2022 H2 Economics EOY P2 Suggested Ans

Class Adm No Candidate Name: 2022 Preliminary ExamsPre-university 3 ECONOMICS 9757/02 Paper 2 Essays 14 September 20222 hours 15 minutesAdditional Materials: Answer Booklet READ THESE INSTRUCTIONS FIRST Write your name and class on all the work you hand in.Write in dark blue or black pen on both sides of the paper.You may use a soft pencil for any diagrams or graphs.Do not use staples, paper clips, highlighters, glue or correction fluid. Answer threequestionsintotal,ofwhichonemustbefromSectionA,onefromSectionBandonefromeitherSection A or Section B. You are reminded of the need for clear presentation in your answers. Ananswer booklet will beprovidedwiththisquestionpaper. Youshouldfollowtheinstructionsonthefront cover of theanswer booklet. If youneedadditional paper, asktheinvigilator for acontinuation booklet. The number of marks is given in brackets [ ] at the end of each question or part question. This question paper consists of3printed pages and1blank page. [Turn over

2 Answerthreequestions in total. Section A Oneortwoof your three chosen questions must befrom this section. 1. When Malaysia announced it will ban exports of fresh chicken fromJune 1 st givendomestic shortages, Singapore felt a sense of unease given that chicken is acommoningredient inSingaporecuisine.Manypeoplebegantostockuponchicken.About 34 per cent of our chicken imports come from Malaysia. Source: CNA, 12 June 2022 (a) Explain howthe export ban will lead to shortages and a sharp riseinpricesoffresh chicken in Singapore. [10] (b) Assessthestrategiesthat theSingaporegovernment couldadopt inresponsetoMalaysia’s export ban of fresh chicken. [15]---------------------------------------------------------------------------------------------------------------------------Suggested Answer Part (a) Question RequirementsCommand words: ExplainContent/concept words: Sharp rise in prices due to Demand and Supply Factors / PEDand PESContext: Fresh chicken in Singapore Requirement Suggested Answer Introduction The ban exports of fresh chicken and the stocking up of chicken,coupled with the inelastic supply and demand will cause the price ofchicken to rise sharply. Body 1: Export banfall in Supplywith |PED| < 1 The supply of chicken refers to the various quantities of chickenproducersarewillingandabletoofferforsaleatvariouspricesoveraperiod of time, ceteris paribus/Since Malaysia supplies about 30% of Singapore’s chicken, theimplementationwoulddecreasethesupplyof chicken, thiswill causethe price of chicken rise.Theriseinpriceof chickenisalsoaccentuatedbythepriceinelasticdemand for chicken in which price elasticity of demand (PED)measures the degree of responsiveness of quantity demanded of agood to a change in its own price, ceteris paribus. MI/9757/02/PU3/EOY2022

3 The demand for chicken is price inelastic, since there are fewsubstitutes for chicken, and is also a necessity as it is a commoningredient in many dishes in Singapore cuisine.This fall in supplywouldleadtoariseinpriceandfall inqtytraded.Due to theinelasticdemand, theriseinpricewill leadtoalessthanproportionate decrease in quantity demanded. Hence, the price willrise to a large extent. Body 2: Stocking up ofchickenRisein demand withPES < 1 The demand for chicken representsthevariousquantitiesof agoodorservicethatconsumersarewillingandabletobuyatvariouspricesover a given period of time, ceteris paribus. With the announcement of the export ban, households andbusinesses may anticipate price increases in the future, and mayincrease their demand for chicken now. Theextent of anincreaseinpricecanbefurther explainedusingtheprice elasticity of supply (PES) that measures the degree ofresponsivenessof quantitysuppliedof agoodtoachangeinitsownprice, ceteris paribus. Thesupplyfor chickenispriceinelastic, duetothetimetakenforthechicken to grow up to be of eating size. This rise in demand would lead to a rise in price and rise in qtytraded.Due to the inelastic supply, the rise in price will lead to a less thanproportionateriseinqtysupplied. Hence,thepricewill risebyalargeextent. Body 3Illustrate andexplain with aDD/SS diagram MI/9757/02/PU3/EOY2022

4 With reference to Figure above, supply decreases from S0 to S1 ,alongapriceinelasticdemand,ceterisparibus,ariseindemandfromD0 to D1 along a relative price inelastic supply curve. When supply decrease and demand increase, at the original price,quantity demanded is greater than quantity supplied, Q3 > Q2,leading to a shortage of chicken, denoted by Q3Q2. Thisshortagewill leadtoanupwardpressureontheprice.Aspriceofchicken rises, qty demanded will fall and quantity supplied will rise.The price adjustment will stop until qty demanded = qty supplied. Thus, the price of chicken increases sharply from P0 to P1 . Conclusion The fall in supply and the rise in demand for chicken, with theinelastic demand and supply will cause the price of chicken to risesharply. Level Knowledge, Application/Understanding and Analysis Marks L3 For an answer that shows well-developed explanation● Considers both demand and supply factors● Addresses the sharp increase in price (by combined shifts andelasticity concepts)● Consider shifts but only 1 elasticity (max 8) 8-10 L2 For an answer that shows under-developed explanation● Lacking clarity and accuracy at times● Does not address the sharp rise in price clearly Or, an answer that lacks scope● Only considers DDorSS shift 5-7 L1 For an answer that shows limited knowledge● with listing of points, or unexplained statements● Many conceptual errors 1-4 MI/9757/02/PU3/EOY2022

5 Part (b)Assess the strategies that the Singapore government could adopt in response toMalaysia’s export ban of fresh chicken. [15]---------------------------------------------------------------------------------------------------------------------------Suggested Answer Question Requirements Command words: Assess2-sided with evaluation Content/concept words: strategies and the limitationsContext: Singapore Requirement Suggested Answer Introduction Singapore government is concerned about efficiency and equity,sincechickeniswidelyusedinmanyhomesandfoodandbeverageestablishments. There are 3 possible strategies. They couldimplement a price ceiling, subsidize eggs, or to diversify chickenimports. Thesis: Priceceiling A price ceiling refers to government-imposed price above which firmsare not legally allowed to charge. It is the maximum price set by thegovernment below the market equilibrium price which is deemed toohigh. For it to be meaningful, it is set below the market equilibriumprice. Singapore government may implement price ceilings when theywant to prevent prices of chicken from rising beyond a certain level. With reference to the fig above, before the implementation of theprice ceiling, the intersection of the demand and supply curvesestablishes the equilibrium price, Pe , and quantity, Qe . With aneffectivepriceceilingbeingset at Pmax,thequantitysuppliedfallsto MI/9757/02/PU3/EOY2022

6 QssandthequantitydemandedrisestoQdd, resultinginashortageof of QddQss. This will lead to a lower price of Pmax and is moreaffordable as compared to the initial equilibrium price of Pe. Anti-Thesis:Limitation ofprice ceiling However, thepriceceilingwill leadtoshortagesofQdd-Qss.ThereisalsowelfarelosstothesocietyasindicatedbytheareaXEW.Wherecustomers are unable to buy enough in the market, there will beemergence of black market. This happens as some firms may notwant to sell all of their goods openly at the artificially low price.Hence, they might secretly sell to people who are willing to pay ahigherpriceinordertoearnhigherrevenue.Assumingthatproducersare able to sell Qs illegally, then based on the demand curve,consumers are willing and able to pay P1. Hence, the price mayreach as high as P1 as shown in Figure 1. This price level, P1, iseven much higher than the pre-price ceiling equilibrium price, Pe. Thesis: Subsidy Thegovernment mayalsogiveout subsidy. WithreferencetoFigurebelow, the initial equilibrium price and output