NYJC 2024 Prelim H1 Econ Suggested Answers

NYJC 2024 Prelim H1 Answers updated and aligned to TM Econs Question 1: Impact of Russia-Ukraine War on Various Industries Suggested Answers (a) With reference to Table 1, compare the prices of meat, cereal and dairy over the period shown. • The prices of meat, cereal, and dairy increase over the period of 2016 - 2022. [1] • The price of cereal rises every year over the period of 2016 – 2022 while others do not. [1] • The price of dairy ha s the largest increase, followed by the price of cereal and lastly the price of meat. [1] [3] (b) (i) Explain one function of the price mechanism. • Price serves signalling function as consumers indicate their desire for a good or service through the price he is willing and able to pay. The higher the desirability for the product, the higher the willingness and ability to pay. • This further serves as incentive function for producers, who will then channel resources towards producing goods and services that fetch the highest price since higher price guarantees higher profit. • Lastly, price also serves rationing function . As resources and hence goods and services are scarce, a shortage will exert upward pressure on prices. The increase in price will eliminate consumers who unwilling and unable to pay. Hence the scarce goods and services are rationed out to the consumers who are most willing and able to pay for them. State [1] and explain [1] any 1 of the 3 functions above. [2] (ii) With reference to Extract 1, explain and comment whether demand or supply factors have a greater impact on the rising price of food. • To determine whether demand factors or supply factors have a greater impact on the market for food in the long run, we will consider the extent of shifts in demand and supply. • Explain change in SS of food : From Extract 1, unplanted land in Ukraine and poor harvest worldwide due to bad weather will reduce supply of food grains and crops. Price of food grains will rise. Cost of production for food will rise. Cost of production will also rise due to increase payment and transport costs. With an increase in cost of production, supply of food will fall. [6]

NYJC 2024 Prelim H1 Answers updated and aligned to TM Econs • Explain market adjustment process to derive impact on eqm P & Q when ss falls: A decrease in supply will shift the supply curve for food leftwards from S0 to S1. At the original price, P0, this creates a shortage of Q0Q2, since quantity demanded (Q2) exceeds quantity supplied (Q0). The surplus puts a n upward pressure on price, causing quantity supplied to rise and quantity demanded to fall. The adjustment process continues until the new equilibrium price and quantity is reached at P1 and Q1 respectively. Hence, the decrease in supply causes a rise in the equilibrium price from P0 to P1 and a fall in equilibrium quantity from Q0 to Q1. • Explain change in DD for food: From Extract 1, there is a “sharp rebound in post-pandemic lockdown demand”. This could be due to a change in tastes and preferences of consumers as consumers could gather with friends and dine out , increasing the demand for food. • Explain market adjustment process to derive impact on eqm P and Q when dd rises: An increase in demand will shift the demand curve rightwards from D0 to D1. At the original price, P0, this creates a shortage of Q0Q2, since quantity demanded (Q2) exceeds quantity supplied (Q0) . The shortage puts an upward pressure on price, causing quantity demanded to fall and quantity suppled to rise. The adjustment process continues until the new equilibrium price and quantity is reached at P1 and Q1 respectively. Hence, the

NYJC 2024 Prelim H1 Answers updated and aligned to TM Econs increase in demand causes a rise in the equilibrium price from P0 to P1 and quantity from Q0 to Q1. • Make a judgement on whether demand or supply factors have a greater impact on the rising price of food : Supply factors may have a greater impact on the rising prices of food. Both Russia and Ukraine are major producers of food “accounting for about 30 per cent of global wheat trade”. In addition, poor harvests worldwide due to bad weather could decrease supply of food significantly. The increase in demand for food is probably not as significant considering that there is a limit to how much more food each consumer can consume. • Explain market adjustment process to derive impact on eqm P and Q when rise in dd < fall in ss: Market equilibrium is established where the demand and supply curves D0 and S0 intersect, resulting in equilibrium price P0 and quantity Q0. An increase in demand and decrease in supply causes the demand curve to shift from D0 to D1 and the supply curve to shift from S0 to S1 respectively. This increase in demand and decrease in supply would collectively le ad to a shortage of Q3Q2 causing a definite rise in equilibrium price from P0 to P1. Since the increase in demand is less than the decrease in supply, supply will dictate the direction of quantity, leading an overall fall in equilibrium quantity from Q0 to Q1. Mark Scheme Knowledge, Application, Understanding and Analysis L2 • A clear and coherent answer that is relevant to the question requirements and case study material. • Answer covers sufficient scope with both demand and supply factors: o Explains how demand factor leads to increase in price. o Explain how supply factors lead to increase in price. 3-4

NYJC 2024 Prelim H1 Answers updated and aligned to TM Econs o Explain how an overall combination of demand and supply factors could lead to increase in price. • Answer is accurate and has sufficient depth: o Detailed and accurate explanation of economic concepts. o Economic analysis is applied to the context of the case study. L1 • Answer is mostly relevant to the question requirements but lacks scope (e.g. explain either the demand or supply factor only). • Explanation of economic concepts may be incomplete or contain inaccuracies, with limited application to the question. 1-2 E1 • One evaluative point that is well-explained with a clear, overall relevant stand in the conclusion. 1-2 (c) Using Extract 1 and a production possibility curve diagram, explain the impact of the Ukraine war on the Ukrainian economy. • From Extract 1, “20 to 30 per cent of land in Ukraine producing winter grains, corn and sunflower will remain unplanted”. [1] • There is an under-utilisation of resources (land), leading to a fall in the production of goods in the economy with the productive capacity unchanged. [1] • Point B on PPC 0 shifts inwards to point A as shown in the above PPC diagram. [1] [3] (d) Using a relevant price elasticity concept, explain the impact of the Russia-Ukraine war on Russia’s fertiliser export revenue. [4]

NYJC 2024 Prelim H1 Answers updated and aligned to TM Econs • From Extract 2, “Russia's invasion of Ukraine in February, and the sanctions and trade supply disruptions that followed then pushed prices even higher”. There is an increase in the price of fertilisers. [1] • Since fertiliser plays a crucial role in modern farming due to its high level of necessity for ensuring robust crop yield, the demand for fertilisers is price inelastic. [1] • With an increase in price, the fall in revenue due to fall in quantity will be lesser than then gain in revenue due to rise in price. [1] • Overall, total export revenue will rise. [1] (e) (i) With the aid of a diagram, explain the source of market failure in the fertiliser market as mentioned in Extract 3. • [Divergence] There is Marginal External Cost (MEC) from the consumption of fertilisers, either as higher medical costs from consuming water (monetise the external cos