2022 HCI H1 Econs Prelims suggested answer scheme

1 Question 1: The market for face mask Suggested Answer Outline (a) (i) Using Figure 1, compare the change in the global price in polypropylene (PP) between September 2020 and December 2020 wi th that between December 2020 and March 2021. [2] Key Similarity: Both increasing [1m] Key Difference: Faster rate of increase in 2nd period [1m] (ii) Using evidence from Extract 2 where appropriate, explain why the likely value of Price Elasticity of Supply (PES) of PP for face mask production is likely to be positive and low. [3] Positive PES – due to Law of supply – explain that P and Qs are positively related [1m] Low PES – [2m] Explain any one of the two appropriate determinants of PES<1 using relevant evidence: Factor 1 – Nature of production/ease of factor substitution; OR Factor 2 – Time period Possible Evidence: PP electret melt-blown non-woven, is a specialised fabric produced by a limited number of companies globally due to the high initial investment required in heavy machin ery. For this reason, it has been more difficult to increase production during the crisis, or to find companies that can switch to this manufacturing within a reasonable time and without massive investment. (iii) Using Extract 1 and PES value stated in (a)(ii), use a demand/supply diagram to account for the price variation of PP after December 2020, and comment why the price variation might not continue in the long term. [7] Diagram illustrating effects of low PES on P surge after Dec 2020 [1m]

2 Explain significant rise in derived demand of PP (Extract 1) – due to rise in demand due to change in taste & preference / WHO’s intervention with evidence [3m] Possible evidence from Extract 1 - To overcome this situation, several authorities such as CDC and World Health Organisation (WHO) have advised the use of face masks to reduce the unintended spread of infections. Also, due to rise in number of cases, there has been a global surge in demand for masks for personal health. Explain how rise in demand coupled with low PES lead to surge in price using diagram. [1m] Comment on whether price surge might not continue into the future [using evidence from Extract 1 to justify]. Price surge unlikely to continue - PES likely to become higher / SS increase given time [2m] Evidence from Extract 1 - manufacturers and key market players are ramping up the production across the globe. (b) Discuss the view that ‘putting a cap on prices achieves its intended effect of allocating masks more effectively and fairly.’ (Extract 3) Introduction – briefly explain ‘price cap’ – maximum price – lowers P but creates shortage. Thesis - Putting a cap on prices achieves its intended effect of allocating masks more fairly Lower price – provide access to masks for those consumers without the ability to buy (given the pr