2025 NYJC Paper 1 - Mark Scheme

NYJC H2 Prelim Paper 1 Question 1 Suggested Answer (a) With reference to Figure 1 and Extract 1, (i) Explain what can be concluded about the change in the world price of cotton in 2023. [2] ● [Evidence] In 2023, cotton production rose to 116 mil bales while cotton consumption fell to 113 mil bales. [1] ● [Analysis] The arising surplus would lead to a downward pressure on price leading to a fall world price. [1] (ii) Explain one demand and one supply factor that could impact world cotton prices. [4] Demand factor: ● [Evidence] o “..shoppers have increasingly opted for alternative fibres, which are cheaper and quicker to produce” (Extract 1) [1]. ● [Analysis] o Cotton and polyester are fibres which can be used to make fashion apparel. ▪ They are inputs in substitute demand (factor market) – because they serve the same purpose (to make fashion apparel) o The lower price of polyester leads to a rise in quantity demanded of polyester. o Since they are substitutes, the decreases the demand for cotton will fall as producers switch to buy the cheaper input (polyester). o Hence the demand for cotton falls leading to a fall in cotton prices. [1]. OR o The demand for cotton can be said to be derived from the demand of the final product (apparel cotton fibres are made into) – the 2 items are related via derived demand.

o Hence, the demand for cotton fell because the demand for the final product (cotton apparel) demand fell. [1] Supply factor: ● [Evidence] o “Low prices for corn have pushed farmers to plant cotton instead” resulting in a sharp rise in cotton production.” (Extract 1) [1]. ● [Analysis] ● Low prices for corn reduces the revenue ( PED<1) and profitability of producing corn. ● Profit-maximising producers will switch using their land from producing corn to producing cotton (Land is a scarce resource that can be used to produce alternative agriculture goods). ● Since cotton and corn are in competitive supply , the producer must reduce the supply of corn in order to increase the production of more cotton. ● This increases the world supply of cotton leading to a decrease in world cotton prices [1]. [Note: The analysis should focus on the agents in the factor market as the focus in on the cotton as an input to fast fashion NOT to fast fashion apparel buyers (final product)]. (b) ‘Some governments thus implement programs such as minimum support price to support farmers.’ (Extract 2) Explain how the above price control supports farmers and one possible unintended consequence of the policy. [4] 1. How the above price control supports farmers (Rise in total revenue) ● [Analysis] o [Definition] - A price floor is a government -set minimum price above the market equilibrium price. ● [Application] o Objective of the policy ▪ To provide an income safety net for producers – ensuring they receive a minimum level of income (total revenue) even when prices are low. o Explanation of policy mechanism [2] ▪ Since the demand for cotton (agriculture goods) is price inelastic (PED<1), total revenue will rise when price rises. ▪ With the implementation of the price floor, the price of cotton increases from PE to Pfloor (See Figure 1). ▪ Farmers must sell the goods at Pfloor (instead of the equilibrium price). ▪ Quantity demand fell from Q E to QD floor, and the quantity supplied increases from QE to QSfloor. ▪ Initially the farmers’ income was 0PEEQE.

▪ As demand for cotton is price inelastic, the price rise leads to a less than proportionate fall in quantity demanded. ▪ The rise in revenue due to the price rise (area P EPfloorXW) is greater than the revenue fall (area QDfloorWEQE) ▪ Net increase in the revenue (income) of farmers. 2. Unintended consequence (Choose ONE) [2m] [Contextual possibilities] 1. Price rise would make cotton more expensive, making the final product (eg. clothes) less price competitive and may compel fast fashion producers to switch to other materials (like polyester) – adversely affecting the income of cotton producers. 2. If the price control support leads to the government buying up the surpluses (to add to their stockpile), the government would incur storage costs for unsold cotton bought. Depending on the storage conditions and duration, these stocks may run the risk of cotton fibre degradation and loss of strength (from moisture and humidity and contamination/oxidation) as well as pest infestation reducing the value and usability of the stored cotton. 3. To avoid incurring the higher storage costs (for unsold cotton surpluses), farmers may resort to selling the surplus in the “black market” at a lower price than Pfloor (anywhere between Pfloor and PB). [Theoretical possibilities] 4. There will be an ensuing surplus of QDfloorQSfloor. 5. Due to the higher Pfloor price and the ensuing surplus, producers will incur storage costs – which may erode their already small profit margins. 6. Results in market failure (deadweight losses from under -production). deadweight loss (area EXZ). (c) (i) ‘Some have even called for governments to tax the industry to reflect the ‘true cost’ of fast fashion’ (Extract 3) Explain what is meant by ‘true cost’ of fast fashion. [2] E W Z PB Figure 1: Impact of Price Controls (Floor) on Farmer Revenue X Y PE

● [Definition/Explanation] [1] o “True costs” refer to the “actual” value of MSC that takes into account all the costs incurred by all parties directly or indirectly affected by the fast fashion production action (including third parties due to negative externalities) not just the MPC. o The ‘true cost’ is the marginal social cost (MSC) which is the sum of Marginal Private Cost (MPC) and Marginal External Cost (MEC) [1]. o In a context where external costs are: ▪ present, true costs = MSC = MPC + MEC ▪ absent/not incurred, true costs = MSC = MPC o Hence “true costs” is the costs to society (MSC) whose value is dependent on (ie. changes with) the presence or absence of MEC. ● [Application & Evidence] [1] o In the production of fast fashion, ▪ the MPC is the cost of producing fast fashion (from the use of cotton or synthetic materials like polyester) by the firm and ▪ the MEC is the healthcare cost to third parties arising from the environmental effects of using cotton or polyester – those who suffer negative health effects arising from the: [Choose any ONE evidence -para 2] o making polyester and cotton releases a large amount of carbon emissions - “have a much larger environmental toll” (Ext. 1 para 3 or Ext 3 para 3) o polyester that consists of toxic substances are released in the ocean when polyester degrades which harm marine life and marine ecosystems (Ext 3 para 3) o the microplastics released end up in the human food chain (by consuming seafood) (Ext 3 para 3) (ii) Discuss whether the government should tax fast fashion to ensure that the ‘true cost’ has been accounted for. [8] Introduction [Reason for the Intervention]: ● When a firm produces fast fashion, it will experience Cost and Benefit from production. ● The Cost incurred by the firm would include wages to the labour