2022 SAJC H1 Prelim Suggested Answers

1 ST ANDREW’S JUNIOR COLLEGE PRELIMINARY EXAMINATIONS 2022 (JC2) General Certificate of Education Advanced Level Higher 1 ECONOMICS 8823/01 29 August 2022 3 hours Suggested Answers

2 Question 1: The Markets for Masks and Vaccines Questions (a) With reference to Extract 1, e xplain either one demand factor or one supply factor that has contributed to the global mask shortage. [2] Demand factor: [2] Rise in taste and preference for masks e.g panic buying and hoarding which led to rapid rise in demand . [1]At the original price, quantity demanded exceeded quantity supplied, resulting in shortage.[1] OR Supply factor: [2] Restriction in exports or limited supply of essential raw materials push up the price of these essential raw materials , leading to a rise in costs of production which led to fall in supply [1]. At the original price, quantity demanded exceeded quantity supplied, resulting in shortage [1]. (b) With reference to Extract 1: (i) Using the concept of price elasticity of supply, explain why the global vaccine shortage is likely to persist. [3] PES for vaccines is likely to be less than one as there is limited capacity in terms of facilities, ingredients and skilled labour. [1] Rise in price of vaccine results in less than proportionate rise in quantity supplied of vaccine ceteris paribus. [1] Thus, shortage is likely to persistent as it takes longer time for price adjustment process to clear the shortage. [1] (ii) Explain the possible impact of the global vaccine shortage on the global price of vaccines. [2] Global vaccine shortage at original equilibrium price will exert upward pressure [1] on price of vaccines leading to rise in price [1]. (iii) Explain how this change in global vaccine price identified in (ii) could affect the expenditure on vaccines by developed and developing countries differently and comment on the impact of this difference on global equity. [6] Explain: [4m] Developed countries: [2] PED <1 as low proportion of income is spent on vaccines. Rise in price results in less than proportionate fall in quantity demanded of vaccines leading to rise in expenditure on vaccines. Developing countries: [2] PED >1 as high proportion of income is spent on vaccines.

3 Rise in price results in more than proportionate fall in quantity demanded of vaccines leading to fall in expenditure on vaccines. Comment: [2m] Rise in price of vaccines will make vaccines which are essential less affordable and accessible to poorer developing nations compared to richer developed nations leading to less people being vaccinated in poorer developing countries. This worsens global equity. (c) With reference to Figure 1 and with the use of a production possibility curve , explain how the increase in the number of people vaccinated can impact potential economic growth in a country. [4] COVID 19 daily cases hospitalised fell while the number of people vaccinated in the United States rose from 16th January 2021 to 29th May 2021. There would be contraction in the potential economic growth of a country due to a fall in labour productivity and deaths when the number of Covid 19 daily cases were high. However, the reduction in hospital cases given the increase in the number of people vaccinated suggests an improvement in health. This means a possible rise in labour quality through increase productivity. This leads to a positive impact on potential economic growth of a country. Diagram: parallel outward shift OR COVID 19 daily cases hospitalised fell while the number of people vaccinated in the United States rose from 16th January 2021 to 29th May 2021. There would be contraction in the potential economic growth of a country due to a fall in labour productivity and deaths when the number of Covid 19 daily cases were high. However, with the increase in the number of people vaccinated, there will be less deaths and an improvement in labour productivity. This can prevent any further fall in potentia l growth since quantity and quality of workers will not fall too excessively. Hence the fall in potential economic growth can be mitigated. Diagram: parallel outward shift (d) With reference to Extract 2: (i) Explain the possible factors an individual considers when making a rational decision about consuming vaccination and comment on whether an individual can make a rational decision regarding his or her consumption of vaccination. [6] Explain the factors (Any 2 factors- 4m) Introduction In making a decision, it is important for the individual to consider the possible costs involved in the decision, the possible benefits involved in the decision as well as other considerations such as constraints

4 involved, information required and also possible unintended consequences. Body Possible Benefits: Better immunity and stronger protection from COVID 19 virus. Reduce the likelihood of restrictions such quarantine orders or isolation and thus more able to continue with work and earn higher income due to greater productivity Possible costs: Cost of travel to vaccination centres Medical cost of side effects to vaccinations Loss of income due to medical leave after vaccination Constraints: Time constraint as vaccination may take long waiting hours if individual has busy work hours Budget constraint if there is high medical cost incurred due to more severe side effects of vaccination Information: Potential benefits and costs of vaccination spread through online media sources Information on availability of vaccines and vaccination centres Unintended consequences: Vaccination may make individuals to feel more secure and thus may not take safety measures such as mask wearing and keeping safe distance from others seriously which can increase risk of becoming infected with virus as well as transmitting the disease to others for example family members incurring potentially higher healthcare costs. Comment: [2] It is not possible to make a rational decision due to misinformation. This leads to Marginal Private Benefit perceived to be lower than Marginal Private Benefit true. Thus, individuals might not be able to make a rational decision as they perceive marginal private benefits to be less than marginal private costs and thus may choose not to consume vaccines. (ii) “This reluctance towards vaccination might stem from both not having enough information about the vaccine and from being exposed to wrong information.” Discuss whether free and voluntary vaccination is the best way to improve society’s welfare in a country where vaccination hesitancy is present. [10] Question Analysis Command Discuss whether Content Free and voluntary vaccination Context Market failure in the market for vaccination

5 Schematic Plan Market failure arising from information failure and positive externalities in consumption Side 1: Free and voluntary vaccination may be the best way to address vaccination hesitancy Side 2 : Free and voluntary vaccination may not be the best way to address vaccination hesitancy Conclusion (Make a stand) Introduction Due to the allocative inefficient outcome in the consumption of vaccination, the government may need to intervene in the market for Covid 19 vaccine to improve resource allocation and societal welfare in order to achieve its microeconomic objective of allocative efficiency. Explain market failure in the vaccine market related to vaccination hesitancy Information Failure: Consumers do not realise the true benefits of vaccine providing strong protection from virus and thus und erestimate their