2023 RI H1 Econs Prelims (Examiner's Report)

1 RAFFLES INSTITUTION 2023 YEAR 6 PRELIMINARY EXAMINATIONS Higher 1 ECONOMICS 8843/1 Examiners’ Comments Question 1 (a)(i) With reference to Figure 1, describe the trend in cotton prices during the period 2018 to 2022. [2] • Overall, cotton prices rose. • Cotton prices fell in 2020 OR • Cotton prices fell from 2019 to 2020 Examiners’ Comments: - Most managed to provide the overall trend and a refinement correctly. - Candidates need to remember that there is no need to provide figures in their answers. (ii) With reference to Extract 1, explain how ‘extreme rainfall in India’ may affect the extent of change in price of cotton in 2021. [3] • Identify that cotton prices rose the most in 2021. • From Extract 1, heavy rainfalls in India caused the supply to fall. This led to the supply curve to shift leftwards from S0 to S1. A shortage results and prices are bided up. • From Extract 1, India is “part of the top 10 cotton exporters”; it “alone contributes over 26% of global cotton production”. The fall in supply of cotton in India will have a huge impact on the total world supply. In this regard, the huge shortage that ensues will cause world prices to rise very significantly in 2021. Alternative Approach: Demand for cotton is price inelastic as it is an essential input for clothing and furniture. As shown in Figure 1, the price is likely to rise more than H Figure 1: World Market for Cotton

2 proportionately from 0P0 to 0P1 compared to the fall in equilibrium quantity from 0Q0 to 0Q1 as a result of a decrease in supply of cotton. Examiners’ Comments: - Most candidates could identify the supply determinant and applied the market adjustment process to analyse the effect on equilibrium price and quantity. - However, there were answers that could not identify from Extract 1 the evidence for India’s impact on the world cotton supply and hence the significant increase in the world price of cotton. - Answers that applied PED concept as the reason for the huge rise in price tend to misuse the term ‘habitual consumption’. Cotton is a resource, thus the price-inelastic demand for cotton should be linked to its importance as an input. (b) Using Extract 2, and with the help of an appropriate diagram, explain the likely impact of a removal of cotton subsidies by the USA on the standard of living of cotton farmers in a developing country like India. [5] • Clarify standard of living – both material (amount of goods and services available for the average individual to consume within a given period of time) and non-material (qualitative aspects of welfare which will include heath levels, literacy rate). • From Extract 2, significant subsidies to US cotton farmers were removed. This led to a rise in cost of production for US cotton farmers and resulted in a fall in supply, represented by a leftward shift of the supply curve. Price of cotton in US rose sharply as a result of