2025 ASRJC Paper 1 - Mark Scheme

1 © ASRJC Economics Department 9570 / JC2 Prelim / 2025 Anderson Serangoon Junior College 2025 H2 Economics Prelim Paper 1 Suggested answers Question 1: The travel industry: A dilemma for the government (a) With reference to Table 1 and using a demand and supply diagram, explain the relationship between air fares and passenger airline revenue between 2019 and 2020. [3] Between 2019 and 2020: Air fares decrease, TR decrease 🡪 positive/direct relationship Reason: fall in DD due to government policy of lockdowns and fear of contagion > fall in SS due to expectations of fall in profits (or due to lockdowns so planes cannot fly) 🡪 P falls, Q falls therefore TR falls Alternatively: Can accept diagram showing fall in demand only ● Explain Fall in DD ● Recognise that TR = PxQ ● P and Q fall 🡪 TR falls OR Increase in SS with inelastic demand P falls and Q increases by less than proportionately TR falls (b) With reference to Table 2, compare the income elasticity of passenger demand for air travel between short -haul and long -haul flights for both developed and developing countries. [2] Similarities: ● Both have positive income elasticity of demand ● YED for long haul flights > short haul flights for both developed and developing countries. Difference: For developed countries, YED for both short-haul and long-haul flights is lower than for developing countries. (c) With reference to Extract 1, explain the effect of information failure on the tourism market. [3] ● Using evidence from Extract 1, give examples of MPB perceived – “magical moments, picture-perfect scenery” ● Divergence between MPB perceived and MPB actual, where MPB perceived is > than MPB actual ● Explain overconsumption: -> At market equilibrium Qe: MPB perceived = MPC 🡪 but MPB actual < MPB perceived 🡪 at Qe: MPC>MPB actual 🡪 over- consumption of a particular destination 🡪 welfare loss

2 © ASRJC Economics Department 9570 / JC2 Prelim / 2025 Alternative case where compare MPC perceived and MPC actual ● Eexamples of MPC perceived and examples of MPC actual from Ext 1 – “crowded to the point of discomfort, noisy” ● Divergence between MPC perceived and MPC actual, where MPC perceived is lower than MPC actual ● Explain over-consumption (d) With reference to Extract 2 and using the concept of minimum efficient scale, explain why airports tend to be natural monopolies. [4] Minimum efficient scale refers to the output level where LRAC is at a minimum i.e there is no cost savings from further increase in output. A natural monopoly refers to a situation where a single firm can supply a good to the entire market at a lower unit cost. Airports have high MES which means that their LRAC falls continuously over a very large output level. Reason ● This is due to the ratio of fixed costs to variable costs is very high. For example, with reference to Extract 2, the costs of constructing airports l