2022 TJC H2 Prelim Paper 1 Suggested Answers

2022 TJC JC2 H2 Economics Preliminary Examination Suggested Answers Question 1: Government intervention in the market for rare earthsSuggested answers (a) With evidence from Extract 1,(i) What can you conclude about the price elasticity of supply of rareearth elements (REEs)? [2]● Extract 1 mentionsthat “extracting, processingandrefiningREEsaretrickyfor amyriadof technical and environmental reasons”. This suggests that the production of REEs ishighly complex with a lengthy production process.[1]● The supply of REEs wouldhencebepriceinelastic[1] withquantitysuppliedincreasingless than proportionately when price increases. (ii) Using a demand and supplydiagram, explainthelikelychangeintheREEs market in the future. [4]● The demand for REEs like dysprosium and terbium are derived from the demand forelectric vehicles because these elements are factor inputs in the production of electricvehicles.[1]● Amid the ongoing race to create a large electric vehicle market (Extract 1), thederiveddemand for REEs will continue to increase, shownbytherightwardshift of thedemandcurve from D0 to D1.[1] Figure 1: REEs market ● [1]for a fully labelled and accurately drawn diagram● Givenapriceinelasticsupplyof REEsasconcludedin(a)(i), anincreaseinthedemandfor REEsinthefuturewill leadtoasignificantincreaseinpricefromP0toP1,andaslightincrease in equilibrium quantityfrom Q0 to Q1.[1] 1

2022 TJC JC2 H2 Economics Preliminary Examination Suggested Answers (b) WithreferencetoFigure1, summarisethetrendofthepriceofdysprosiumoxide during the period 2009 – 2024. [2]General trend:o The price of dysprosiumoxide is forecasted to increase generally during theperiod2009-2024.[1]Refinement:o except for the years 2016-18 where the price decreased.[1]ORo There was a spike in 2011.[1] (c) Explainthemeaningofapositivestatementandanormativestatementandidentify an example of each type from Extract 2. [4]● A positive statement isanobjectivestatement whoseaccuracycanbetestedbylookingat evidence.[1]● One example is “the removal of these elements fromthe earth’s crust, using a mix ofwater and chemicals, caused extensive water and soil pollution.”[1]OR● “Other pollutants, such as cadmium and lead, also are released during the miningprocess; long-term exposure to these metals poses health risks.” ● A normative statement involves value judgement andissubjective; cannot beprovenordisproved by looking at facts.[1]● An example is “There is talk that similar mining could be started in Africa and otherregions, so we should not repeat the same mistakes.”[1]OR● “Ma’sfear isthatotherregionsaroundtheworldcouldsufferasimilarfateiftheybecome,likeChina, thesupplier of cheaprareearthelements, withlittleornoenvironmental priceattached.” (d) To what extent would rare earth mining improve the standard of living ofpeople in China? Discuss. [8]Question interpretation Commandphrase To what extent…improve Balanced discussion on both sides (SOLimproved and worsened) before anevaluative conclusion on the overall extentContent Standard of living (SOL) Material (supported with AD/AS analysis)and non-material SOL Context Rare earth mining andpeople in China Evidence fromcase material on theeffectsof rare earth mining on the people in China. This question requires a balanced discussion on the effects of rare earth mining to thestandard of living (improve and worsen) of the people in China. The discussion should beundergirded by AD/AS analysis where relevant and supported with evidence from casematerial beforecomingtoareasonedconclusionontheoverall extentminingREEsimprovesSOL in China. Introduction 2

2022 TJC JC2 H2 Economics Preliminary Examination Suggested Answers ● With the intensification of rare earth mining in China (Extract 2), it remains to be seenwhether the standard of living would improve or decrease.● Standard of living comprises two components, material standard of living andnon-material standard of living. Thesis: Rare earth mining would improve the standard of living of people in China● Theminingof rareearthcouldhaveincreasedthematerial standardoflivingofpeopleinChina as it increases the national income of her people through its net export revenue.● AsChinadominatestheglobal REEsupplychain(Extract3),anincreaseintheextractionof rare earths to meet the explosion of demand for REEs (Extract 1) will increase theexport revenue of China, increasing its (X-M), and thus increasing the AD.o Assuming spare capacity, the increase in (X-M) will trigger successive rounds ofincome-induced consumption due to the multiplier effect.o ADincreases fromAD0 to AD1 becauseof theinitial injection, andeventuallytoAD2 becauseofthemultipliereffect.Thiswouldresultinanincreaseinreal GDPfromY0 toY2 , where there ishigher actual economic growth. Figure 2: Higher actual economic growth from REEs mining o If the rate of real GDP growth rate exceeds the population growth, there will be anincrease in real GDP per capita. This translates to consumers having greaterpurchasingpowerandhencehigherabilitytopurchasemoregoodsandservices.Thisincreases their material standards of living.● With higher actual growth from increased REE mining, the increase in output alsoincreasesthederiveddemandfor labour, reducingdemanddeficientunemploymentfromYf – Y0 to Yf – Y2 .o Withmorepeoplehavingjobsandincomes, thiswill increasetheopportunitycostsofcommitting crime. The crime rates inChinawouldbeexpectedtoreduce, leadingtoan improvement in non-material standard of living as well.ORo The increase in incomes fromthe higher employment rates would mean higher taxrevenuefor thegovernment, increasingthegovernment’sbudget andabilitytospendmore on educationandhealthcaretoimproveliteracyratesandlifeexpectancyrate,increasing China’s non-material SOL. Anti-thesis: Rare earth mining may decrease the standard of living of people in China 3

2022 TJC JC2 H2 Economics Preliminary Examination Suggested Answers ● However,theminingofrareearthsgeneratesnegativeexternalitieswhichwoulddecreasethe non-material standard of living of people in China.o Theextractionof REEsgeneratespillover costsintermsof “extensivesoil andwaterpollution” (Extract 2) to third parties who are not involved in the rare earth miningprocess. These people are the residents staying nearby the rare earth mines.o Thepollutionwouldworsenair andwater qualityandlower sanitarylevels,leadingtopeople developing illnesses, reducing life expectancy rates and lower non-materialstandard of living.● If asignificantnumberofpeoplefell ill duetothepollution,andlosetheabilitytowork,thefall in incomes may also worsen the material stand of living. Evaluative Conclusion● [Stand + Alternative] As rare earth mining could raise the material living standards ofresidentsinChinaduetoanincreaseinnetexportrevenueandhenceincome,theoverallimpact onresident’slivingstandardsdependsonthegovernment’sabilitytomitigatethenegative externalities in production.o Withtougher regulationtostemthedamagedonebyrareearthmining,togetherwithmore sustainable mining practices (Extract 4), thesenegativeeffectsarelikelytobeminimised. Thus, rare earth mining would improve the living standards of people inChina.OR● [Time Frame + Stand] In the short run, the production of rare earths suffers fromnegative externalities in production, hurting residents’ non-material living standards.However, in the long run, as China take steps to fix the issues and enacting tougherregulations to mitigate the negative effects (Extract 4), rare earthminingwill likelyraisethe living standards of people in China in the future. Mark Scheme Level Knowledge, Application/Understanding, and Analysis MarksL2 For a well-developed answer that has:● good scope – explains the impact of rare earth mining on thematerial and non-material SOL of people in China; and● good balance – explains the positive and negative impacts ofrare earth mining on SOL; and● good rigour– explains using AD/AS analysis; and● goodapplicationtocontext–appliesanalysistothecontextofChina 4 – 6 L1 For an under-developed answer th