CJC H2 Prelim 2024 P1 Solutions

SuggestedAnswers: (a) Using Figures 1 and 2, explain howthe change in the price of fertilisershas affected the price of wheat, and why this effect was predicted to belagged. [3] SuggestedAnswer:Fertilisers are used as raw materials to produce wheat, when price offertilisersgoesupinFigure1, unit costofproducingwheatrises[1],supplyofwheatfall,hencewheatpriceswill alsogoup.ThisisobservedinFigure2.[1] There is a lagged effect as producers of fertilisers are boundedbypreviouscontractual obligationsandnothaveadjustedtheirpricessoquickly.[1]Alternative: Producerswill makeuseof availablestocksof fertilisersandonlyneedtobuyfertilisersatahigherpriceoncethestocksareusedup.[1] (b) Using a diagram, explain how the imposed sanctions on Russia couldnegativelyaffect theUSeconomy. [3] SuggestedAnswer:Sanctions on Russia are imposedlargelyontheRussia’sexports, especiallyonprimaryproducts. Theglobal shortagewill driveuppricesoftheseprimaryproductsandthusleadtohigherimportedcostsfortheUS. [1]When aggregate supply decreases from AS0 to AS1 due to rise in costs ofproduction, the economy will experienceafall inthelevel of real output fromY0 toY1 . Hence,thereisanegativeeconomicgrowthleadingtoanincreaseinunemploymentlevel andahighergeneral pricelevel (P1 ).[1] Diagram[1] (c) With reference to Extract 2, explain one factor a government canconsider whendecidingif it shouldinterveneinthemarket for fertilisers. [2] ©CatholicJuniorCollege 9570/01JC2PRELIMINARYEXAMINATION/2024

2 SuggestedAnswer:Any relevant factor under the Decision-making Framework – costs, benefits,constraints, consequences, informationandperspectives. Factor 1: The government will consider the potential benefits fromtacklingthe negative externalities in the excessive use of fertilisers. MEC incurredwould be the health problems and thus higher healthcare costs notcompensated by people living near farms where the source of pollution is.Thus, intervention will result in improve societal welfareasoverconsumptionandDWLisremoved. ORAlternativefactors:● Thegovernment canalsoconsiderthecostsof intervention–intermsofboth explicit monetary costs in the implementation of policies(administrative&monitoringcostsforlegislation/taxcollection),aswell asimplicitopportunitycosts(governmentexpensesoneducationforgone).● Information available to determine extent of the problemregarding thesize of MEC, whether it is easy to ascertain and size of MEC willdeterminethetypesofintervention.● Unintended consequences of government failure that resulted in largedropincropproductionthat affectedfoodsecurity, exports,andeconomicgrowth. (d) UsingExtract 3,(i) explain two reasons why Luckin Coffee chose to expand its branchesbeyondChina.SuggestedAnswer:LuckinCoffeeisaprofit maximisingproducer whereProfits=TR–TC,thusitwill seek to increase profits through raising TR/ARor minimising TC/ACbyincreasing its scale of production through expansion of its branches beyondChina.Expansionof itsbranchestoothercountries(suchasSingaporeforitsmaturecoffe