RI 2023 H2 Y5 Promotion Examination - Examiner's Report - Final

ECONOMICS Higher 2 Syllabus 9570 Examiner’s Report Year 5 Promotion Examination 2023 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/2023 2 © RI 2023 [Turn Over ECONOMICS Y5 H2 Promotion Examination 2022 Paper 9570/01 Paper 1 Case Study a) Compare the trend in market share between skin care and that of make-up between 2012 and 2018.   Markers Comments: • Many answers lack comparison in terms of a difference. • Many did not use a suitable comparative word to signpost and reflect the skill of comparison. • Students need to be more mindful of the time period set out in the question. • Some students compared the market shares between make- up and skin care at specific points in the time period – this is not the best approach or answer; instead, students should compare the market shares over the overall/entire period. • Answers who wrote that the market share increased at a faster or greater rate were not accepted as it is inconclusive from the data about the difference in the rate of increase between make- up and sk in care; instead students, should be comparing the amount / extent of increase. Suggested Answer: Similarity: Increasing trend in market share for both skin -care and makeup between 2012 and 2018. [1] Difference: Market share for skin -care is consistently larger than that for makeup OR market share for makeup is consistently smaller than that for skincare. [1] [2] b) Using Extract 1, explain why Aether Beauty decided to shut down its operations in the short run during the COVID-19 pandemic. Markers Comments: • Weaker answers failed to recognise the question is on shut -down condition of a firm and used the market analysis approach instead of the firm analysis approach. • While majority recognised that Covid- 19 pandemic led to a fall in demand for Aether Beauty’s products, the explanation was largely descriptive as most students merely copied extensively from case material without making valid inference to which non-price demand factor is affected. It is essential to make linkages of the case evidence to the non- price demand determinant when explaining the fall in demand. • There were many theoretical answers without application to the case material, thus failed to recognise besides TR falling, TVC was also rising at the same time. • While many were aware that the shut-down condition is TR < TVC, the better answers were those that explained how loss is minimised to TFC as a result of shutting down. Weak responses did not grasp the nuances of the shut -down condition and were hence generic in their link to cost (eg. AC, MC, COP) • The diagram to illustrate the shut-down condition is not required in this answer. [4]

Y5/9570/Promo/2023 3 © RI 2023 [Turn Over Suggested Answer: COVID-19 pandemic resulted in falling incomes/ recession, leading to fall in demand for Aether Beauty's products/services (given that beauty services are a normal good) and hence falling TR. OR COVID-19 pandemic resulted in the implementation of lockdowns and work from home arrangements -> Reduce social interactions and reduce the need to apply cosmetic products or beauty services to enhance one’s image -> Taste and preferences shifted away from cosmetics leading to fall in demand for Aether Beauty's products/services, hence falling TR. From Extract 1, Covid-19 pandemic result in supply chain disruptions, resulting in increase in raw materials and shipping prices -> Rising TVC for Aether Beauty in cosmetics production Hence with the falling TR and rise in TC, possibly led to subnormal profits where TR<TC in the SR. TFC is incurred regardless of whether it produces or not. • If it continues production, TVC is incurred in addition to TFC. • Since it is likely that TR which Aether Beauty received cannot cover its TVC, Aether Beauty should reduce its loss by shutting down to minimize its loss to only TFC, since TVC is not incurred when it stops production.   Mark scheme: 2m for how Covid-19 pandemic led to a fall in demand and hence TR, with reference to case material and explanation to a specific demand factor. 2m for explaining how Aether's Beauty' s shut -down condition from point of view of TR <TVC, citing evidence from Extract 1 of rising TVC   c) i) Explain two examples of barriers to entry that exist in the cosmetic industry. Markers Comments: • The weaker answers failed to make use of case material to select examples of BTE and merely regurgitated content from the lecture notes. These answers also lacked application to the cosmetic market context and gave generic application. • Many also did not explain how the BTE deter new entrants into the cosmetic industry. The link to deterrence of potential entrants is the essence behind BTE. • A significant number of students were confused between driving out competitors from the market and that of deterring potential new entrants into the market which was the question requirement. Suggested Answer: • Artificial BTE (Statutory): Patents which give cosmetic firms exclusive rights to produce and sell for a given period of time. With patents, the cosmetics firms will be able to act as temporary monopolists in the market for a particular cosmetic product with its unique formula. Potential copycat cosmetic new entrants are deterred from entering the market since they are legally prohibited from producing the same product until patent expires. • Artificial BTE (Strategic): Brand loyalty from intensive advertising by global giant cosmet ic firms helps raise awareness to boost demand for their products as well as to persuade [4]

Y5/9570/Promo/2023 4 © RI 2023 [Turn Over customers there are no close substitutes for their products. The established brand recognition and trust from consumers means that potential entrants entering the mar ket will find it difficult to entice customers to purchase their products and may need to incur high costs to build brand awareness. Mark scheme: For each example of BTE: 1m for explanation of an example with reference to case material & how new entrants are deterred as a result. 1m for showing application to cosmetic industry. ii) To what extent is the coexistence of small cosmetic firms with large cosmetic firms a result of the rise of social media?   Markers Comments: • This question was not well attempted, as many students misinterpreted the question and gave answers which were irrelevant. o Many misinterpreted the question as whether the coexistence is made more difficult by social media and wrote extensively on strategies by large firms to drive out small firms and its limitations. o “Coexistence” requires answers to explain the presence of large firms at the same time. • Many also disregarded the requirements of question and spammed extensively from class test rehearsed answers. These answers lacked application to case material and context of cosmetic industry. • The weaker answers merely copied case material without linking to economic explanation and used the incorrect market analysis framework. • Diagrams were also poorly drawn and wrongly labelled. Very often, the diagram was not explained. Such unexplained diagrams gained no credit. It i s important to weave the explanation of the diagram into the analysis, stating clearly what you want the marker to see from your diagram. • Common concept errors: o Advertisement does not count as form of product differentiation; but it can contribute to imaginary differences of products. o Fall in TC leads to rise in TR.  Total cost and total revenue are two different concepts. Rise in TR must be due to revenue/demand reasons. o T