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(suchasSingaporeforitsmaturecoffeeconsumer market) will helptocapturegreater global marketshareandthus raisetheoverall demandfor itsproducts[1], shiftingARtotheright andthusincreaseTRasPriceandOutputbothincrease,increasingprofits[1].Expansion also allows the firmtoenjoyinternal EOSwhichascostssavingsthefirmenjoysasitexpanditsscaleofproduction[1],suchaslowerunitCOPthroughbulksavingsfromingredientcosts–lowerAC,increasingprofits[1]. [4] (ii) Discuss whether the introduction of mobile app is likely to benefitLuckinCoffee. [8] ©CatholicJuniorCollege 9570/01JC2PRELIMINARYEXAMINATION/2024

3 QuestionInterpretation: Command Discuss whether – two-sided answer with a well-reasonedconclusionContent Non-price strategy – mobile app is a formof innovation, toincreaseprofitsContext LuckinCoffeeApproachThesis:Useofinnovationasastrategytoincreaseprofits Anti-thesis:Limitationsofusinginnovationasastrategytoincreaseprofits Overall conclusion–Standandjustification–Will thestrategyofinnovationbenefitLuckinCoffeeornot SuggestedAnswer:Introduction:● Assume Luckin Coffee aims to maximise profits and is operating in acompetitiveoligopolyinthecoffeeindustry.Thesis: Mobile app is an example of non-price strategy to increaseprofitsfor LuckinCoffee.● Use of bigdataandmobileappeliminatesthe‘needtoqueue’ whichcanbesomethinguniqueaboutthecoffeebrand,appealingtoconsumerswhovalue convenience. Hence may help to increase AR/MRand makePEDmore price inelastic due to its convenience and unique offerings, henceprofitsrise. ©CatholicJuniorCollege 9570/01JC2PRELIMINARYEXAMINATION/2024

4 Figure1:RiseinAR/MRandPED<1 ● FromtheaboveFigure1,ARandMRincreasefromAR0andMR0toAR1and MR1, becoming steeper and more price inelastic in demand. ProfitsrisesfromC0P0ABtoC1P1DE. Anti-thesis: Limitations in using big data and mobile app to increaseprofitsfor LuckinCoffee● May experience high initial fixed costs of R & D involved in thedevelopment of the mobile app–maydriveupcosts, henceACmaynotfall but in fact rise to AC2 and reduce initial profits from C1Pba tosubnormal profitsofPC2ab. Figure2: Risein AC due tofixed costsofR & D ● Therefore, there is a needfor Luckin Coffee to have past supernormal profits tocover thesecosts. However, thisisunlikelyasignificantproblemtoLuckinCoffee givenitsabilitytoretainhugesupernormal profitsearnedsofar initsdomesticmarketinChina.Synthesis(SummativeConclusion):Substantiate using Time Frame: Thebenefit of usingmobileappoutweighsits costs due to its appeal to the younger generation who are likely Luckin ©CatholicJuniorCollege 9570/01JC2PRELIMINARYEXAMINATION/2024

5 Coffee’s target audience. Theymayalsobekeener tomakeuseof theapp’sreferral system. MarkScheme: MarkingSchemeLevel Knowledge, Application, UnderstandingandAnalysis MarkL2 For a well-developed and balanced answer on whethermobileappcanincreaseprofitsanditslimitations.Clearandcoherent analysis, grounded by economic concepts,frameworks and principles and with application to LuckinCoffee. 4-6 L1 Answer lacksbalanceorscopeorreferencetocasematerialordetails.Max 3 – If benefitsof mobileappareexplainedbut withoutanylimitations 1-3 EvaluationE Makes a substantiated judgement that answers thequestion. 1-2 (e) Discuss whether the use of technology or public education is the moreeffectivewaytoachievefoodsecurityandaffordabilityinSingapore. [10] QuestionInterpretation: Command Discuss whether – two-sided answer with a well-reasonedconclusionContent Useoftechnology–AffectssupplywithPEDanalysisPubliceducation–AffectsdemandwithPESanalysisHowtheabovechangeshaveaffectPeandQeinthemarketforfood. Context FoodmarketinSingaporeApproachThesis1:UseoftechnologytoincreasesupplyoffoodAnti-thesis1:Limitationsofstrategy Thesis2:UseofPublicEducationtodecreasedemandforfoodAnti-thesis2:Limitationsofstrategy Overall conclusion – Stand andjustification–whether demandor supplyfactorismoreeffective Introduction:● Food security (increasing equilibrium quantity to be self-sufficient) andaffordability(ensuringstableequilibriumprices).©CatholicJuniorCollege 9570/01JC2PRELIMINARYEXAMINATION/2024

6 ● Aimof governmentpoliciesaretoinfluencesupplyanddemandinordertoachievethegoalsabove. Policy1: Useof technology–increasesupplyof food● The use of technology in redeveloping the Lim Chu Kang area andtransforming it into a ‘vibrant, high-tech agri-food cluster to boost thedomesticfoodproduction’ helpstoimproveproductivityinfoodproductionandreducetheunit cost ofproducingfoodinSingapore.Thiswill increaselocal supplyoffoodsupplyshiftstotherightfromS1toS2. Figure1:Supplyrisingduetouseoftechnology ● Given that the price elasticity of demand for food is generally priceinelasticduetoalackofsubstitutes,thiswill helptobringdownequilibriumpriceof foodtoalargeextent fromP0toPinelasticandincreaseoutputoffoodfromQ0toQinelastic(thusattainbothfoodsecurityandaffordability).● This impact on supply is likely to persist into the long run given theSingapore government’s ‘30 by 30’ vision. Hence, we should be able toseeacontinuedfall inpricesoffoodintothefuture.LimitationsB