RI 2022 Economics Prelim Markers' Report

ECONOMICS Higher 2 Syllabus 9757 Examiner’s Report Year 6 Preliminary Examination 2022 Raffles Institution Nurturing the Thinker, Leader & Pioneer TEL: 65 6419 9888 ● FAX: 65 6419 9898 http://www.ri.edu.sg ● One Raffles Institution Lane, SINGAPORE 575954

Y6/9757/Prelims/2022 2 © RI 2022 [Turn Over ECONOMICS Y6 H2 Preliminary Examination 2022 Paper 9757/01 Paper 1 Case Study Question 1 a) i) Identify and explain a fixed cost and a variable cost for a pharmaceutical company. [2] Variable cost – cost of variable factors like biobags or filters or sterilisation gear which increases as the output of pharmaceutical products increases. [1] Fixed cost – Rental of manufacturing facilities which does not increase with the output level in the short run. [1] Examiners’ comments Most were able to score full marks, however a significant number of scripts identified vague and weak examples of fixed cost - “maintenance cost of machines” or “maintenance cost of operation”. Maintenance costs could arise from wear and tear directly related to the production of drugs, or it could be regular maintenance costs not correlated to the level of production. Students are advised to use very explicit and clear examples and explain how they are variable or fixed costs. Another common mistake was to give examples which were not related to a pharmaceutical company. Please note that a pharma firm (e.g. Pfizer and Moderna) produce drugs and medicines, they do not operate hospitals and clinics (e.g. Parkway Medical, Raffles Medical). ii) Explain how fixed costs may have an impact on the size of firms in the pharmaceutical industry. [2] If th ere are high fixed costs involved, e.g. purpose -built factories with specialised equipment to manufacture drugs, then the size of the firm is likely large. This is because high fixed costs will require a firm to have a large output level before its average cost of production start to fall significantly, i.e., the firm reaps iEOS over a large output level. OR High fixed costs is a large start -up cost which is a high barrier to entry and this allows incumbent firms to have large output and market share and therefore size of firm is likely large.[1] Examiners’ comments This question was poorly done. Most misunderstood the question and explained how size of a firm could affect BTE, which is the opposite of what the question is asking for. Some candidates had the correct idea about iEOS but failed to explicitly bring in t he concept of falling average COP as output increases. b i) With reference to Figure 1, describe the changes in the level and composition of national healthcare expenditure in USA. [2] The level of National Health Expenditure (NHE) has increased. [1]

Y6/9757/Prelims/2022 3 © RI 2022 [Turn Over In terms of composition, out-of-pocket expenses has significantly fallen whereas health insurance’s