2021 RI H1 Econs Prelims (Examiner's Report)

1 Raffles Institution 2021 H1 Prelim Suggested answer scheme and comments on specific questions Case Study Question 1 (a) Describe the main changes in the markets for bicycle and e -bikes in Germany from 2015 to 2020 [3] Mark scheme: • There was an increase in the quantity of e-bikes sold per year from 2015 to 2020. [1] • There was a fall in the quantity of bicycles sold per year from 2015 to 2020. [1] • The combined market for bicycles and e-bikes has grown from 2015 to 2020. [1] • Others: o The quantity of e-bikes increased throughout the years while that of bicycles fluctuated with an overall fall. Markers’ Comments Most candidates were able to give a general trend and a refinement to score both marks. A handful still insisted on rewriting the year to year data (b) With the help of a diagram, use supply and demand analysis to explain how the COVID -19 pandemic has been responsible for the changes in the market for bicycles in countries like the USA. [6] Mark scheme: • Accurate diagram [1]; correct axis, direction of shifts • Explain consequence for market for bicycles in countries like the US as a result of the COVID-19 pandemic [5] o Increase DD for bicycles [1] - Increased interest in cycling as people are avoiding public transport given infection risk - Cycling allows people to engage in physical exercise while conforming to social distancing guidelines) → increase in number of avid cyclists - With restrictions on dining in and shopping to reduce the risks of infection, there has been a surge in demand for delivery services, including food and online shopping. As such, there is a rise in demand for bicycles by riders who use it to deliver these items. Change in tastes and preference s in favour of cycling → consumers want more of bicycles → there are now more buyers willing and able to buy at each price level → increase DD [“Demand has almost tripled” (Extract 2)] → demand curve shifts to the right from Do to D1. o Decrease in SS of bicycles [1] - Disruption in bicycle industry’s supply chain → due to the coronavirus, many factories in East Asia, the cent re of the bike industry’s supply chain (Extract 1) were shut down. This led to fall in supply of factor inputs → increase in prices of many of the bicycle components such as drivetrains, derailleurs and brakes (Extract 2 - “prices for pretty much everything – components, replacement parts – are rising”). - Higher costs of production for bicycle manufacturers and suppliers → decrease SS → supply curve shifts to the left from So to S1 o Explain price adjustment process and final effect [3] - With the fall in supply and an increase in demand, at the existing market price of P0, the effect on equilibrium price is determi nate as both will cause it to rise eventually to P1. But the effect on quantity is uncertain.

2 - However, it is likely that the rise in demand is greater than the fall in supply