RI 2025 H2 Y5 Promotion Examination - Examiner's Report

ECONOMICS Higher 2 Syllabus 9570 Examiner’s Report Year 5 Promotion Examination 2025 Raffles Institution Nurturing the Thinker, Leader & Pioneer TEL: 65 6419 9888 ● FAX: 65 6419 9898 http://www.ri.edu.sg ● One Raffles Institution Lane, SINGAPORE 575954

Y5/9570/Promo/2025 2 © RI 2025 [Turn Over ECONOMICS Y5 H2 Promotion Examination 2025 Paper 9570/01 Paper 1 Case Study (a) Using a diagram, explain why the price of diapers are expected to rise in the global market. [2] There is an increase in demand due to income (assume diaper is a normal good), population size or taste/preference, as seen in “steady rise in the global birth rate” or “increasing number of mothers join the workforce” or “disposable diapers have become essential to working parents” (Extract 1). This means that Qdd at every price level has increased, which is illustrated as a rightwards shift in demand curve from DD 0 to DD1, as seen in Fig 1 below. This creates a shortage at original price P 0, which exerts an upwards pressure on prices . As diaper price rises, Qdd falls and Qss rises till a new equilibrium is reached where Qdd=Qss at E1. At the new equilibrium, diaper prices have risen. Mark scheme: 1m: Case evidence + Identification/Explanation of non-price DD factor 1m: MAP + Diagram [1m] Examiners’ comments: • Many students did not obtain the full 2 marks. Students are to note that simply citing case evidence without some explanation and/or identification of a non- price factor of DD is insufficient to answer an “explain why” question, even if the case evidence is seemingly “self-explanatory”. • In addition, there is a need for a brief market adjustment process to explain how the price increases while referring to the diagram (shortage at OP0 so price bided up to OP1). • Many students did not label the diagram appropriately. (b) (i) Calculate the total savings parents can enjoy if they use reusable diapers till their baby is toilet trained. [2] Total cost of disposables = US$0.3 X 8 X365 X2.5 = US$2190 Total savings = US$2190 – US$500 = US$1690

Y5/9570/Promo/2025 3 © RI 2025 [Turn Over Mark scheme: 1m: Calculation of cost savings 1m: Accurate unit used Examiners’ comments: • It is important for students to realize that data will be presented in specific units. Data presented in different units can result in very different outcomes for decision makers. (ii) Explain how economic theory suggests that parents act rationally to decide to switch to reusable diapers. [4] Background context given: • Disposable diapers: Low upfront cost per unit, but recurring costs accumulate as each additional diaper adds to total expenditure. The marginal cost of each additional use is high (buy another pack). • Reusable diapers: High upfront cost (buy cloth diapers + washing equipment), but the marginal cost of each additional use is low (just need detergent, water and time to wash). Over time, the average cost per use falls. Using the marginalist principle, consumers (parents) are assumed to act rationally, meaning they try to maximize utility subject to their budget constraints. • In deciding between disposable vs. reusable diapers, parents compare the marginal costs (MC) and marginal benefits (MB) of each choice. • The marginalist principle states that individuals make choices at the margin: • If MB > MC, then increase quantity is rational. • If MC > MB, then decrease quantity is rational. Weighing the rational switch to reusables • The marginal benefits of switching to reusable diapers are the cost savings from the switch of disposable diapers to reusable diapers – US$2190, as seen in (bi), while the marginal costs of the switch include the cost of reusable diapers (explicit cost of $500) AND the implicit costs e.g. inconvenience & time spent washing. • OR; The marginal benefits of switching to reusable diapers are the cost savings from not using disposable diapers to reusable diapers – US$1690, as seen in (bi), while the marginal costs of the switch include the implicit costs of inconvenience, cost of washing and maintenance. • Should MB>MC, parents will make the rational decision to switch to reusable diapers. Mark scheme: 1m: Explain what economic theory is used when rational decision making (RDM) is asked. 3m: Identify the marginal costs (MC) and MB. Answer to reflect both explicit and implicit costs and MB of decision with respect to each type of diaper, weighing the switch using RDM Examiners’ comments: • Students are expected to use the RDM framework. The key words in the question are: “economic theory...act rationally to decide to switch,,,,…” These key words are meant to elicit the marginalist principle used in the parents’ rational decision- making. As such, students must apply and highlight benefits & costs as MB and MC. • Students who used background information given in the case material to link to MB and MC tended to score better than answers that were purely theoretical. • Some answers did not score well as case evidence was not used. Such answers used their own reasons such MB of both types of diapers are similar. Such responses did not consider why and what determines the valuation of MB and MC.

Y5/9570/Promo/2025 4 © RI 2025 [Turn Over • Flawed responses equate opportunity cost to implicit cost. It is important to note that in Economics, the term “cost” without any qualifications is understood to refer to the value of everything that must be given up to produce or obtain something. Thus, w hen simply stated as cost, it means opportunity cost. • Opportunity cost = cost = explicit (monetary) cost + implicit (non-monetary) cost. • Most answers failed to respond to the “switch” mentioned in the question accurately. Good responses are expected to make a brief link/statement and conclude on how the parent will make the decision. (c) With reference to Table 1, explain whether P&G’s pricing strategy for its Pampers diapers is an example of price discrimination. [4] • Definition: Price discrimination occurs when a producer sells the same good at different prices whereby the price difference does not reflect differences in the cost of supplying the consumers. • Singaporean and Indonesian consumers are charged different prices, due to their different price elasticities of demand. As seen from Table 1, the average income of a Singaporean is higher than that of an Indonesian. Singaporean consumers will thus tend to have relatively more price inelastic demand as the cost of diapers is likely to take up a lower proportion of income while Indonesian consumers tend to have relatively more price elastic demand as the cost of diapers takes up higher proportion of income. • As Singaporean consumers are less price sensitive, P&G will charge a higher price for them while charging a lower price for the more price sensitive Indonesian consumers. • However, this price difference could be explained by a difference in the costs of the diapers to the retailers (despite selling the same model of diapers) in these two countries such as transport, labour or material costs if the diaper is produced in each country for their domestic market. • Explain in conclusion whether P&G’s pricing strategy is likely (or not) to be an example of price discrimination based on all that have been discussed. Mark scheme: 3m: What is price discrimination and explain why Table 1 most probably depicts P&G utilizes price discrimination strategy 1m: Explain why it may not be a price discrimination strategy Examiners’ comments: • Students are expected to explain: i. What 3 rd degree price discrimination is ii. How PED is used to segment markets iii. How prices are thus charged differently • No need for diagram for 3rd degree PD • Inability to prevent arbitrage or resell is NOT acceptable as