2024 ASRJC Prelims H1 Econs (A)

1 2024 Preliminary Examination H1 Economics Suggested Solutions and Markers’ Comments Question 1: Agriculture and food (a) (i) With reference to Figure 1, identify the difference in the change in prices between field crops and intermediate foods and feeds. [1] Difference: Change in prices of field crops is greater than change in prices of intermediate foods. (1m) (a)(ii) Using a relevant elasticity concept and with the aid of a diagram, explain how an increase in demand could account for this difference in the change in prices between field crops and intermediate foods and feeds. [4] Price elasticity of supply (PES) measures the degree of responsiveness of quantity supplied of a good to a change in its price, ceteris paribus. Using PES, intermediate foods are already processed product and so there are available stocks hence supply is more price elastic than that for field crops. However, field crops require long periods of growth making the supply more price inelastic as well as they are easily perishable and so firms cannot keep large amounts of stocks. With an increase in demand, the shortage can be more easily remove as producers respond to the price increase of intermediate food by increasing quantity supplied by more than proportionately as they have available stocks. Thus, there is a smaller increase in the price of intermediate food than field crops is sufficient to clear the shortage. (b) With reference to Extract 2, use a supply and demand diagram to explain a possible effect on the market for durians of both: • China’s insatiable demand for durians • Farmers of other crops switching to growing durians instead [5] Increase DD + Increase SS (no. of sellers) Demand factor The demand for durians increases due to increase in the tastes and preferences for durians especially from China which accounted for 91% of global demand which surged by 400% between 20021 and 2022. This causes the demand curve to shift rightwards from D0 to D1. Supply factor In Extract 2, it is also mentioned that more Thai farmers of other crops are incentivized to grow durians due to expectations of higher profits from durians. This increases the number of sellers in the durian market. This increase in supply is evident by the 80% rise in the area under durian cultivation. This causes the supply curve to shift rightwards from S0 to S1.

2 The rise in demand and increase in supply of durians will lead to increase in equilibrium quantity. However, the impact on the equilibrium price is indeterminate and will depend on the relative extent of the shifts in demand and supply. Increase in DD > Increase in SS If the increase in demand outweighs the rise in supply for durians as Extract 2 mentioned that China’s "craze" for durian has been the driving force behind the 400% surge in global demand for the fruit between 2021 and 2022 but the increase supply may not be as huge because durian trees take a few years before they