2020 H1 Preliminary Exams Suggested Answers

2020 H1 Economics Preliminary Examinations Suggested Answers
Case Study Question 1
(a) What does the statement “…in general, the wealthier a country is, the
more people have pets.” (Extract 1) tell you about the type of good that
pets are? [2]
Pets are normal goods [1] as an increase in income leads to a higher
demand for pets. [1]
1m identify normal goods, 1m explanation
(b) (i) Compare the trend in global spending on pet products and pet food
shown in Figure 1. [2]
Global spending on both pet products and pet food were increasing. [1]
However, global spending on pet food increased more than that on pet
products. [1]
Or
Global spending on pet products is always higher than that on pet food. [1]
1m compare general trend, 1m compare extent of change/difference in

levels
(ii) With the aid of an appropriate diagram, explain one reason from
Extract 2 that accounts for the similarity observed in b(i). [4]
The increased spending on pet products and pet foods is due mainly to the
increase in world pet population (Ext 2). [1] This increased the demand for
pet food and products, shifting the demand curve to the right from D0 to D1
as shown in the diagram below. A shortage occurs at the original price, P0,
and this exerts an upward pressure on price. A new equilibrium is reached
when quantity demanded is again equal to quantity supplied. The
equilibrium price and quantity increase from P0 to P1 and Q0 to Q1
respectively. [1] Hence consumer spending (price multiplied by quantity
bought) increases from area OP0E0Q0 to OP1E1Q1. [1]
Price of pet care
S
E1 0
P1
E0
P0
D1
D1
O Qty of pet care

Q0 Q1 [1]
1m increase in pet population  increased demand for pet food & products
1m link increase D to increase P&Q
1m link Increase P&Q to increase spending (expenditure)
1m diagram
(c) Using Extract 3, explain how opportunity cost affects ‘cash-rich, time-
poor’ pet owners in making consumption decisions. [3]
[Turn over
2
Opportunity cost refers to the cost of any action or decision measured in

terms of the highest valued alternative forgone. [1]
Pet owners have scarce resources, eg. money and time, and they make
consumption decisions to maximise satisfaction by weighing the opportunity
costs and benefits. [1]
Cash-rich pet owners have more than enough money to satisfy their daily
needs and so incur low opportunity cost in using their money on their pets.
The satisfaction (benefits) that they derive from spending an additional
dollar on pets outweighs the opportunity cost. Hence, they are likely to
spend lavishly on their pets. [1]
Or
Time-poor pet owners have many important tasks to complete in their

limited time and would incur high opportunity cost in using their time to walk
their dogs. The satisfaction that they derive from walking their dogs is less
than the opportunity cost incurred. Hence, pet owners would pay others to
do walk their dogs.
1m for defining opportunity cost

1m for explaining how pet owners make decisions by weighing benefits and
opportunity cost
1m for applying to the context
(d) (i) With reference to Extract 3, explain the likely difference in the price
elasticity of demand (PED) for pet food between older pet owners and
millennials. [4]
Price elasticity of demand (PED) measures the degree of responsiveness of
quantity demanded of a good to a change in its price, ceteris paribus.
Demand for pet food is likely to be more price inelastic for millennials
compared to older pet owners.
According to Ext 3, older pet owners view pets fundamentally as animals

while millennials see their pets as family or as extensions of themselves.
Millennials want healthier pet food for their pets and therefore regard pet
food as a necessity (or have no close substitutes). [1] Hence, when the
price of pet food rises, quantity demanded of pet food by the millennials fall
less than proportionately. [1] Older pet owners do not mind feeding their
pets with alternatives. They do not regard pet food as a necessity (or have
many close substitutes). Hence, their quantity demanded of pet food would
fall more than proportionately to a price increase.
1m identify difference (more price inelastic for millennials)

1m identify factor of PED
1m each for applying factor of PED to older pet owners and to millennials
(ii) Using relevant economic concepts, discuss what pet food

manufacturers could do to increase their profits. [8]
Question analysis
8823/01/MI/PU2/EOY/2020 Suggested Answers

3
Command word = Discuss  Two-sided answer with evaluative

conclusion
Thesis: Strategies that pet food manufacturer could adopt to increase
profits
Anti-thesis: Limitations of strategies
Content = PED, pricing and non-pricing strategies
Context = Pet food manufacturers
Requirement Suggested Answer

Introduction: Profit is total revenue minus total cost. To increase
Explain profits, pet food manufacturers would have to increase
profits and total revenue. Total revenue is price multiplied by the
give overview quantity sold. By considering the concept of price
of approach elasticity of demand (PED), pet food manufacturers can
introduce pricing and non-pricing strategies that aim to
increase their total revenue.
Thesis 1: PED measures the degree of responsiveness of quantity

Pricing demanded of a good to a change in its price, ceteris
strategy for paribus.
pet food
targeting the Pricing strategy for millennials
millennials For the millennials, demand for human-grade quality pet
food is relatively price inelastic (IPEDI<1). This means
that the millennials are not sensitive to price changes.
Hence, the pet food manufacturer can increase the price
of human-grade quality pet food for the millennials. As
shown in the diagram below, an increase in price, for
example, from P0 to P1, will lead to a less than
proportionate decrease in quantity demanded from Q0 to
Q1. The gain in total revenue due to the increase in price
(Area A) is more than the loss in total revenue due to the
decrease in quantity (Area B). Thus, there is an increase
in total revenue.
Anti-thesis However, there are limitations to this strategy. Raising

1: the price would result in an increase in TR only if the
Limitation of demand is price inelastic. However, the manufacturers
the strategy may not have accurate estimates of the PED of their pet
food to be sure that the demand is price inelastic.
Furthermore, even if they do, the PED values are only
valid if ceteris paribus holds. However, this may not be
likely. For example, if the incomes of the millennials

4
decrease, the fall in demand may be larger than

expected, causing a fall in TR instead.
Thesis 2: Pricing strategy for older pet owners

Pricing Demand for pet food by older pet owners is generally
strategy for more price elastic (|PED| >1) as explained in d(i). This
pet food means that consumers are very responsive to the
targeting changes in prices. Hence, given that the PED value is
older pet more than one, the manufacturer can propose to
owners decrease the price of lower grade pet food targeting older
pet owners. This is because the decrease in price, for
example, from P0 to P1, will lead to a more than
proportionate increase in quantity demanded from Q0 to
Q1 as shown in the diagram below. The decrease in
total revenue due to the decrease in price (Area A) is less
than the gain in total revenue due to the increase in
quantity (Area B). Thus, there is an increase in total
revenue.
Anti-thesis However, the price reduction of one pet food

2: manufacturer might lead to the other manufacturers
Limitation of following suit so as not to lose out their market share.
the strategy Thus the use of pricing strategy may lead to a price war.
This is not sustainable as price reduction without cost
reduction will reduce profit earned.
Thesis 3: Another strategy that the pet food manufacturers can

Non-Pricing undertake could be to more strongly advertise their
strategies products. Since consumers are becoming more health-
conscious, manufacturers can emphasise the health
aspect of their pet food to cater to consumers’ tastes and
preferences. This would cause an increase in the
demand for their pet food and hence lead to an eventual
increase in both price and quantity traded of their
product.

5
As seen in the diagram above, an increase in demand

from D0 to D1 would cause price and quantity traded to
increase from P0 to P1 and Q0 to Q1 respectively. This
would then cause total revenue to increase from P0 x Q0
to P1 x Q1, allowing these pet food manufacturers to still
make profit.
Anti-thesis However, such advertising has its limitations too.

3: Advertising may not be effective and as such, the
Limitation of increase in demand may be limited (or non-existent, if the
the strategy advertising is completely ineffective). Furthermore,
advertising incurs costs too. If the increase in revenue
from the advertising is less than the costs incurred,
profits may fall instead.
Evaluative In conclusion, every strategy has its limitation and pet
conclusion food manufacturers may need to use a combination of
both strategies to complement each other. Increasing
prices of human-grade quality pet food and reducing
prices of lower grade pet food may yield an increase in
total revenue in the short run. In the long run, the
demand for a manufacturer’s pet food will likely become
more price elastic as more substitutes are developed.
The increase in total revenue in the short run can then
provide funds for an advertising campaign which will
probably work better in the long run as it takes time for
people’s attitudes and consumption habits to change.
Level Descriptor Marks

L2 Discusses at least two strategies in terms of how 4-6
they work and their limitations. Explanations make
use of detailed economic analysis (including
diagrams).
Max 4m if the student explains at least two

strategies in terms of how they work using detailed
economic analysis (including diagrams) but without
explaining the limitations at all.
L1 Discusses at least two strategies in terms of how 1-3
they work and their limitations. Explanations make
use of economic analysis but with some gaps.

6
OR
Only discusses ONE strategy in terms of how it

works and its limitations. Explanations make use of
detailed economic analysis (including diagrams).
E Reasoned judgement about the strategies that pet 1-2

food manufacturers can undertake. Judgement is
supported with a sound and well-explained
justification.
(e) With reference to Extract 3, explain whether imperfect information

exists in the market for human-grade quality pet food. [3]
There is imperfect information in the market for human-grade pet food.
According to Ext 3, the “rapid growth” in human-grade quality pet food is a
result of consumers “extrapolating from their own dietary concerns” even
though there is “no proven benefit to pets’ health” (or pet owners are
unaware of the long term health risks to their pets.) [1]
This means that consumers have overvalued the true benefit of human-
grade pet food to their pets as the perceived marginal private benefit (MPB)
is higher than the actual MPB. [1] Thus the demand with imperfect
information is higher than the demand with perfect information. [1]
1m for evidence of imperfect info

1m for explaining how the pet owners may have over-estimated the true
benefits of human-grade pet food to themselves
1m for linking to demand with imperfect info being higher than the demand
with perfect info
(f) (i) With reference to Extract 4, explain how negative externalities cause
the market for pet food to fail and comment on the extent of this
failure. [7]
Explain how negative externalities cause market for pet food to fail [4]
Pet food includes meat and meat production generates negative
externalities as the use of fossil fuels, pesticides etc. results in “carbon
pawprint” which cause damage to the environment and the society as a
whole suffers (Extract 4). [1] This causes a divergence between MSC and
MPC as MSC = MPC + MEC. [1]
As seen in the figure above, the market equilibrium will be at Qe where MPC
= MPB as consumers and producers are self-interested and only consider

7
private costs and benefits. However, the social optimum is at Qe where

MSC = MSB. [1] Since Qe exceeds Qs, there is an overproduction of pet
food, giving rise to a deadweight loss of the shaded area as MSC exceeds
MSB for the units in between Qs and Qe.[1] As such, the market for pet food
fails.
Comment on the extent of this failure [3]

The size of the negative externalities is likely to be large and increasing [1]
as the pet population has grown very big and is set to grow further as
incomes rise. [1] Pet owners are also more health conscious and are
expected to indulge in their pets and spend more on human-grade quality
pet food that is made from meat. [1]
1m for explaining negative externalities

1m for explaining divergence between MSC and MPC
1m for explaining Qe & Qs
1m for overconsumption & DWL
3m for comment (1m for judgement + 2m for justification)
(ii) Given that an “almost global pet culture is emerging” (Extract 1),
assess the relative effectiveness of the various measures mentioned in
Extract 4 to improve the environmental sustainability of the pet food
industry. [12]
Question analysis
Command word = Assess  Two-sided answer with evaluative
conclusion
Thesis: The various measures to improve environmental sustainability of
the pet food industry are effective
Anti-thesis: Limitations of the measures
Content = Policies to correct negative externalities
Context = Pet food industry
Requirement Suggested Answer

Introduction: The measures mentioned in Extract 4 to improve
Identify the environmental sustainability of the pet food industry
measures include developing meat substitutes, taxes on pets (& pet
mentioned in products & pet food), banning marketing of pets and pet
Ext 4 products and changing pet culture to a “time-share”
model. All measures have their benefits and limitations in
tackling the market failure in the pet food industry.
Thesis 1: From Extract 4, using alternative proteins and developing

Developing lab-grown meat would allow pet food to be produced
meat without having to raise livestock. This represents an
substitutes improvement in technology. This would mean that the
can improve production of meat would produce less negative
environmenta externalities as there would not be any carbon emissions
l sustainability from livestock, and there would be no loss of biodiversity
in the pet due to not having to clear land to raise livestock.
food industry
The reduction in negative externalities would means that
MEC decreases and hence MSC would shift towards
8
MPC. As such, the gap between Qs and Qe would be

reduced and so would the deadweight loss. This is seen
in the diagram below where the shift of MSC from MSC0
to MSC1 eventually caused the DWL to fall from area
A+B to just area B.
Fig 1: Improvement in technology in market for pet food
Anti-thesis However, there may be limitations to this policy. First, the

1: use of insect protein as a substitute may not appeal to
Limitations of the pet owners and pet food manufacturers may not want
developing to take the risk of replacing meat protein with insect
meat protein in their pet food. The development of lab-based
substitutes meat is still in its infancy and the R&D efforts the process
may take a long time and is unable to address the
environmental impact in the short run (Extract 4: it will be
some time before the technology can be scaled up).
Thesis 2: Government can impose an indirect tax per unit of pet

Tax on pet food sold. The tax should be equal to MEC at Qs. By
food can imposing this tax, the cost of production will increase.
improve Hence, the marginal private cost of producing pet food
environmenta will increase (i.e., supply curve shifts left). As seen in the
l sustainability figure below, MPC curve will shift to the left to MSC. This
in the pet will reduce the equilibrium quantity of pet food from Qe to
food industry the socially optimal level at Qs, reducing over-production
(students of pet food and correcting the market failure.
may explain
how a tax on
pet works ->
reduce ss of
pets, Pe rises
& Qe falls
and demand
for pet food
hence falls)

9
Fig 2: Taxes in market for pet food
Anti-thesis However, it is difficult to calculate the exact amount of

2: MEC as there are tangible and intangible costs. Some of
Limitation of the external costs are difficult to quantify in monetary
taxes terms. Hence it is difficult to calculate the exact amount
of the indirect tax to charge to reduce the negative
externalities. On one hand, too low a tax will be
ineffective in curbing overconsumption. On the other
hand, too high a tax will still result in an inefficient
allocation of resources as the society’s welfare is not
maximised.
For millennials, demand for human-grade quality pet food

is price inelastic, the increase in price from rising taxes
may not be effective in reducing the over-consumption of
pet food since it lacks close substitutes especially for
millennials.
Thesis 3: Banning marketing of pet food that involves the use of

Banning meat protein will reduce the demand for such pet food as
marketing of consumers would not be persuaded to buy such goods.
pet food can Demand for such pet food thus falls from D0 to D1,
improve reducing the equilibrium quantity from Qe to Qs,
environmenta eliminating the deadweight loss.
l sustainability
in the pet
food industry
(students
may explain
how ban on
marketing of
pets works ->
reduce DD for
pets and
hence DD for
pet food falls)
Fig 3: Banning marketing in market for pet food
Anti-thesis However, legislation is subject to loopholes and high cost
3: of monitoring. Firms may still continue to market their pet
Limitation of food illegally through various means like the internet.
ban Hence, government may need to incur high cost of
enforcement which may affect the health of their budget.
If the government is facing high national debt problem
and there is a need to reduce their government spending
to solve the debt problem, they may not be able to
enforce the legislation strictly, thus making it less
effective.
10
Thesis 3: Changing the pet culture would involve using public

Changing the education to convince people to change their mindsets
pet culture regarding pet ownership. By persuading people to share
can improve pets, the demand for pets would fall, leading to a fall in
environmenta the demand for pet food as shown in the previous figure
l sustainability (Figure 3).
in the pet
food industry
Anti-thesis However, there may be limitations to this policy. First, the

3: extent of the fall in demand may be limited if consumers
Limitation of find it difficult to share pets. This is especially so in
changing pet developing/middle income countries where owning pets
culture is a status symbol. Also, even if consumers’ mindsets
can be changed eventually, it would take a long time and
cannot address the pressing issue.
Evaluative In conclusion, which policy is the most effective depends

Conclusion on the time period of analysis. In the short run, taxes and
Make a banning of marketing of pets and pet food are likely to be
judgement on the most effective as they have a more immediate effect
the relative on the production and consumption of pet food. However,
effectiveness given the younger generation’s inelastic demand for pets
of the policies and pet food, such measures may become less and less
(i.e., which is effective in the longer term. With global demand for pets
most and pet food set to rise sharply, the use of technology to
effective) develop meat substitutes and changing the pet culture
would be more effective in the long run as they tackle the
root cause of the market failure. These measures, if
successfully carried out, would allow more people to
continue enjoying the company of pets and yet improve
the environmental sustainability in the pet food industry.
Leve Description Mark

l s
3 Explains how at least 2 policies work and their limitations 7–9
(scope & balance).
Explanations make use of appropriate economic analysis
(depth).
The context of the pet food industry is accounted for (i.e.,
not a purely theoretical answer) (context).
At least 2 policies well-explained – Max 7

2 Explains only how 1 policy works and its limitation. 4–6
Explanation makes use of economic analysis and the case
material. (lacks scope)
Explains only the thesis OR anti-thesis. Explanation makes

use of economic analysis and the case material. (lacks
balance)

11
OR
Explains both the thesis and anti-thesis with some gaps in

economic analysis. Some reference to the case material is
made. (lacks depth & context)
1 Purely descriptive answer with limited/no use of economic 1–3
analysis.
E2 Makes a judgement that answers the question and justifies 2–3
the judgement.
E1 Makes a judgement without any substantiation. 1
[Total: 45]

12
Case Study Question 2

(a) (i) Explain the relationship between labour productivity and general
price level. [2]
Labour productivity and general price level have an inverse relationship.
[1]
An increase in labour productivity reduces the unit labour cost and it will
help to offset cost-push inflation, causing the general price level to
decrease. [1]
1m for identifying the relationship between labour productivity and GPL

1m for explaining how the relationship comes about using cause-effect
relationship
(ii) Summarise the trends of GPL and labour productivity in Singapore
and explain whether the relationship in (a)(i) holds. [3]
Overall, in Singapore, as labour productivity increased, the general price
level (as shown by the Consumer Price Index) also increased [1], except
in 2016 when the increase in labour productivity was met with a lower
general price level. [1]
This means that the relationship in (a)(i) only holds in 2016 but was not
evident in the other years in the data. [1]
2m for identifying the trends of GPL and labour productivity based on

data
1m for explanation of whether the relationship holds
(b) Based on Table 1, explain how the change in Singapore’s

unemployment level can have a negative impact on its economy. [3]
Change in Table 1: Unemployment rate has been increasing from 2015 to
2018 [1]
Any one of the negative impacts of high unemployment:
 Possible loss of income  The unemployed will see their purchasing
power and consumption fall as a result. Hence, material standard of
living falls.
 Social costs of unemployment: Severe hardships can be caused by
prolonged periods of unemployment. Social research has shown that
crime, mental illness and general social unrest tend to be positively
associated with unemployment. This results in a fall in non-material
standard of living.
 When there is higher unemployment, the government loses tax
revenue, since the unemployed do not pay income tax. Additionally,
the government also collects less consumption taxes given that the
unemployed spend less and hence pay less expenditure taxes (e.g.
GST). The government may also incur higher expenditures in
provision of other welfare benefits to the unemployed. Both the fall in
tax revenue and increase in government spending would impose a
burden on the government budget. This may then hinder the
government’s ability to address inequity or achieve other
macroeconomic objectives.
1m for identifying change in unemployment level

2m for explaining how increasing unemployment affects other
macroeconomic goals and/or standard of living

13
(c) Using the data on Gini coefficient in Table 1, compare and justify which
country is better able to achieve inclusive growth up to 2018. [4]
The Gini coefficient of both countries have improved over time [1] but
Indonesia’s Gini coefficient has improved more than Singapore’s. [1]
Inclusive growth is shown when the Gini coefficient of a country moves closer
to zero (i.e., perfectly equal distribution of income). [1]
Since Indonesia’s Gini coefficient has improved more than Singapore’s,
Indonesia is better able to achieve inclusive growth up to 2018. [1]
OR
The Gini coefficient of both countries have improved over time [1] but the Gini
coefficient of Singapore is consistently lower than Indonesia’s. [1]
Inclusive growth is shown when the Gini coefficient of a country moves closer
to zero (i.e., perfectly equal distribution of income). [1]
Since Singapore’s Gini coefficient is always lower than Indonesia’s,
Singapore is better able to achieve inclusive growth up to 2018. [1]
1m for general trend of Gini coefficient

1m for refinement of trend of Gini coefficient
1m for explaining how Gini coefficient shows inclusive growth
1m for justifying the country who is better able to achieve inclusive growth
(d) Using an aggregate demand and aggregate supply diagram, explain how
“recent trade actions announced by the US and China” (Extract 5) could
impact growth of the Singapore economy in the short run and long run. [6]
“Recent trade actions announced by the US and China…trigger a sharp fall in
global business and consumer confidence, investments and consumption
could decline.” When C and I fall, AD will fall, causing AD to shift from AD1 to
AD2, as shown in the figure below [1]. The fall in AD results in a greater fall in
NY due to the downward multiplier and reduces actual growth in the short run.
[1]
In the long run, the productive capacity is also adversely affected. Due to the
fall in I, spending on capital goods is reduced [1] thus reducing LRAS,
causing AS1 to shift leftwards to AS2 [1]. This adversely affects potential
growth in the long run as full employment level falls from Yf1 to Yf2. [1]

14
Diagram [1]
1m for identifying that C and I falls resulting in AD to fall.

1m for explaining how fall in AD affects short run economic growth.
1m for stating how fall in I affects LRAS.
1m for explaining how fall in LRAS affects long run economic growth.
2m for accurately drawn diagram that is referred to in the explanation – 1m for
each shift.
(e) Using a production possibilities curve, explain the negative [7]

consequence of not achieving sustainable growth on Singapore’s
economy in the future and comment on whether businesses should take
“action to mitigate climate change” (Extract 6).
Explanation of impact on Singapore’s PPC
Definition of PPC [1]
The negative consequence of not achieving sustainable growth in the future is
the depletion of natural resources and the lack of potential growth [1], causing
an inward shift of the PPC from PPC1 to PPC2. [1]
Diagram [1]
Comment on whether businesses should take “action to mitigate climate

change” [Up to 3]
Yes, businesses should take action because
 Change in tastes and preferences towards sustainable businesses 

15
Demand for goods and services from sustainable businesses is

increasing  increase in TR and hence profits if businesses take
action to mitigate climate change
 Since government is giving a $900 million funding, it can reduce COP
 Might increase profits
Explanation
1m for definition of PPC
1m for explaining the negative consequence on potential growth
1m for explaining impact on PPC
1m for accurately labelled diagram that is referred to in explanation
Comment
1m for judgement (stand on whether businesses should take action)
Up to 2m for justifying the judgement
(f) Based on the data provided, assess whether there is sufficient data to
conclude that Indonesia has a higher standard of living than Singapore. [8]
Question analysis
Command word = Assess  Two-sided answer with evaluative conclusion
Thesis: There is sufficient data to conclude that Indonesia has a higher
SOL than Singapore.
Anti-thesis 1: There is insufficient data to conclude that Indonesia has a
higher SOL than Singapore
Anti-thesis 2: There is sufficient data to conclude that Singapore has a
higher SOL than Indonesia
Content = SOL indicators
Context = Singapore and Indonesia
Requirement Suggested answer

Introduction Standard of living (SOL) refers to the well-being of the
Define SOL individuals in a country. There are two aspects of SOL,
namely material and non-material SOL.
Thesis: There is Stronger GDP growth rates in Indonesia suggest that
sufficient data the national income in Indonesia is growing faster thus
to conclude allowing Indonesians to access more goods and
that Indonesia services as a whole economy due to the larger
has a higher increase in purchasing power. This suggests that
SOL material SOL in Indonesia might be higher than that in
Singapore.
In addition, Indonesia’s GDP grew faster than the

increase in GPL, Indonesia’s material SOL is likely to
be higher than that of Singapore because the people in
Indonesia will be able to consume more goods and
services in real terms as compared to Singapore.
Both indicators might suggest that Indonesia has a

higher material SOL than Singapore.
Anti-thesis 1: However, the data given in Table 1 on GDP growth rate
There is is not a good indicator because the base value from
insufficient which the growth rates were calculated in not known.
16
data to Even though Indonesia has a higher GDP growth than

conclude that Singapore, Indonesia’s level of national income per
Indonesia has a individual in Indonesia remains low as compared to
higher SOL Singapore (Extract 6).
In addition, a large economy like Indonesia might have

a large non-market economy that serves its people well
thus protecting their material SOL. Unfortunately this
information is not readily available thus making it hard
to ascertain if Indonesia indeed does have the higher
material SOL.
Meanwhile, information in Extract 7 only suggests

improvements over time for Indonesia’s non-material
well-being in terms of “greater efforts (are) being made
to provide basic public services”. However, this does
not prove that Indonesia’s non-material SOL is better
than Singapore.
Anti-thesis 2: Although not as accurate as GDP per capita (PPP), the

There is great difference between the GDP per capita of
sufficient data Singapore and the GDP per capita of Indonesia
to conclude (Extract 6) suggests that an average person in
that Singapore Singapore will be able to enjoy more goods and
has a higher services than his counterpart in Indonesia.
SOL
In addition, the Gini coefficient (Table 1) allows us to
compare whether incomes in Singapore are more
equally distributed than in Indonesia. Since the Gini
coefficient in Singapore is lower than that in Indonesia
by 2018 and since Singapore’s GDP per capita is
higher than that of Indonesia (Extract 6), the average
person in Singapore is more likely to enjoy higher
material SOL than his counterpart in Indonesia.
Meanwhile, Extract 7 contains sufficient information to

show that Singapore has a higher non-material SOL
than Indonesia. This is because people in Indonesia
still do not have equal access to healthcare and
education. This is in contrast to Singapore, which offers
“the best quality of life in Asia” in terms of similar
aspects of healthcare and education.
Evaluative In conclusion, although data in the case allows us to

conclusion make some comparisons between Singapore and
Indonesia in terms of both material and non-material
SOL, the comparisons are not conclusive as a whole
and it is difficult to say that Indonesia has a higher SOL
than Singapore. Therefore there is no clear judgement
and more information like the GDP per capita (PPP)
and HDI index will need to be collected so as to provide
a clearer comparison in the two aspects of SOL.
Level Mark Scheme Marks

17
2 Well-developed explanations of both the thesis and 4–6

anti-thesis. Points in the thesis and anti-thesis make
use of at least two pieces of information, and covers
both material and non-material SOL.
1 Under-developed discussion of how relevant 1–3
information show whether Indonesia has a higher SOL
than Singapore.
To get 3m, there must be attempts to discuss at least

two indicators.
OR
One-sided explanation of how relevant information

show whether Indonesia has a higher SOL than
Singapore.
E Reasoned judgement of whether there is sufficient 1 - 2
information to conclude that Indonesia has a higher
SOL than Singapore, with application of relevant
economic concepts.
(g) In light of the challenges faced by Indonesia, discuss whether “more
government spending” or efforts to “improve its human resources”
(Extract 9) is the better way to improve the standard of living in [12]
Indonesia.
Question analysis
Command word = Discuss  Two-sided answer with evaluative conclusion
Thesis: Policy X is a good way to improve SOL in Indonesia
Anti-thesis: Policy X is not a good way to improve SOL in Indonesia
because of its limitations
Content = Demand-management policy (i.e., expansionary fiscal policy),
supply-side policies, SOL
Context = Indonesia
Requirement Suggested answer

Introduction The main challenges on growth are:
Define SOL  Major infrastructure needs following natural
Identify disasters
challenges  The low level of education of the population
faced by
Indonesia Standard of living (SOL) refers to the well-being of the
individuals in a country. There are two aspects of SOL,
namely material and non-material SOL.
In light of the challenges, Indonesia has implemented

the policies of “more government spending” and efforts
to “improve its human resources”.
Thesis 1: More “More government spending” to build new infrastructure
government in areas affected by natural disasters will directly
spending is a increase G thus leading to an increase in AD. This
good way to expansionary fiscal policy will be able to increase the
improve SOL in NY of Indonesia more than the initial injection because
Indonesia of the multiplier effect.
18
As a result, the incomes of Indonesian residents will

increase, thus improving their material SOL because
with greater incomes, they will be able to enjoy more
goods and services.
At the same time, the fall in unemployment as indicated
by the narrowing of the output gap (from output gap 0
and output gap 1) suggests that more Indonesian
residents might be employed as a result of the
government injection into the market. Given that the
unemployment level has been increasing from 2016 to
2018 (Table 1), the employment of more workers as a
result of this expansionary fiscal policy will certainly
improve their material well-being, thus proving that the
method is a good way to one of the challenges and
improving SOL.
In addition, “more government spending in new

infrastructure projects and reconstruction efforts” in
disaster hit areas will directly improve non-material
SOL by ensuring that the people in these areas are
provided with basic shelter/housing. It is the provision
of housing that can improve non-material SOL, just like
how the structured housing policy in Singapore is cited
to have made a difference in Singapore’s living
standard (Extract 8).
Anti-thesis 1: However, “more government spending” might not be a
More good way to improve SOL in Indonesia because of the
government small multiplier. If the multiplier effect of Indonesia is
spending is not small, the effect of increased government expenditure
a good way to will be limited and NY will not be able to increase
improve SOL in much. This issue is highlighted in Extract 9, where it is
Indonesia said that the economic growth has to increase beyond
because of its five per cent to be able to increase income per capita.
limitations Thus, it is crucial for the multiplier effect in Indonesia
to be large because it is necessary for economic
growth to increase beyond five per cent to be able to
increase income per capita.

19
Accept other possible limitations of expansionary fiscal

policy
Thesis 2: Meanwhile, “improving human resources” to overcome
Improving the challenge of low level of education of the
human Indonesian population is likely to improve the labour
resources is a productivity of the workforce thus increasing both
good way to SRAS and LRAS, shifting them downwards and
improve SOL in rightwards respectively as shown in the diagram below.
Indonesia
The increase in both SRAS and LRAS will then lead to

NY from Y1 to Y2. With greater income levels, it can be
said that the Indonesian workforce will have greater
incomes that will allow them to purchase more goods
and services, thus leading to an improvement in their
SOL.
Anti-thesis 2: Unfortunately, heavy government expenditure is
Improving required in providing education to improve human
human resource but this would also mean that that the
resources is government would incur a huge opportunity cost in the
not a good way form of funds to be used for other areas. Additionally, it
to improve SOL might be difficult to convince Indonesians to consider
in Indonesia vocational training as seen from the low student
because of its numbers at polytechnic institutes. As such, such efforts
limitations to supposedly improve SOL in Indonesia might not be
effective.
Evaluative Deciding on which solution is better is dependent on
conclusion the priorities of the Indonesian government. While both
solutions present benefits in the form of overcoming the
challenges faced by the economy, there are costs that
might be incurred or problems faced with regard to the
implementation of the solutions. Given that Indonesia
currently has a “stronger budget position”, it might be
useful for Indonesia to spend on immediate
infrastructure rebuilding efforts to be able to see the
improvement in SOL quickly.
Leve Description Mark

l s
3 Explains both the thesis and anti-thesis. Explanations are 7–9
20
thorough and make use of appropriate economic

framework (AD/AS) and concepts. There is consistent
application to context with the use of case material to
support the explanations.
2 Explains only the thesis OR anti-thesis. Explanations are 4–6

thorough and make use of appropriate economic
framework (AD/AS) and concepts. There is some
application to context with the use of case material to
support the explanations.
OR
Explains both the thesis and anti-thesis with some gaps in

economic analysis. Some reference to the case material is
made.
1 Purely descriptive answer that merely explains how 1–3

increasing government spending and improving human
resources work with limited/no use of economic analysis.
Fundamental conceptual errors are made.
E2 Makes a judgement that answers the question and justifies 2–3

the judgement.
E1 Makes a judgement without any substantiation. 1
[Total: 45]

2020 H1 Preliminary Exams Suggested Answers

Uploaded by

Copyright:

Available Formats

You might also like

2020 H1 Preliminary Exams Suggested Answers

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

2020 H1 Preliminary Exams Suggested Answers

Uploaded by

Copyright:

Available Formats

2020 H1 Economics Preliminary Examinations Suggested Answers

Case Study Question 1

1m identify normal goods, 1m explanation

1m compare general trend, 1m compare extent of change/difference in

O Qty of pet care

Opportunity cost refers to the cost of any action or decision measured in

Time-poor pet owners have many important tasks to complete in their

1m for defining opportunity cost

According to Ext 3, older pet owners view pets fundamentally as animals

1m identify difference (more price inelastic for millennials)

(ii) Using relevant economic concepts, discuss what pet food

8823/01/MI/PU2/EOY/2020 Suggested Answers

Command word = Discuss  Two-sided answer with evaluative

Requirement Suggested Answer

Thesis 1: PED measures the degree of responsiveness of quantity

Anti-thesis However, there are limitations to this strategy. Raising

8823/01/MI/PU2/EOY/2020 Suggested Answers

decrease, the fall in demand may be larger than

Thesis 2: Pricing strategy for older pet owners

Anti-thesis However, the price reduction of one pet food

Thesis 3: Another strategy that the pet food manufacturers can

8823/01/MI/PU2/EOY/2020 Suggested Answers

As seen in the diagram above, an increase in demand

Anti-thesis However, such advertising has its limitations too.

Level Descriptor Marks

Max 4m if the student explains at least two

8823/01/MI/PU2/EOY/2020 Suggested Answers

Only discusses ONE strategy in terms of how it

E Reasoned judgement about the strategies that pet 1-2

(e) With reference to Extract 3, explain whether imperfect information

1m for evidence of imperfect info

8823/01/MI/PU2/EOY/2020 Suggested Answers

private costs and benefits. However, the social optimum is at Qe where

Comment on the extent of this failure [3]

1m for explaining negative externalities

3m for comment (1m for judgement + 2m for justification)

Requirement Suggested Answer

Thesis 1: From Extract 4, using alternative proteins and developing

MPC. As such, the gap between Qs and Qe would be

Fig 1: Improvement in technology in market for pet food

Anti-thesis However, there may be limitations to this policy. First, the

Thesis 2: Government can impose an indirect tax per unit of pet

8823/01/MI/PU2/EOY/2020 Suggested Answers

Fig 2: Taxes in market for pet food

Anti-thesis However, it is difficult to calculate the exact amount of

For millennials, demand for human-grade quality pet food

Thesis 3: Banning marketing of pet food that involves the use of

Thesis 3: Changing the pet culture would involve using public

Anti-thesis However, there may be limitations to this policy. First, the

Evaluative In conclusion, which policy is the most effective depends

Leve Description Mark

At least 2 policies well-explained – Max 7

Explains only the thesis OR anti-thesis. Explanation makes

8823/01/MI/PU2/EOY/2020 Suggested Answers

Explains both the thesis and anti-thesis with some gaps in

8823/01/MI/PU2/EOY/2020 Suggested Answers

Case Study Question 2

1m for identifying the relationship between labour productivity and GPL