EJC Econs N2020 H2 P1 Paper 1 and Paper 2 Suggested Answer and Mark Scheme

1 2020 A Levels H2 CSQ1 SAMS: Anti-competitive behaviour in Singapore (a) Explain one measure used by economists to assess the level of competition in an industry. [2] One measure economists can use to assess the level of competition in an industry is the market concentration ratio. The market concentration ratio is the ratio of the combined market shares of a given number of firms (usually the 4 or 5 largest firms) to the whole market size. [1] When the market concentration ratio is high, a few firms account for most of total market share. This means they are more able to control prices and erect barriers to entry, leading to lower competition. [1] (b) Using Table 1, explain two possible changes in the market for pork that could account for the difference in consumption of pork in 2018 compared to 2007. [4] As seen from Table 1, there is an increase in consumption (qty) of pork between 2007 and 2018. This could be due to either an increase demand or supply for pork. Demand factor [2]: The rise in income of Singaporeans will lead to a rise in demand for pork. With higher purchasing power, consumers are more willing and able to purchase normal goods such as pork. The rise in demand for pork would cause a rightwards shift of the demand curve causing a rise in equilibrium quantity , which indicates a rise in consumption of pork. Supply factor [2]: The advancement of technology could also result in a rise in supply for pork. New technology might lead to a lower cost of rearing pigs. The fall in production cost will lead to a rise in supply as producers are incentivised to increase production. This rise in supply of pork will lead to rightward shift in the supply curve causing a fall in equilibrium price and a rise in equilibrium quantity as consumers increase their consumption of pork. (c) (i) What is meant by ‘producer surplus’ and ‘consumer surplus’? [2] Producer surplus is the difference between the amount that a producer of a good actually receives and the minimum amount that the producer is willing and able to sell the good. This is a measurement of producers’ welfare. [1] Consumer surplus is the difference between the maximum amount that a consumer is willing and able to pay for a good and the amount that he actually paid for the good. This is a measurement of consumers’ welfare. [1] (ii) Extract 2 states that ‘collusion restricted supply in the market and contributed to price increases of certain fresh chicken products’. Using a diagram, explain how this collusion is likely to have affected the producer surplus and the consumer surplus in the market for these chicken products. [4]

2 The restricting of supply to Q1 will result in a new market supply curve SS 1, as seen in the diagram below. Equilibrium price increases (P0 to P1) and quantity falls (Q0 to Q1). [1] Consumer surplus falls from area AE 0P0 to area A BP1. [1] Producer surplus ri