DHS H2 ECONS P2(with Mark Scheme)

© DHS 2015 1   Name: Index Number: Class: DUNMAN HIGH SCHOOL Preliminary Examination Year 6 Economics 9732/2 Paper 2 Essay Questions 14 September 2015 2 hours 15 minutes Additional Materials: Writing Papers READ THESE INSTRUCTIONS FIRST Write your name and Civics Class in the spaces provided on the answer paper. Answer three questions in total, of which one must be from Section A, one from Section B and one from either Section A or Section B. Write your answers on the separate writing paper provided. Write in dark blue or black pen on both sides of the paper. You may use a soft pencil for any diagrams, graphs or rough working. Do not use staples, paper clips, highlighters, glue or correction fluid. The number of marks is given in brackets [ ] at the end of each question or part question. At the end of the examination, fasten all your work securely into three separate bundles, one for each question. Please indicate all questions attempted in the boxes below. Section A Section B Q1 Q2 Q3 Q4 Q5 Q6 This document consists of 3 printed pages including this cover page. [Turn over

© DHS 2015 2   Answer three questions in total. Section A One or two of your three chosen questions must be from this section. 1. The US economy has reported economic growth and falling unemployment. Weather conditions have improved in Texas, the top US producing state of cotton. Meanwhile, more consumers have opted for synthetic fibre apparel over cotton apparel due to increased quality and comfort of synthetic fibres. Using economic analysis, discuss the effe cts of these events on the U.S. cotton market and its related markets. [25] 2. The increase in foreign worker levy by the Singapore government has led to higher unit labour cost. (a) Explain how the above measure could affe ct the survival of firms in different m a r k e t s t r u c t u r e s . [ 1 0 ] (b) Discuss whether firms in the real world set prices at profit-maximising level. [ 1 5 ] 3. With reference to examples, discuss whether there is a need to change the current policies adopted by the Singapore government to achieve efficiency. [25]

© DHS 2015 3   Section B One or two of your three chosen questions must be from this section. 4. Balance of payments serves to highlight a country's competitive strengths and weaknesses. Assess the extent to which an improvement in the living standards of an economy requires that achieving a healthy bal ance of payments be the top economic p r i o r i t y . [ 2 5 ] 5. UK is in battle over stagflation. Growth has slowed due to its austerity measures and the European debt crisis , while unemployment and oil prices have risen. Economists consider stagflation particularly tough to battle. (a) Explain the key causes of stagflation in UK. [10] (b) Discuss the most appropriate policy that a government could adopt when confronted with stagflation. [15] 6. Trade protection hurts the economy of the country that imposes it. (a) Explain how a country could impose trade protection to reduce its imports. [8] (b) Discuss the extent that you agree with the above view. [17]

© DHS 2015 4   SUGGESTED ANSWER Question 1 The US economy has reported economic gr owth and falling unemployment. Weather conditions have improved in Texas, the top US producing state of cotton. Meanwhile, more consumers have opted for synthetic fibre app arel over cotton apparel due to increased quality and comfort of synthetic fibres. Using economic analysis, discuss the effects of these events on the U.S. cotton market and its related markets. [25] Question Interpretation Three events highlighted: 1. Rising income 2. Improvement in weather 3. Switch from cotton apparel to synthetic apparel Students need to demonstrate a clear understanding of the impact on the price and output of at least three markets: 1. Cotton market 2. Cotton apparel market 3. Synthetic fibre market 4. Synthetic apparel market Economic concepts assessed: 1. Determinants of demand and supply for goods and services 2. Determination of equilibrium market prices 3. Applications of demand and supply analysis to various markets 4. Concept of price elasticity of demand/supply, income elasticity of demand Student should be able to: 1. Identify the main influences on demand and supply 2. Apply knowledge of basic model of demand and supply to various markets 3. Understand the significance of demand and supply factors in influencing the price and quantities traded 4. Explain elasticity concepts and its applications e.g. an understanding of how elasticities will affect the extent of increase in price and output of respective markets Student should use the following analytical framework: 1. Price adjustment process

© DHS 2015 5   Suggested Approach Part 1: US cotton market [Explain] Improved weather conditions in Texas, increase in quantity supplied at each price, increase in supply, rightward shift of supply curve. [Illustrate] Draw demand-supply curves to show that given different PED, the extent of change in price and quantity is different. [Outcome] Cotton market sees a larger increase in output and smaller fall in price if demand is price elastic rather than price inelastic. [Explain] Economic growth and increased employment leads to increased household income and increased purchasing power. Assuming that cotton is a normal good, there will be an increase in demand for cotton. [Illustrate] Draw demand-supply curves to show t hat given different PES, the extent of change in price and quantity is different. [Outcome] Cotton market sees a larger increase in output and smaller increase in price if supply is price elastic than if supply is price inelastic. [Explain] Consumers start to switch to synthetic apparel from cotton apparel. Since cotton is a raw material (factor input) to production of cotton apparel, the fall in purchase of cotton apparel will lead to a fall in the quantity of cotton required to produce the apparel. This will lead to less quantity demanded of cotton at each price, thus the demand will fall. [Outcome] There will be a fall in demand for cotton; however there is a corresponding increase in demand due to increased income. The net effect has to be explained and this requires judgment. [Evaluation] The direction of change is dependent on how much household income has increased and how much of taste and preference has changed in favour of synthetic apparel. Cotton is used to produce items other than apparel, such as bedsheets, stuffing in furniture and components of plastics and insulation, so the increase in demand when income increases can be significant in comparison to fall in demand from people switching over to purchase synthetic apparel. Income elasticity for demand is larger than one. On the overall, demand for cotton could still increase. [Analysis] Assume that the demand for cotton increases, the combined effect from increase in both demand and supply will lead to increase in output. The new equilibrium price is however ambiguous. [Illustrate] The combined effects from both demand and supply changes based on the expected value of PED and PES and the expected extent of shifts. [Evaluation] PES is low due to cotton being agricultur al product + increase in supply likely significant due to Texas being largest producer in US. PED is low due to importance as a factor input to the final goods produced + shift in demand is significant. Make a reasonable judgment on whether demand shifts more than supply or vice versa. [Outcome + Evaluation] Both PES and PED of cotton less than one, but PES < PED; demand increases more than increase in supply; the o