RI 2021 H2 Promotion Examination - Examiner's Report

ECONOMICS Higher 2 Syllabus 9757 Examiner’s Report Year 5 Promotion Examination 2021 Raffles Institution Nurturing the Thinker, Leader & Pioneer TEL: 65 6419 9888 ● FAX: 65 6419 9898 http://www.ri.edu.sg ● One Raffles Institution Lane, SINGAPORE 575954

Y5/9757/Promos/2021 2 © RI 2021 [Turn Over ECONOMICS Y5 H2 Promotion Examination 2021 Paper 9757/01 Paper 1 Case Study (a) With reference to Table 1, distinguish the trend in retail sales by ecommerce and non-ecommerce in the US from 2019Q1 to 2021Q1. [2] Suggested Answer: Identify any 2 differences between the trends, including but not limited to: Ecommerce retail sales increased but non-ecommerce retail sales fell from 2019Q1 to 2020 Q1. [1] AND EITHER Ecommerce retail sales increase throughout the stated time period but non- ecommerce retail sales increased only from 2019Q1 to 2020Q1. [1] OR Ecommerce retail sales peaked in 2021Q1 while that of non-ecommerce retail peaked in 2020Q1. [1] Mark Scheme - 1m for each difference in trend identified - Max 1m if no consideration of the trend for overall time period from 2019Q1 to 2021Q1 at all - Max 1m if no comparative word is used to distinguish between ecommerce sales level and non- ecommerce sales level Examiners’ Comments - Given the command word “distinguish”, students need to provide 2 differences. - Trend questions require students to pick out distinctive feature(s), hence answers that are too detailed (e.g. responses that provide each year-on-year differences) will not be given credit. - Read the question carefully. The question is asking for trend in level of sales, not trend in percentage change or growth rate changes in sales. - To secure the first mark, do not break up the time period but distingu ish the trend in level of sales between ecommerce and non- ecommerce across the entire stated time period from 2019Q1 to 2021Q1. (b) Use the concept of opportunity cost to explain one effect on Amazon as a result of “prioritizing the stocking of essential, like household staples and medical supplies” as referred to in Extract 2. [2] Suggested Answer: • Define opportunity cost: the (benefits from) next best alternative forgone

Y5/9757/Promos/2021 3 © RI 2021 [Turn Over • Application of case material specific to Amazon: The opportunity cost incurred by Amazon when it prioritizes the stocking of essentials is forgoing the revenue (or profits) it could otherwise have received from selling “non-essential goods like flat-screen TVs and toys” (Extract 2). Mark Scheme A response that integrates the concept of opportunity cost into the explanation and uses case evidence to explain what Amazon is giving up by prioritizing the stocking of essential items 2m Defining or explaining opportunity cost theoretically with no link s to the context and/or no links to the benefit that is being forgone (e.g. revenue forgone from sales of essentials), max 1 1m Examiners’ Comments - The majority of students secured full credit for this question. - To secure full credit, students should explain the effect on Amazon using the concept of opportunity costs clearly. Some students explained effects without application of opportunity costs. - Students are reminded to manage their time properly and not write too much for a response that is worth 2 marks out of 30 marks. (c) Discuss the impact the COVID-19 pandemic has on the profits of an ecommerce company in the US. [8] Suggested Answer: Assume that an ecommerce company in the US (like Amazon) is a profit -maximizing firm, operating under an oligopolistic market structure. Profits = total revenue – total cost. The Covid-19 pandemic can affect its profits either positively or negatively due to impacts on demand/revenue and costs. Possible thesis: Covid-19 has a positive impact on the profits due to rising demand for products sold by US ecommerce companies’ because - Demand for online sales and ecommerce has increased because Covid-19 has caused consumers to switch from purchasing from brick-and-mortar stores to buying online, ceteris paribus o Evidence from Extract 1: “Self-imposed social distancing to avoid contagion, together with the strict confinement measures implemented in many countries, have put a large share of traditional, brick -and-mortar street -side retail virtually on hold, at least temporarily. However, sales increased for non-store ecommerce retailer.” o Economic analysis: With consumers’ increased preference for online retail and inability to purchase from physical retail stores, the demand for an ecommerce firm will rise, as indicated by the rightward shift of the firm’s DD/AR curve from AR1 to AR2 and MR1 shifts to MR2 in Figure 1, cet. par. o The PED for the ecommerce firm would also likely become more price inelastic as the physical retail can be deemed to be less of a substitute for onlin e retail due to Covid- 19. Hence, the AR and MR curves also become steeper. o Ceteris paribus, at the new profit-maximising price P2 and quantity Q2 where MC = MR2, the ecommerce firm will enjoy a higher revenue and a higher supernormal profit of area P2CDAC2 than the original profit of area P1ABAC1, meaning that its profit is positively impacted by Covid-19.

Y5/9757/Promos/2021 4 © RI 2021 [Turn Over Possible antithesis 1: Covid-19, however, could have a negative impact on the demand for products sold by ecommerce companies in the US because - Falling global income due to the economic recession caused by Covid- 19 would lead to a fall in demand for products sold online, assuming that the ecommerce company is selling normal goods with YED > 0, ceteris paribus. o Evidence from Extract 1: “the global economy predicted to shrink by at least four percent over the year” o Economic analysis: Falling AR and MR will lead to lower profit -max price and output levels and in turn total revenue, ceteris paribus, profits for the ecommerce firm fall. Possible antithesis 2: The costs of production (fixed and/or variable costs) could have increased duri ng the Covid-19 pandemic due to - Higher variable costs of production could be incurred due to supply -chain disruption during Covid- 19 o Evidence from Extract 1: “ Restrictions on movement” of labour “affecting production, distribution and consumption ”  fall i n supply of labour  increase in wage rates, a variable cost to the company o OR Evidence from Extract 2: Walmart “hiring an additional 200,000 people” to “meet growing demand for delivery” or Amazon “hiring 175,000 additional workers to keep up with the heightened demand” o Economic analysis: As wage rates increase or as the ecommerce company hires more labour to meet the current as well as anticipated future rise in demand for online purchases, they could incur higher variable costs. Hence the firm’s MC and AC curves will shift upwards as shown in Figure 2 below from AC1 to AC2 and from MC1 to MC2 respectively in Figure 2 below. Assuming revenue curves are constant, at the new profit - maximising price P2 and quantity Q2 where MC2 = MR, the ecommerce firm will i ncur a higher total cost and earn a lower supernormal profit of area P2CDAC2 than the original profit of area P1ABAC1, meaning that its profit is negatively impacted by Covid- 19. AC AR 2 MR 2 Price/Revenue/Cost MC AR 1 Quantity P 1 O MR 1 Q 2 P 2 Q 1 Figure 1 AC 1 AC 2 A B C D

Y5/9757/Promos/2021 5 © RI 2021 [Turn Over Evaluation (Judgement can be in the body paragraphs or in the concluding paragraph) - Overall, Covid-19 is likely to have a positive impact on profits of an ecommerce company in the US because the effects from the demand increase due to consumers’ rising preference for online retail is likely to be greater than the effects due to rising costs of production or falling global inco