2024 MI Prelims H1 Econs (A) Micro CSQ

1 2024 H1 EOY Exams – Micro Case Study Suggested Answers (a) With reference to Figure 1, compare China’s domestic and international passenger traffic recovery (to 2019 levels) for the period between January 2020 and January 2024. [3] • Domestic passenger traffic fluctuated widely between February 2020 and January 2023 while international passenger traffic showed little or no change till after January 2023. [1] • Both domestic and international passenger traffic began to recover around January 2023. [1] • Domestic passenger traffic experiences complete recovery to 2019 levels by April 2023 but international passenger traffic did not recover to 2019 levels at all. [1] • Overall, domestic passenger traffic increased slightly while international passenger traffic decreased by about 42 % compared to 2019 levels. [1] Any three points for 3 marks. (b) (i) Explain the opportunity cost of Chinese government subsidies to the tourism industry. [2] • Opportunity cost is the next best alternative forgone. [1] • Extract 1 says that subsidies to tourism cost China over 500 billion dollars. • This money could have been better used in an alternative area such as healthcare for its citizens. [1] (ii) Using a Production Possibility Curve diagram, explain two benefits of the sharp increase in domestic tourism in China. [5] • Due to covid19 lockdowns, the Chinese economy is operating inside PPC 1, at point A in Figure 1 below, implying unemployed and underemployed resource utilization. • With a sharp increase in domestic tourism , as evidenced in extracts 1 & 3, this situation will be reversed leading to better resource utilization. [1] The economy moves from operating inside the PPC to the boundary of PPC1, at point B , representing actual growth. [1] • In addition , more investments may improve the quantity and quality of capital goods in the economy enhancing the productive capacity. Extracts 1 & 3 suggest improvements to infrastructure such as rail and air networks as well as innovations arising in the industry. [1] As a result the entire curve shifts outwards to PPC2, and the possibility of operating at point C, representing potential growth. [1] • Clearly labelled, correct diagram. [1]

2 Figure 1: PPC for China (c) (i) Using information from Extracts 1 & 3, identify and explain one demand factor and one supply factor that contributed to recovery of the domestic airline market in China. [4] • Demand fact