RI 2023 H2 Y6 Common Test - Examiner's Report

ECONOMICS Higher 2 Syllabus 9570 Examiner’s Report Year 6 Common Test 2023 R a f f l e sI n s t i t u t i o n N u r t u r i n g t h e T h i n k e r , L e a d e r & P i o n e e r TEL: 65 6419 9888 ● FAX: 65 6419 9898 http://www.ri.edu.sg ● One Raffles Institution Lane, SINGAPORE 575954

Y6/9570/CT/2023 2 © RI 2023 [Turn Over ECONOMICS Y6 H2 Common Test 2023 Paper 9570/02 Paper 2 Question 1 While some countries such as Malaysia provide subsidies on electricity, other countries like Singapore allow the free market to determine its price. In 2022, the price of electricity in Singapore surged from $0.18/kWh to $0.32/kWh, partly due to a rise in the price of imported natural gas. (a) Explain the possible reasons for the surge in price of electricity in Singapore. [10] (b) Discuss whether providing subsidies for electricity is the best way for Singapore to improve outcomes for society. [15] Part (a) Introduction: - As stated in preamble, electricity prices are determined by the free market → free forces of demand and supply. - “Surge” means significant extent of rise in price: ▪ likely due to both rise in demand and fall in supply; ▪ coupled o with price-inelastic demand for a change in supply; and o price-inelastic supply for a change in demand Body: Explain 3 reasons (1 DD, 1 SS and PED or PES) for the sharp rise in price of electricity A. Demand Factor Possible Factors: ▪ Economic recovery as borders open and economic activities resume ▪ Covid measures and work-from-home/or easing of Covid measures leading to more people going outdoors for entertainment and recreation – thus higher demand for electricity. Elaboration: Economic recovery (rise in income) together with easing of Covid measures: ▪ Rise in demand for manufactured goods as well as services/recreation/entertainment as safe distancing measures cease and incomes start to rise (apply YED concept – these goods are normal goods → YED>0) – rise in demand for electricity as electricity is a factor input (derived demand). Economic Analysis: As shown in Figure 1, w ith the rise in demand, the demand curve shifts from D Do to DD1. This causes a shortage of Q0Q2. With this shortage, consumers bid up prices to compete for these goods. As prices rise, some consumers leave the market as they can no longer afford it and there is a fall in quantity demanded from Q2 to Q1. A higher price entices firms to increase the quantity supplied from Q0 to Q1 due to greater profitability. The final equilibrium price rises to P1 and quantity rises to Q1.

Y6/9570/CT/2023 3 © RI 2023 [Turn Over Applying PES: Supply of electricity is price -inelastic as it takes time for Singapore to incr ease quantity supplied since the input – natural gas has to be imported. Time is needed to sign new contracts or find more foreign producers. As a result of pr