2025 ASRJC Paper 2 - Mark Scheme

1 © ASRJC Economics Department 9570/02/JC2 Prelim /2025 Anderson Serangoon Junior College 2025 H2 Economics Prelim Paper 2 Suggested answers Question 1 1 The price of a cup of coffee has surged, due to poor crop yields in drought-hit Vietnam, while coffee consumption in Southeast Asia continues to rise due to growing affluence. In Singapore, regular coffee drinkers have noticed rising prices at their usual chains, with international brands such as Starbucks and Bacha Coffee seeing larger price increases than local brands like Heavenly Wang, Ya Kun, and neighbourhood coffee shops. (a) Explain how elasticities of demand can assist in understanding each of the effects of poor crop yields and growing affluence on the prices of different brands of coffee drinks. [10] (b) Discuss the impact of a rise in the price of a cup of Starbucks coffee on their revenue and the revenue of retailers selling related goods. [15] Part (a) Suggested Answer Key Points The price of coffee drinks is determined by demand and supply factors, which are influenced by poor crop yields and growing affluence. The concepts of price elasticity of demand (PED) and income elasticities of demand (YED) can help to explain how the pric es of different brands of coffee drinks are affected when supply falls due to poor crop yields and when demand rises because of growing affluence for both international and local brands of coffee drinks. R1: PED helps explain how poor crop yields affect the prices of different brands of coffee drinks. Poor crop yields will cause prices of coffee drinks to increase due to a fall in supply. Bad weather, such as droughts and floods directly disrupts agricultural production. This disruption often leads to a significant reduction in the supply of crop yield including coffee plants. Since coffee beans are a factor of production of coffee, the rise in price of coffee beans due to poor crop yield will lead to a rise in cost of production for coffee drinks. This results in a leftward shift of the supply curve fro m SS0 to SS1 as shown in Figure 1. Figure 1 Introduction Q2 Q1 Qi Q0 Pi Pe P0 DDi SS0 Quantity of Coffee Drinks Price SS1 DDe

2 © ASRJC Economics Department 9570/02/JC2 Prelim /2025 The extent of impact of a rise in cost of production on prices of different brands of coffee drinks will depend on the different PED value. Demand for international brands such as Starbucks and Bacha Coffee are likely to be price inelastic in demand (represented by the DDi curve) due to the brand’s strong advertising and brand loyalty. As the fall in supply from SS0 to SS1 will lead to a shortage of Q0Q2 amount at the original price, P0. This exerts an upward pressure on the market price. As price increases , quantity demanded falls and quantity su