TJC 2024 Prelim H1 Econ Suggested Answers

TJC 2024 Prelim H1 Answers updated and aligned to TM Econs 1 Question 1: The clothing and textile industry Suggested Answers (a) With reference to Figure 1, compare the percentage change in price index of food to that of clothing from 2019 to 2022. [3] Similarity: • The percentage change in both price indices have increased over the period. [1] Differences: • While the percentage change in price index for food has been positive over this period, the percentage change in price index for clothing has been negative except after mid-2021. [1] • The percentage change in price index for food has always been higher than that for clothing. [1] (b) With reference to Extract 1, (i) Explain why the value of price elasticity of demand (PED) of clothing will change. [2] • Given “the wallet is fixed and with price of clothing going up” (Extract 1), this suggests that the proportion of income spent on clothing is increasing. [1] • Hence, the value of PED of clothing is increasing / getting larger [1]; demand is becoming more price elastic. (ii) Using a demand and supply diagram and given the relationship that exists between PED and total revenue, explain why “retailers can’t expect the price increases to translate into higher profits” (Extract 1). [4] • Given from (bi) that the demand for clothing is becoming more price elastic, the rise in price of clothing will lead to a more than proportionate decrease in quantity demanded, ceteris paribus. [1]

TJC 2024 Prelim H1 Answers updated and aligned to TM Econs 2 • The fall in revenue due to the decrease in quantity demanded (area Q2BCQ1) is likely to exceed the increase in revenue due to the increase in price (area P2ABP1). [1] • Assuming that the cost of production remains constant / ceteris paribus, profits of producers will fall. [1] (c) A public good has the characteristics of non-rivalry and non-excludability. Comment on the extent to which a clean aquatic environment (Extract 2) fulfils these characteristics. [6] Question Interpretation Command phrase Comment on the extent This question requires a balanced approach on whether a clean aquatic environment exhibits the characteristics of a public good. Content Public good Two characteristics of non -rivalry and non - excludability are to be examined. Context Clean aquatic environment Context has been specified. Introduction: • Non-rivalry refers to the case where the consumption of a good by one does not diminish the availability or quality of the good to the next consumer. Non-excludability is the case where it is impossible or prohibitively expensive to exclude a non -payer from consuming the good once it is provided. • The following response will consider if a clean aquatic environment fulfils the characteristics of a public good Thesis: A clean aquatic environment can be non-rivalrous and non-excludable. • A clean aquatic environment can be argued to be non-rivalrous in its consumption as one’s enjoyment of the clean aquatic environment for e.g. scenic view does not diminish another’s enjoyment of the same environment if it is in abundance. • A clean aquatic environment can also be argued to be non -excludable as it can be very costly, and hence unfeasible, to exclude others from enjoying the environment for e.g. it is almost impossible to stop people from enjoying the aquatic life underwater by containing it or at high seas where these areas beyond national jurisdiction. Anti-thesis: A clean aquatic environment can be rivalrous and excludable. • If one were to exploit or overuse the aquatic environment for the resources, it provides or the case of water pollution with toxic chemicals & micro plastic fibres that enter the water system (Extract 2) such that the quantity and quality of aquatic life is severely diminished then a clean aquatic environment can be argued as riva lrous in nature. • In the context of aquatic environment, one can be excluded from the enjoyment of it where there are maritime boundaries drawn for monitoring and enforcement purposes. Non-permit holders (non-payers) can be excluded or not allowed access from such environment.

TJC 2024 Prelim H1 Answers updated and aligned to TM Econs 3 Evaluative Conclusion: • [Stand & Situation/Magnitude] A clean aquatic environment cannot be deemed to be a public good although it has public good characteristics. Given that there are issues with environmental degradation and potential over -usage of the resources (aquatic life), a clean aquatic environment is not a public good. Mark Scheme Level Knowledge, Application, Understanding and Analysis Marks L2 For a well-developed answer that has: ● Good scope and balance – explains both cases of non- rivalry & rivalry and non-excludability & excludability ● Good rigour – good application to context of a clean aquatic environment 3 - 4 L1 For an underdeveloped answer that ● Lacks scope and balance – only explains either non - rivalry/rivalry and non-excludability/excludability ● Lacks rigour – descriptive explanation the concepts of non-rivalry/rivalry and non -excludability/excludability without linking to context 1 - 2 Plus up to 2 marks for Evaluation E For a well-substantiated evaluative judgement on whether a clean aquatic environment is a public good 1 - 2 (d) (ii) With reference to Extract 2, explain the negative externalities from the production of clothing. [2] • [ET] The production of these items give rise to external costs on third parties who are not directly involved in the production or consumption of the good. For example, production of clothing lead to pollution of water sources (Extract 2), which may lead to medical costs incurred [1] by residents who stay near or use these water sources. [1] (d) (ii) With the aid of a diagram, explain why the market fails from the production of clothing. [5] • [P] When deciding on the amount of clothing items to produce, a producer only considers his own private costs and benefits and ignores the external costs on third parties. An example of the marginal private benefit (MPB) of clothing production is its marginal revenue, while an example of the marginal private cost (MPC) is the marginal cost of wages paid. [1] • However, as mentioned in dii, there are external costs incurred on third parties. • [Divergence] The presence of MEC creates a divergence between MSC and MPC. Diagrammatically, the MSC of clothes production lies above the MPC by the amount equivalent to MEC as shown in Figure 1. [1] Assuming that there are no positive externalities, MPB = MSB.

TJC 2024 Prelim H1 Answers updated and aligned to TM Econs 4 • [Qp vs Qs] Without government intervention, the free market produces Qp units of clothing, where MPB = MPC. However, the socially optimum level of production is Qs units of clothing, where MSB = MSC. There is overproduction as Qp > Qs. [1] • [Deadweight loss] From Qs to Qp units, the total social costs (area QsacQp) exceed the total social benefits (area QsabQp). The shaded area ‘abc’ represents the net costs to society and is thus a de