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William Tan v.11 Sep CONCLUSION In conclusion, demand factors and an unchanged price in the short-run are the likely reasons for the shortage of face masks. However, in a free-market, the price will increase and through the 3 roles of the price mechanism correct this shortage over time. Marking Scheme LEVELS DESCRIPTION MARKS 3  Able to identify 2 demand factors OR 1 supply and 1 demand factor to account for the shortage of face masks AND elaborate how these factors shift the demand &/or supply curves.  Factors raised are reasonable for the Singapore and haze context.  Able to correctly illustrate and identify the shortage.  Able to explain clearly (& best via the diagram) how the price mechanism can correct the shortage through its signalling OR incentive and rationing functions.  7-10 2  Lack scope in the sense that only 1 DD OR SS factor was raised.  Lack scope in the sense that only one function of the price mechanism (5-6) was covered or not at all  Lack depth as DD/SS factors raised lack the accompanying explanation.  Lack depth as the functions of the price mechanism may be identified, but not explained. * Cap at 5m if candidate did not attempt to explain how the price mechanism can correct the shortage. 4-6 1  Major conceptual errors with little coherent explanations 1-3 (b) Discuss whether it is justified for the Singapore government to distribute free face masks to households during a haze. [15] INTRODUCTION - To consider the source(s) of mkt. failure that warrants govt. intervention. - To consider if the type of intervention (free masks for all) is justified. BODY Efficiency Considerations (+ve ext) Thesis: Solution is justified Anti-thesis: Solution is not justified During a haze, market failure ex ists in the market for face masks due to +ve externalities from consumption and income inequality  hence warrants govt. intervention. Positive externality: third parties such as employers will benefit from lower absenteeism due to health problems amongst employees brought about by the haze. National productivity would be less affected. Less subsidies by govt. for public healthcare required if the face masks reduce the incidence of people seeking treatment at public hospitals and polyclinics for haze-related health problems. Given the severity of the pollution and the large numbers However, the size of the +ve ext. might not be large enough to warrant free provision. This is because the majority of Singaporeans worked in skilled jobs that are in enclosed environments such as air-conditioned factories or offices. Furthermore, both public transport and private transport are air-conditioned. Hence the exposure to pollution air is brief. Hence if the externalities is not as large, the socially efficient solution is to partially subsidise the masks but not to provide them for free. Illustrate and explain how free provision in this case will result in DWL and an inefficient outcome. (* Candidates

William Tan v.11 Sep that it affect, the external benefits offered by the mask can be so large that the socially efficient level of consumption is where P = 0. In this case, distributing free masks will ensure the socially efficient level of consumption. Illustrate the mkt failure & show how giving out free masks can resolve the MF. should use the prior diag. on –v e to illustrate this point to save time) In this case, free masks might be a popular measure but not socially efficient. Efficiency Considerations (Imperfect Information) Thesis: Solution is justified Anti-thesis: Solution is not justified As it is the first time that the haze has reached such a high level, there may be imperfect information about the dangers to health brought about by such a record level of PSI. Hence consumers might downplay the need for masks and hence underestimate the private marginal benefits of the masks and hence under-consume them. Illustrate the mkt failure & show how giving out free masks can resolve the MF. (*Note: Theoretically, it is possible to illustrate a sufficiently large gap between PMB actual and PMBperceived to justify free provision of masks. However, realistically it is difficult to argue that imperfect information alone can justify free provision of the masks. The shortage seems to suggest that consumer demand is strong rather than lacking due to imperfect information. The best candidates who focus only on efficiency arguments would most likely combine the 2 sources of inefficiencies to justify free provision of masks. i.e. Candidates may argue