2025 VJC Paper 1 - Mark Scheme

Victoria Junior College Economics Department1 2025 H2 Economics Preliminary Examination Paper 1 – Suggested Responses & Mark Scheme Question 1: Plastic and its waste (a ) Using a production possibility curve, explain how improper disposal of plastic affects a country’s productive capacity. [2] - Improper disposal of plastic causes a part of a country’s natural resources to become unusable or reduces the country’s quantity of resources (e.g. destruction of marine life, which is a natural resource) resulting in a reduction in the country’s productive capacity. [1] Or - Improper disposal of plastic causes microplastic to filter into waterways / the food chain (Extract 1) harming the health of a country’s residents thereby leading to decreases in labour productivity and hence a reduction in the country’s productive capacity. [1] - With the reduction in productive capacity, the country’s PPC shifts inwards from PPC1 to PPC2. [1] (b ) With reference to Extract 1, Figure 1 and Figure 2: (i) Using a diagram, account for the change in price of plastic bags from 2020 to 2022. [4] - From 2020 to 2022, the price of crude oil and price of plastic bags both increased. - Because crude oil is needed to produce plastic bags (Extract 1), the rise in price of crude oil seen in Fig 1 would have caused the marginal cost (MC) of producing plastic bags to rise, which leads to a fall in supply of plastic bags, causing the SS curve to shift left from S1 to S2. [1m] Capital goods (units) Consumer goods (units) 0 PPC1 PPC2

Victoria Junior College Economics Department2 - The resumption of economic activity in 2021 (Ext 1. Para 2) would have led to a rise in income of household, increasing their ability to pay for plastic bags, leading to a rise in demand for plastic bags, causing the DD curve to shift to the right from D1 to D2. [1m] Or - The resumption of economic activity in 2021 (Ext 1 Para 2) meant that firms increased production and this would have caused firms to increase their derived demand for plastic bags as inputs, causing the DD curve to shift to the right from D1 to D2. [1m] - The resulting shortage at the initial price level leads to an upward pressure on price [1m], where price rises to the new equilibrium level of P2. - Diagram [1m] (ii ) Explain the change in price of plastic bags from 2022 to 2023 despite the change in price of crude oil in Figure 2. [3] - The price of crude oil fell from 2022 to 2023. [1m] - Ceteris paribus, this would have led to a fall in MC of production and a rise in supply of plastic leading to downward pressure on price. [1m] - However, the price of plastic bags continued to rise. This must be because there was simultaneous rise in demand for plastic bags and the rise in demand exceeded the rise in supply, thus causing a shortage and hence rise in price of plastic bags. [1m] (c ) With reference to Extract 2, explain how the export of waste management services might be explained by the concept of comparative advantage. [3] A country has comparative advantage in producing waste management services when it is able to produce the service at a lower opportunity cost, where lesser units of other goods are forgone in its production compared to another country. [1m] One way of managing (disposing of) plastic waste is to put it in landfills (Extract 2, para 1). Countries which are relatively land abundant will have a comparative advantage in managing it. [1m]

Victoria Junior College Economics Department3 Or One way of managing waste is to recycle it (Extract 2, para 1). Countries which are relatively more capital abundant or have more abundance of skilled labour needed for recycling certain types of plastic waste will have comparative advantage in such production. As highlighted in Extract 2, para 3, countries “differ in specific plastic recycling capabilities and needs, so while they might export some plastic waste, they also import others that are useful”. [1m] Countries who have a comparative disadvantage in managing the waste will be willing to import this service and countries with the comparative advantage will be willing to export it to the former so long as the terms of trade exceeds the latter’s domestic opportunity cost of production or the transport cost of shipping the waste to the country who has the CA in waste management does not offset the cost differences between countries. [1m] (d ) Discuss whether Malaysia should remain as a global hub for plastic waste management. [8] Introduction Malaysia should remain as a global hub only if the positive effects of being a plastic waste management global hub exceeds the negative effects. Body Thesis: Should, due to positive effects of being a plastic waste management global hub Malaysia should remain as a global hub for plastic waste management because it helps to boost its economic growth and lower unemployment, bringing about increases in material living standards. As highlighted in Extract 2, para 4, “higher plastic waste imports have positively impacted the economic growth of many low -income countries”. This can apply to Malaysia too. This is because the export of waste management services, e.g. plastic recycling l eads to increases in AD for a country’s final output, assuming export earnings rise by more than import spending. Assuming the presence of excess capacity and ceteris paribus, the rise in AD from AD1 to AD2 will lead to an unplanned fall in inventories in the affected sector and this causes firms in this sector to increase production and employment. This will lead to rises in households’ income which induces them to increase consumption of domestic goods and services bringing about a multiplied rise in real GDP from Y1 to Y2 and hence actual growth.

Victoria Junior College Economics Department4 Thus, when Malaysia exports its waste management services to countries like Japan when it became a global waste management hub, Malaysia will benefit from stronger economic growth and decrease in demand-deficient unemployment. Moreover, being a global waste management hub includes “repurposing recycled plastics into goods” (Extract 2). This benefits Malaysia’s local industries because recycled plastic materials are cheaper and is a far cheaper option for industries that would otherwise rely on buying newly manufactured expensive plastics (Extract 2). This leads to a reduction in unit cost of production which in turn leads to increases in AS from AS1 to AS2, further increasing real GDP from Y2 to Y3 and reducing unemployment in the country. The actual growth will help to increase Malaysia’s real GDP per head, assuming real GDP growth exceeds population growth, and lead to increase in material living standards because a Malaysian can now consume more goods/services on average. Moreover, based on the theory of CA, Malaysia stands to enjoy a rise in living standards because the increased level of trade brought about by being a global waste management hub will enable it to enjoy a higher level of living standards. Malaysia arguably has the CA in producing waste management services due to its relative land abundance compared to countries like land scarce Japan. In return, Malaysia imports cars from Japan which ha