YJC_H1_ECONS_P1_Suggested_Answers_and_Markers__Report

1 Yishun Junior College 2017 JC2 H1 Economics Paper 1 Preliminary Examination Suggested Answers, Marking Schemes & Markers’ Comments Question 1 (a) i) With reference to Figure 1, describe the trend in t he world price of steel between March 2009 and March 2016. [2] Suggested answer: World price of steel generally rose between Mar 200 9 to end 2011 before decreasing generally until Mar 2016. ii) With reference to the case material and use of a di agram, explain the change in world price of steel in 2015. [5] Suggested answer: World price of steel generally fell in 2015. A fall in price could be due to decrease in demand and/or increase in supply. Reason for the decrease in DD: 1) The decrease in global demand for steel stems fr om the fall in demand for steel from China, Brazil and Russia. And since China is responsible f or nearly half the global metals demand, a decrease in demand from China due to slow-down in the construction industry will lead to a large (extent) fall in global demand. Reasons for the increase in SS: 1) Overcapacity in China (Ext 1 P3) could have led to increase in SS or over-supply of steel to the world market. This can be seen from Ext 3 P4 th at China government is aiming to shut down facilities producing 100 to 150 million tonnes annually by 2020. 2) China could also be dumping their steel into the global market. This will increase in SS of steel in the world market at low prices. This can be seen from Ext 3 P2 and 5 where China’s steel exports reached a record 112.4m tonnes (19% i ncrease) but value fell by 10.5% (prices would have decreased by approximately 30%) (b) i) Explain one example of negative externality which c ould result from steel production. [2] Suggested answer: 1) Greenhouse gases emissions causing global warmin g

2 2) Air pollution affecting the health of population and visibility in country. ii) With the use of a diagram, explain how negative externality in steel production could lead to market failure. [5] Suggested answer: 1) Greenhouse gases emissions and air pollution are negative externalities which are negative spill-over effects on 3 rd parties MEC > 0. MSC = MPC + MEC MSC > MPC 2) Since individuals only consider marginal private cost and benefit in their decision-making, market/private equilibrium will be when MPC = MPB Ep Qp 3) However, society welfare is maximised when MSB = MSC Es Qs 4) Since Qp > Qs over-production of QsQp units. Between QsQp, MSC > MSB, summing up the whole area will give the deadweight loss. iii) Explain the measure undertaken by the Chinese government (from Extract 3) in tackling the negative externalities a ssociated with steel production and discuss an alternative policy option the Chinese government could consider. [8] Suggested answer: Measure undertaken = regulation (setting standards, emission limits or environmental rules) Explanation of how measure work to tackle negative e