RI 2025 H2 Y6 Preliminary Examination - Examiner's Report

ECONOMICS Higher 2 Syllabus 9570 Examiner’s Report Year 6 Preliminary Examination 2025 R a f f l e sI n s t i t u t i o n N u r t u r i n g t h e T h i n k e r , L e a d e r & P i o n e e r TEL: 65 6419 9888 ● FAX: 65 6419 9898 http://www.ri.edu.sg ● One Raffles Institution Lane, SINGAPORE 575954

Y6/9570/Prelims/2025 2 © RI 2025 [Turn Over ECONOMICS Y6 H2 Preliminary Examination 2025 Paper 9570/01 Paper 1 Question 1 Electric Vehicles (a) (i) With reference to Table 1, explain how changes in prices of EV batteries might have affected sales of EVs over the period 2019 to 2021. [2] Suggested Answer ▪ Table 1 shows price of EV batteries falling and EV sales rising from 2019 to 2021 ▪ As EV batteries are inputs, the fall in price reduces the production cost of EVs. Thus , supply of EVs rises, causing a fall in price that increases the quantity demanded i.e. sales [in million units] Mark Scheme: - 1 m for link to input and production cost - 1 m for link to SS, price and sales (quantity demanded) Examiners’ Comments: Most answers were awarded the full 2m, though some were exceedingly long - complete with diagrams and detailed adjustment process. For a 2-mark question, understanding the gist that inputs affect the supply of the final good - EVs, thus price and quantity will suffice. The following are areas for improvement: - Batteries are not complements, but inputs. Complements refers goods that are in joint demand. They do not have the same meaning as inputs – which are a derived demand or factor of production for EVs - Some answers stated that both share an inverse relationship without any further economic reasoning. Others did not link their analysis to a change in the price of EVs – which is paramount in determining the change in sales volume - Some answers applied PED to examine the effect on revenue when in this context, Table 1 clearly indicated that sales in ‘million units’ i.e. quantity. (ii) Explain one possible reason why the above relationship was not observed in 2022 and 2023. [2] Suggested Answer ▪ Observation: While price of batteries rose, EV sales continued to rise ▪ Analysis: any 1 reason to explain ‘there is no ceteris paribus in reality – i.e. changes in other determinants affect the sales of EVs. These increases in demand and/or increase in supply lead to a rise in equilibrium quantity that outweighs the fall in quantity due to more expensive batteries ▪ switch in taste and preference towards EVs due to convenience; intensive advertising & promotion by EV producers; or people care for a greener environment as EVs reduce carbon emissions – demand rises, causing sales i.e. equilibrium quantity to increase ▪ price war amongst EV firms/government subsidy in China (that reduces production cost) – fall in price of EVs causing a rise in quantity demanded

Y6/9570/Prelims/2025 3 © RI 2025 [Turn Over ▪ price of other important inputs such as steel fell – reduces production cost, increases supply of EVs and price – thus rise in equilibrium quantity ▪ any other valid determinant Mark Scheme: - 1m for stating determinant and elaboration of that determinant/linked to context - 1m for linking to change in DD or SS Examiners’ Comments: While most candidates recognised that this question was asking for other reasons that caused the rise in sales of EVs, the quality of analysis varied across answers. Some problems include: - merely stating that there is a ‘change in taste and preference’ without giving a reason for that change - giving a reason without stating whether it is a demand or supply determinant (b) Explain whether the data in Table 2 allows you to conclude which firm is most likely to shut down in the short run. [4] Suggested Answer ▪ Define SR: time period where there is at least one fixed factor e.g. machines ▪ To make a decision on whether to continue production or shut down in the short run, the firm has to consider whether its TR is more or less than TVC. Firm should shut down in the short run if TR is less than TVC. ▪ T: With reference to data: o As shown in Table 2, 3 firms – Nio, Rivian and XPeng are making losses where AR<AC o It may seem that Rivian might be the most likely to shut down as it incurred the largest loss of US$5.43 billion ▪ AT: Data does not allow a conclusion to be made: ▪ Limitations of data: Table 2 only shows profit levels – need data on TR and TVC ▪ Analysis: ▪ In the SR, only TVC is considered in the shut -down decision since TFC has been incurred irrespective of the production level i.e. when output = 0, TFC is still incurred ▪ The firm will decide to shut down only if TR < TVC ▪ In such a scenario, in continuing production, the TR cannot even cover TVC [such as wages and cost of raw materials] ▪ It is a better option to shut down, TVC will no longer be incurred when production = 0 and the firm only loses TFC ▪ In other words, loss is minimised when it shuts down Mark Scheme: - 2m for reference to Table 2 on loss-making firms and assessing data limitations - 2m for analysis of shut-down condition TR<TVC clearly linked to what is meant by loss minimisation Examiners’ Comments: - This question was rather poorly attempted as many candidates could not analyse clearly how shutting down when TR < TVC may allow the firm to minimise losses.

Y6/9570/Prelims/2025 4 © RI 2025 [Turn Over - There were many answers that merely stated the condition for shut-down and asserted that the data was inconclusive without any economic analysis. Others were confused over whether TVC or TFC was the criterion for such a decision. - There were also a handful of answers that did not make any attempt to refer to the data in Table 2 to identify loss-making firms. (c) Explain, with the use of two examples, why China may have comparative advantage in the production of EVs. [4] ▪ Define comparative advantage: If China has comparative advantage in EV production, it means it can produce EVs at a lower opportunity cost i.e. less of another good such as solar panels foregone ▪ analysis can be linked to lower MC or AC [or simply lower COP] that reduces the opportunity cost of production ▪ any 2 of these examples: [2 m for each example] ▪ Example 1: Extract 1 states that ‘China has been relying on a fiercely competitive market and huge domestic market to command transformative technology’. ▪ ‘fierce competition’ will force firms to cut any slack in cost structure and strive to be X -efficient by operating at a point on the LRAC curve. In addition, the bid to be dynamic efficient through process innovation also leads to better production methods. Tog ether these serve to reduce SRMC and SRAC or LRAC OR ▪ Huge domestic market may lead to expansion of output to cater to that high demand. As a result, the firm may enjoy internal economies of scale and a lower LRAC. If linked to SR cost, it may mean lower SRMC and SRAC. Moreover, the possible higher profits may allow for process innovation. ▪ Example 2: Extract 1 - China’s dominance in important inputs for EVs such as batteries, and other minerals - cobalt and graphite. This may imply ample supply or ability to reduce disruption to supply due to reliance on imported inputs. The stable price that ensues may lead to significantly lower MC and AC. ▪ Example 3 has to be articulated clearly: Extract 1 states China government’s massive subsidies for EV production . If these subsidies are intended for r & d efforts by the firms, the resultant effects of process innovation on MC and AC can lead to a lower opportunity cost and thus comparative advantage. o If answer links subsidies directly to a lower COP and increased competitiveness, then it may not be linked to opportunity cost. 0 cr