TMJC 2023 A Level H2 EQ2 AP Answers

2023 A Level H2 Economics (9570) Suggested Answers to Paper 2 EQ2 © TAMPINES MERIDIAN JUNIOR COLLEGE Question 2 Bad weather and falls in consumer incomes can have different impacts on the prices of agricultural products such as vegetables, rice and grains. (a) Explain the different impacts on the prices of vegetables due to bad weather and falls in consumer incomes. [10] (b) Discuss the effectiveness of different measures that might ensure stability of food prices to consumers. [15] (a) Requirement (1): DD reason (falls in consumer incomes) to explain different impacts on prices of vegetables Requirement (2): SS reason (bad weather) to explain different impacts on prices of vegetables Suggested answer Introduction Question interpretation: • In a free market economy, prices of goods are determined by the forces of demand and supply. Hence in this context, changes in demand for or supply of vegetables will affect the prices of vegetables. Definition of terms: • Demand for vegetables refers to the quantities of vegetables that consumers are willing and able to purchase in a given period of time at various prices, ceteris paribus. • Supply of vegetables refers to the quantities of vegetables that suppliers are willing and able to sell in a given period of time at various prices, ceteris paribus. Body/ Development Using ISSUE framework as a tool of analysis: State initial equilibrium: Initially, the market for vegetables is in equilibrium at the intersection of demand (D1) and supply (S1). Requirement 1: Link to demand factor Falls in consumer incomes would cause the demand for vegetables to fall. As incomes fall, purchasing power of consumers falls h ence demand for vegetables de creases, assuming vegetables are normal necessities (0<YED<1), ceteris paribus. Demand curve

2023 A Level H2 Economics (9570) Suggested Answers to Paper 2 EQ2 © TAMPINES MERIDIAN JUNIOR COLLEGE will shift to the left from D1 to D2 by a small extent as seen in Figure 1 . At the original price P1, there is a surplus of vegetables and this will result in a downward pressure on price. When price falls, quantity demanded increases while quantity supplied rises. The surplus will gradually be eliminated and a new equilibrium is attained where new equilibrium is at Q2 and equilibrium price at P2. Hence there is a slight fall in price of vegetables from P1 to P2. Figure 1 Explore the different impacts of change in demand on prices However, if consumers consider vegetables as an inferior good, the fall in incomes may instead cause the demand for vegetables to rise instead, as consumers eat more vegetables than meat due to affordability, although vegetables may not be good substitutes for meat. Hence the demand for vegetables may rise from D1 to D4 as shown in Figure 1. At the original price P1, there is a shortage of vegetables instead and this will result in an upward pressure on price. Hence there is a rise in price of vegetables from P1 to P4. OR If consumers consider vegetables as a normal luxury good (YED>1), the fall in incomes may cause a larger extent of fall in demand for vegetables, where demand falls from D1 to D3 in Figure 1. The fall in price would be by a larger extent from P1 to P3. OR Since time is required to harvest the vegetable crops, this suggests that the price elasticity of supply is less than one i.e. PES<1. This implies that a rise in price will lead to a less than proportionate rise in quantity supplied, ceteris paribus. Thus, a n inelastic supply, coupled with a rise in demand, means that the price will increase by more than proportionately. Requirement 2: Link to supply factor Bad weather would cause the supply of vegetables to fall. Adverse weather conditions like flooding or drought may destroy crops and hence negatively affect the harvest for vegetables. If farmers take preventive measures to avoid the effects of bad weather, this may add on to their cost of growing vegetables. This increases the unit cost of producing vegetables, leading to a fall in potential profits. Either way, supply falls, ceteris paribus and supply curve shifts from S1 to S2, resulting in a shortage at the original price. Hence

2023 A Level H2 Economics (9570) Suggested Answers to Paper 2 EQ2 © TAMPINES MERIDIAN JUNIOR COLLEGE the price s of vegetables would rise higher than P1 as seen in Figure 2. Assuming vegetables are necessities where demand for vegetables are price inelastic (0<|PED|<1), the rise in price would be by a larger extent from P1 to P1i in order to clear the shortage. Figure 2 Explore the different impacts of change in supply on prices If consumers do not consider vegetables as necessities and hence demand for vegetables tend to be price elastic (|PED|>1), the rise in price would be by a smaller extent from P1 to P1e to clear the shortage. Conclusion Overall effect on prices of vegetables Given that the fall in supply of vegetables due to bad weather would cause the prices to rise, coupled with falling consumer incomes, in which it may cause the prices to fall or rise, the overall effect of both changes in demand and supply on the prices of vegetables depends on consumers’ perception of vegetables. If consumers view vegetables as necessities, the larger rise in prices due to the fall in supply may outweigh the fall in prices due to the small decrease in demand, hence overall the prices of vegetables ri se. However, if consumers view vegetables to be normal luxury or even inferior goods, the impacts on prices would be different. Mark Scheme Level Knowledge, Application, Understanding, Analysis Marks L3 • Analytical explanation of reasons that cause different impacts on the prices of vegetables • A rigorous explanation of both demand and supply factors must be evident. • To enter L3, candidates are expected to explain the different impacts on prices with reference to both the demand curve and the supply curve. 8-10

2023 A Level H2 Economics (9570) Suggested Answers to Paper 2 EQ2 © TAMPINES MERIDIAN JUNIOR COLLEGE • To access the top of L3, a comment linked to PED/YED concepts is expected to address the portion on different impacts on prices. L2 • Limited rigour in analysing reasons that cause changes in prices • An explanation of both demand and supply factors is evident but with gaps in analysis or some inaccuracies. • Unbalanced analysis e.g. only 1 requirement is explained 5-7 L1 • Largely descriptive • Smattering of points that demonstrate some knowledge • Some knowledge of demand and supply factors 1-4

2023 A Level H2 Economics (9570) Suggested Answers to Paper 2 EQ2 © TAMPINES MERIDIAN JUNIOR COLLEGE b) Discuss the effectiveness of different measures that might ensure stability of food prices to consumers. [15] (b) Requirement (1): Effectiveness of measure #1 to ensure stability of food prices to consumers Requirement (2): Effectiveness of measure #2 to ensure stability of food prices to consumers Suggested answer Introduction Question interpretation: • As seen in (a), bad weather and falls in consumer incomes could cause vegetable prices to be unstable. Especially with the on-going problems of global warming and uncertainty in economic outlook, the above situation of unstable vegetable prices is going to be more prevalent, directly causing unstable food prices as well. Hence there is a need for governments to look for ways to stabilise prices to maximise society’s welfare. Body/ Development Requirement (1): Singapore government’s 30 by 30 plan to ensure stability of food prices to consumers Step (1): What the policy is about One measure tha