CJC H2 ECONS Answer

© Catholic Junior College Economics Department 2018 H2 Economics 9757 2018 JC2 Preliminary Exam Answer Package Paper 1: Case Study Questions  Answer Scheme

© Catholic Junior College Economics Department 2018 Question 1 Suggested Answers a (i). Compare the price changes of different meat products in India from 2010 to 2016 shown in Figure 1. [2] Suggested Answer Similarity Prices for different types of meat were all increasing from 2010 to 2016. [1] Difference Ham and Bacon’s prices changed by the greatest extent (increased by $1.46) as compared to Sausages (increased by $1.08) and Cold and Roast Meat Products (increased by $1.28). [1] Note: Comparison of price levels (i.e. Ham and Bacon Prices are higher than the rest) will not be accepted given that the question is asking for a comparison of relative price changes. a (ii). With the help of a diagram, explain the factors that contributed to the trend of meat product prices in India. [4] Suggested Answer Demand Factor (Knowledge + Evidence) [1] Extract 1 “The demand for meat is expected to grow faster in India with sustained economic growth, strengthening urbanisation trends and increasing awareness of the nutritive value of meat and meat products.” Change in Consumers’ Tastes and Preference will lead to a rise in Demand for meat. Or Increase in consumer income will lead to an increase in demand for meat, assuming that meat is a normal good. Supply Factor (Knowledge + Evidence) [1] Extract 1 “ This increase in demand called for capitalisation on the p art of producers. This primarily occurred in the form of increased development of technology which hastened the processing of livestock based products.” Technological advancements lead to an increased productivity, which lowers costs of production. Thus, Supply increases Explanation of extent of shifts [1] Extract 1 “an increase in production that has picked on rather dismally.” Hence, it is likely that demand has increased more than supply, hence price of meat products in India has risen. Diagram [1]

© Catholic Junior College Economics Department 2018 b. Analyse the likely impact of the subsidies and exemption on excise duty on employment in the Indian meat industry. [4] Suggested Answer Direction [1] Subsidies and exemption of excise duty will reduce cost of production. This leads to an increase in Supply. Output will hence increase and there will be higher demand for labour. This will result in an increase in employment. [1] Magnitude [3] Demand for meat likely to be inelastic due to lack of close substitutes. [1] Hence, a fall in price will lead to a less than proportionate increase in quantity demanded. [1] Since the output increase is not significant, increase in demand for labour is not significant. Hence, employment does not increase significantly. [1] c. Given the information in Table 1, explain which type of meat product may be considered more of a luxury by Indian consumers. [2] Suggested Answer Given the information in Table 1, mutton is considered more of a luxury by the Indian consumers [1]. This is because it is the most income elastic amongst the three types of meat (it has the highest YED value). This means that the rise in demand resulting from the rise in income will be biggest for mutton as compared to the rest. [1] (Mark is awarded if students interpret what is meant by ‘most income elastic’) d. To what extent is the fourth industrial revolution likely to lead to an improvement in standard of living of Indian meat producers. [8]

© Catholic Junior College Economics Department 2018 Question 2 Suggested Answers (a) Compare the change in share of crude steel production by China, Other Asia, and the EU as a proportion of world total between 2006 and 2016. [2] The share of crude steel production by China and Other Asia of world total has increased, while that from the EU has decreased [1]. The change in share of crude steel production is the largest for China, and the least for Other Asia. [1] Note1: No credit if answer does not explicitly compare. (b) With the use of a diagram, explain why overcapacity in China’s heavy industrial sectors might be a problem for China. [4] Reason 1: Retaliatory actions from trading partners Overcapacity suggests that there is a surplus in such industries. Chinese producers may export the surplus to international markets at artificially low prices [i.e. dumping], prompting retaliation. [1] This may prompt trading partners to retaliate by imposing anti -dumping duties on Chinese exports [1] Fall in X-M  Fall in AD  Negative EG (multiplied fall in national income from Y to Y’) + rise in unN rate (economy is producing at Y’, further away from full employment at YF) [1m – any link to macro aims] Diagram [AD-AS diagram showing leftward shift in AD and negative impact on economic growth and unemployment rates] OR Reason 2: Fall in revenue suffered by producers in China Heavy industrial sectors produce raw materials such as steel, aluminium, cement and coal which has few substitutes, resulting in a price inelastic demand. [1] Overcapacity suggests that there is a surplus in such industries, causing prices to fall. [1] With a fall in prices, quantity demanded of such raw materials rise less than proportionately, causing a fall in total revenue received by producers (from 0PEQ to 0P’EQ’) . [1] Diagram comparing the change in TR as a result of the overcapacity [1]

© Catholic Junior College Economics Department 2018 Note: Answers that explain the problem of overcapacity in the context of resource misallocation (i.e market failure) will receive max 3m. (c) With the use of a diagram, explain the effects of anti -dumping duties on consumers and producers in the EU. [4] Well-referenced and accurately drawn tariff diagram [1] Anti-dumping duties reduces world supply of steel into the EU and raises the price of steel in the EU from PW to PW+T. [1] There is an increase in producer surplus from area A to area A+B [1] and a fall in consumer surplus by the area b+c+d+e. [1] Examiners’ Comments: This question was also similarly very poorly attempted. Most answers demonstrated a very poor understanding of the diagrammatic analysis required to explain how tariffs work and its effects on domestic consumers and producers. Most answers drew an upward -sloping supply curve illustrating world supply of imports, without realising that world supply of imports into the EU market is assumed to be perfectly price elastic. For some scripts that managed to draw the diagrams correctly, they merely indicated the deadweight loss areas (impact on society) and government revenue areas (impact on the government), instead of focusing on what the question was asking for. (d) (i) Explain the principle of comparative advantage. [2] A country is deemed to have comparative advantage in the production of a good if it can produce the good at a lower opportunity cost than its trading partners can. [1]

© Catholic Junior College Economics Department 2018 A country should specialize in and export the good it has comparative advantage in, and import goods that it does not have comparative advantage in. [1] (ii) Comment on the validity of EU’s decision to impose anti -dumping duties on Chinese steel products. [8] Dumping refers to the sale of goods by foreign firms at a price below the marginal cost of production so as to drive out domestic producers and establish market dominance. Thesis: EU’s decision could be valid Overcapacity in the Chinese steel industry has resulted in a surplus of steel. This surplus has been exported to the EU market at ‘heavily dumped prices’ (Extract 5). This creates unfair competition to EU produ