2025 NJC Mark Scheme H2 Econs

1 National Junior College Economics Department Preliminary Examinations 2025 Answer Booklet Senior High 2 H2 Economics (Syllabus 9570)

2 Paper 1 – Case Study Question 1 Questions & Suggested Answers (a) With reference to Extract 1 and using a demand and supply diagram, explain how the rise in the price of cocoa led to the change in the price of chocolates. [3] ● Increase in price of cocoa would lead to an increase in the cost of producing chocolate. This would result in a decrease in the quantity supplied of chocolate at each and every price, resulting in a leftward shift of the supply curve for chocolates. [1] ● As seen in the diagram below, the decrease in supply of chocolates would lead to an increase in price of chocolates from P0 to P1. [1m] ● [1m for diagram] (b) With reference to Extract 1, explain two strategies small confectioners, such as a boutique chocolatier, in Singapore used to increase revenue amid rising cocoa costs. [4] ● Strategy 1: 4 One strategy is where price is increased if demand for chocolate remains price inelastic. If consumers view chocolate as a small indulgence. [1] 4 Hence the increase in price will lead to an increase in the firm’s revenue. [1] ● Strategy 2: 4 The firm can aim to change consumers’ taste and preference from the off-the-shelf chocolates to the more customized and DIY chocolates that they could experience and learn to make to cater to their own preferences. [1] 4 This will create higher demand for firms’ chocolate sales, hence increase in total revenue. [1] (c) With reference to Extract 3, (i) explain one negative externality that could arise from the production of cocoa in West Africa. [2] ● According to Extract 3, current cocoa farming practices in West Africa involve extensive deforestation. “Land clearing increases emissions by releasing the carbon stored in forests; it also causes soil degradation, including the loss of organic matter, acidification, and loss of biodiversity”. [1] ● The deforestation caused by cocoa farming imposes negative externality such as carbon emissions, which contribute to climate change and result in higher public expenditure on Figure 1: Market for chocolates P0 P1 Q1 Price ($) Quantity 0 S1 S0 Q0 =QD D0

3 healthcare and disaster response. These external costs resulting, which can amount to billions globally, are not borne by cocoa producers. [1] (ii) explain why cocoa would be over-produced in a free market. [3] ● In a free market, producers only consider their marginal private benefits (MPB) and marginal private costs (MPC) from the production of cocoa. ● External costs arise from the production of cocoa and results in a divergence between the MPC and marginal social benefit (MSC), where MSC is higher than MPC. [1] ● The free -market equilibrium occurs where MPB = MPC, while the socia