HCI_H2_ECONS_CSQ1_Answers

2018 HCI C2H2 Economics - Prelim CSQ1 Suggested Answers © Hwa Chong Institution 2018 9757/01/A/C2 Prelim 2018 (a) (i) State the relationship between the price of crude oil and the price of recycled plastics shown in Figure 1 and Figure 2. [1] ● Positive or direct relationship (ii) With reference to Extract 1, explain how a fall in the price of crude oil might impact the price of recycled plastics. [3] ● Oil is a key input in the manufacture of new plastics, so when the price of oil falls, the cost of production of new plastics falls. This raises the supply and lowers the price of new plastics (1m). ● From Extract 1, as recycled plastic is a substitute for new plastic, when the price of new plastic falls, producers of goods using plastics will switch from the buying recycled plastics to new plastics (1m) ● This causes the demand and hence the prices for recycled plastic to fall (1m) (b) Explain what Waste Management CEO David Steiner meant when he said in Extract 1, "when prices are high we'll pay you to recycle. When prices are low we have to charge you.” [2] ● TR = revenue earned from selling recycled materials ● TC = cost of buying recyclable waste + cost of processing such waste ● High prices of recycled materials => TR exceeds the cost processing recyclable waste => waste management firms are willing to pay for recyclable waste. (1m) ● Low price of recycled materials => TR falls below processing costs => waste management firms need to charge for the collection of for recyclable waste to avoid making losses. (1m) (c) Use the concept of opportunity cost to explain two reasons why many countries have increasingly turned to recycling instead of disposing their waste in landfills mentioned in extract 2. [4] ● “Precious land” in Extract 3 suggests that land is limited so when a piece of land is used as a landfill, there is a high opportunity cost in terms of the next best alternative forgone, which could some residential, industrial or commercial development. As recycling of waste reduces the need for landfills, this frees up land for such alternative uses. (2m) ● Recycling also “replaces new materials in the manufacturing process” thus reducing the demand, extraction and hence depletion of such non-renewable natural resources, which also has high opportunity costs in in terms of other goods that could have otherwise been produced. (2m) Other possible answer: ● Recycling reduces environmental damage caus ed by landfills. As such, this free up government spending that was originally spent on reducing pollution to be used for next best alternative such as spending on healthcare. (d) Explain why waste collection paid through a flat fee results in residents who “recycle and prevent waste subsidizing their neighbors' wastefulness”. [2]

2018 HCI C2H2 Economics - Prelim CSQ1 Suggested Answers © Hwa Chong Institution 2018