2025 EJC Paper 2 - Mark Scheme

1 2025 EJC Prelim Exam H2EC P2 EQ1 SAMS (Suggested Answer and Mark Scheme) 1. Using innovative urban farming technologies, Singapore aims to produce 30% of its nutritional needs locally by 2030. While consumers are interested in buying local farm produce, local food manufacturers are still reliant on imported farm produce as their r aw materials. (a) Explain how a rise in the prices of imported farm produce leads to a rise in the consumer expenditure on local farm produce and a fall in consumer surplus in the local food manufacturing market. [10] (b) Discuss whether the Singapore government could rely solely on using supply-side policies to increase the sales volume of local farm produce. [15] Question Analysis (a) Framework Details Approach Command Explain - 10m Explain R1 and R2 - No EV needed Context -Market for local farm produce and -Market for local food manufacturing Start Pt. Rise in the prices of imported farm produce End Pt. -Rise in consumer expenditure (Price x Quantity) and -Fall in consumer surplus (difference between max. price consumers are willing to pay and market price) Content (R1) A rise in the prices of imported farm produce leads to a rise in consumer expenditure on local farm produce. (R2) A rise in the prices of imported farm produce leads to a fall in consumer surplus in the local food manufacturing market. Explain - A rise in the prices of imported farm produce will lead to consumers substituting towards relatively cheaper local farm produce. - Assuming that XED>1, demand for local farm produce increases by more than proportionate. - As equilibrium price and quantity both increases, consumer expenditure on local farm produce increases. - A rise in the prices of imported farm produce will lead to an increase in cost of production for local food manufacturers. - Supply of local manufactured food will fall. - As equilibrium price rises and equilibrium quantity falls, consumer surplus falls.

2 Introduction A rise in the prices of imported farm produce in Singapore , which could be due to an external supply shock, will have serious implications for related markets in Singapore, given our heavy reliance of imported food. Specifically, it can result in a rise in consumer expenditure (calculated as equilibrium price multiplied by equilibrium quantity) on locally grown farm produce, and a fall in consumer surplus (the difference between the maximum amount that a consumer is willing and able to pay for a good and the actual amount paid) in the local food manufacturing market. (R1) A rise in the prices of imported farm produce leads to a rise in consumer expenditure on local farm produce. Consumers, seeking nutritional needs, can choose between produce sourced from overseas or those grown locally. As from the preamble, consumers in Singapore are interested to buy local farm produce, it can be assumed that imported farm produce and locally grown farm produce are generally regarded as close substitutes for direct consumer consumption. For example, imported romaine lettuce and locally produced romaine lettuce would be considered close substitutes for a significant number of consumers given that they are highly similar in appearance as well as taste and marginally different at best. Given that there is likely to be a similar local variant to a significant number of imported farm produce, the Cross Elasticity of Demand (XED) value between imported farm produce and local farm produce can be said to be more than 1. A rise in the price of imported farm produce would lead to consumers substituting towards locally grown alternatives which will become relatively cheaper. There would be a more than proportionate increase in demand for local farm produce in response to the rise in price of imported farm produce leading to a rightward shift of its demand curve from DD1 to DD2. This creates a shortage of Q1Q3 at the prevailing price P1 as quantity demanded Q3 exceeds quantity supplied Q1. The upward pressure on price increases equilibrium price until the shortage is eliminated. Equilibrium price increases from P1 to P2 and equilibrium quantity increases from Q 1 to Q 2. As consumer expenditure is given by equilibrium price multiplied by equilibrium quantity, consumer expenditure increases from P1Q1 to P2Q2.

3 (R2) A rise in the prices of imported farm produce leads to a fall in consumer surplus in the local food manufacturing market Imported farm produce serves as a crucial raw material or input for local food manufacturers. For example, many local bakeries and noodle manufacturers heavily rely on imported eggs as a primary ingredient. A rise in the prices of imported farm produce directly increases the cost of production for these local food manufacturers. Higher input costs reduce the profitability of producing manufactured food products, making firms less willing and able to supply at each price level. This results in a decrease in the supply of local manufactured food products, causing its supply curve to shift leftward from SS1 to SS2 in Fig 2 . This creates a shortage of Q1Q3 at the prevailing price P1 as quantity demanded Q1 exceeds quantity supplied Q3. The upward pressure on price increases equilibrium price until the shortage is eliminated. Equilibrium price increases from P1 to P2 and equilibrium quantity decreases from Q1 to Q2.

4 Consumer surplus is the difference between the maximum price consumers are willing and able to pay and the amount actually paid, represented by the area below the demand curve and above the equilibrium price. With a higher equilibrium price and a lower equilibrium quantity, the area representing consumer surplus will fall from A+B+C+D to A. This means consumers derive less net benefit from consuming local manufactured food products. Conclusion In conclusion, as Singapore is heavily reliant in imported food, a rise in the prices of imported farm produce has serious implications for related markets in Singapore, such as a rise in consumer expenditure on locally grown farm produce and a fall in consumer surplus in the local food manufacturing market. This is why Singapore aims to produce up to 30% of its nutritional needs locally by 2030 and reduce its reliance on imported food. Mark Scheme Levels Knowledge, Understanding, Application, Analysis Marks L3 For an answer that shows a well-developed explanation of the impact of rising prices of imported farm produce prices on increasing consumer expenditure on local farm produce and decreasing consumer surplus in local food manufacturing market • Relevant, thorough answer that is precise, logical and reasoned • Strong ability to apply theory to the questions and the context, and the analysis is clear with illustrations (e.g. graphs), relevant examples, depth and scope 8-10

5 L2 For an answer that shows an under-developed explanation of the impact of rising prices of imported farm produce prices on increasing consumer expenditure on local farm produce and decreasing consumer surplus in local food manufacturing market • Relevant answer but theory may be incompletely explained • Some ability to apply theory to the question and the context , but the analysis lacks clarity, depth and/or scope 5-7 L1 For an answer that shows limited knowledge of the impact of rising prices of imported farm produce prices on increasing consumer expenditure on local farm produce and decreasing consumer surplus in local food manufacturing market • Shows some knowledge but has not properly grasp the meaning of the question • Mostly irrelevant and contains a few valid points made in