, the industry is characterised by many small -scale producers suggesting a lack of market dominance and sell slightly differentiated products in terms of the different cuisines or different cooking style of the dishes. [1m] Examiners’ Comments AFI: Candidates need to realise that for this question, the mere justification that there are many small firms is not sufficient to distinguish Monopolistically Competitive (MPC) market structure from a Perfectly Competitive market structure. Candidates are required to further substanti ate with another distinctive characteristic like slightly differentiated products or low barriers to entry. Commented [ETH1]: Pls move away from explaining why a particular cost is a variable cost because it is not incurred if there is no production or if the firm choose to shutdown. Look at the definition, you should be justifying it with “whether it varies with o/p!” Commented [ETH2]: Top-tier answers contectualises the o.p to the context of the qns Commented [ETH3]: Students are expected to spell out fully and correctly Commented [ETH4]: The students must use the case extract to support their answer and not listing out all the theoretical knowledge on the characteristics of an MPC

Y5/9570/CT/2023 3 © RI 2023 [Turn Over (c) With reference to Figure 1, describe the trend of the prices of hawker food in Singapore. [2m] General trend: Prices generally increased [1m] Refinement: Between 2021-2022, prices increased sharply. [1m] Examiners’ comments: AFI: A small number of responses confused prices with price index. Candidates are expected to explain how prices changed based on an inference from the price index. (d) With the aid of a diagram, explain the effect of supply disruptions on producer surplus in the market for hawker food. [4m] • Explain the SS-side disruptions: From Extract 1 para 2:” Supply disruptions caused by the war in Ukraine have caused prices of energy and fertiliser to soar”, this results in the rise in cost of ingredients as the production of food ingredients would likely cost more, increase COP → fall in SS for hawker food, shifting supply curve leftwards from S 0 to S 1. At prevailing price P 0, a shortage is generated which results in an upward pressure on prices, cet par, increase in hawker food prices from P0 to P1 causes a more than proportionate fall in qty traded from Q0 to Q1 [2m] • Link to effect on producer surplus : Hence there will be a fall producer surplus from area P0bd to area P 1ac as the rise in the minimum price that producers are willing to receive has increased more than the increase in the market price received [1m] • Diagram to illustrate effect on producer surplus [1m] Quantity of Hawker Food 0 Price S0 S1 Q1 a b c d D0 p1 P0

Y5/9570/CT/2023 4 © RI 2023 [Turn Over Examiners’ comments: AFIs: • A significant number of responses simply stated that SS -side disruptions cause a fall in SS but did not explain what specifically these SS -side disruptions were and how they resulted in a rise in COP and a fall in SS. • Weaker responses did not explain the market adjustment process. • The explanation of the effect on producer surplus was in general poorly done. Most answers simply stated that given the reduction in the area representing the producer surplus in the diagram, the producer surplus has fallen. This approach does not explain the reasoning behind the fall in the producer surplus. Instead, what is expected is that the producer surplus has fallen due to (i) the minimum price the producer must receive has risen resulting in a reduction in the difference between what the producer i s actually receiving versus the minimum of what the producer is willing to receive (ii) the quantity traded has also fallen. • Some candidates did not understand the concept of producer surplus and were not able to correctly identify the area of producer surplus on the diagram. • Some candidates were hampered also by poorly drawn demand and supply curves that did not extend fully to the y-axis or supply curves that extended below the x-axis. (e) Discuss whether a large restaurant will always enjoy more cost advantages as compared to a hawker food vendor. [8m] Introduction: Clarify meaning of cost advantages: lower average cost of production – due to larger scale of production and thus the ability to enjoy IEOS. Analysis Thesis: Explain why a large restaurant can enjoy more cost advantages relative to a smaller hawker food vendor (Only 1 well-explained source of IEOS is required) - Consider the various types of IEOS that a large restaurant can enjoy e.g. Marketing and Technical IEOS - Explain how these cost advantages arise for a large restaurant by being able to operate at a large scale of production and substantiate with case evidence. Marketing EOS: E.g, a large restaurant is better able to purchase food ingredients in bulk with a larger scale of production, hence they are better able to negotiate better pricing for the food ingredients and enjoy substantially lower long -run average cost of production as compared to a smaller scale hawker food vendor which purchases smaller quantities of these ingredients. Extract 1 para 1 mentions purchasing food ingredients in bulk which a large restaurant is in a better position to do so.

Y5/9570/CT/2023 5 © RI 2023 [Turn Over E.g. A large restaurant is better able to spread their advertising cost over a large range of output due to their larger scale of production, so that the long-run average cost of production is lower as compared to a smaller scale hawker food vendor. Extract 1 para 1 suggests that large restaurants: “with multiple locations may be better able to spread their advertising costs across a wider customer base, making it more cost-effective to reach potential customers.” Technical EOS: A large restaurant is better able to enjoy technical