2024 RI H1Econs Prelims Answers

1 RAFFLES INSTITUTION 2024 YEAR 6 PRELIMINARY EXAMINATIONS Higher 1 ECONOMICS 8843/01 Examiners’ Comments Question 1 (a) With reference to Figure 1, summarise the main changes that occurred in the price of rice between July 2022 to July 2023. [3] • Overall trend: Price generally rose sharply between Jul 2022 to Jul 2023. • Refinement: o Price fell between Jan to Mar 2023 and May to Jun 2023. o Rose at faster rate between Jul 2022 to Jan 2023 compared to Jan 2023 to Jul 2023. (b) With reference to Extract 1 and using a supply and demand diagram, explain how and comment on the extent to which the Russian -Ukraine war might have contributed to the surge in the price of rice. [6] Explain how Russian-Ukraine war has contributed to the surge in price of rice • ‘Russia, the world’s top fertilizer exporter, halted hundreds of exports’ including fertilisers, ‘in response to economic sanctions… after Russia invaded Ukraine ’ → ‘rising fertilizer prices’ → increase cost of production of rice, since fertilisers are an important input in rice production → fall in SS of rice due to decreased profits → SS curve shifts left from S1 to S2. • Moreover, ‘Russia’s withdrawal from the Black Sea grain deal’ → ‘constrained global supply of wheat and corn’ → increase in price of wheat and corn → consumers switch to rice which is now relatively cheaper → increase in demand for rice → DD curve shifts right from D1 to D2. • With reference to Figure 1, initial equilibrium price and quantity are P1 and Q1 respectively. Fall in SS, from S1 to S2 will lead to a shortage of QSQ1 at initial equilibrium price → upward pressure exerted on price. H Figure 1: Rice market

2 • As price increases, quantity demanded falls while quantity supplied rises → this continues until the shortage is resolved at a higher equilibrium price , P2 and equilibrium quantity Q2. • In addition, the rise in DD from D1 to D2 resulted in yet another shortage Q2QD at P2 → following the market adjustment process → this resulted in price rising even higher to P3 with equilibrium quantity at Q3. • Hence, the Russian-Ukraine war resulted in a ‘surge’ in price from P1 to P3. Comment on the ‘extent’: • Explain any alternative contributing factor (must be non-war related): o Weather conditions o PED of rice as a staple o India rice ban • Provide a final conclusion by taking a stand. (c) Explain the statement ‘a stable climate is essentially a global public good’. [4] Explain non-excludable and non-rivalrous characteristics of a stable climate: • Non-excludable: o A public good is non -excludable meaning that it is impossible or prohibitively expensive to exclude non-payers from consuming the good. o For example, a stable climate offers global benefits, such as favorable weather conditions, which would improve agriculture yields . It is impossible to exclude any farmer from the benefits of such favourable weather, even if