supply chain disrup also increases cop

need to pay attention to type of exports affected due to border closure

this has to be explained, for links to preamble

so increase in costs of prod —> SRAS decrease, movement along AD—> fall in actual growth
 FDI will have lower profit margins..less incentive to invest into Singapore

until a fall in initial injection = sum of fall of withdrawals

yes true, but think that they still expereinced sharper decreases in domestic C and I
 lower external value of SGD

assuming dd for exports are price elastic

SG is a small and
open economy,
hence reliant on
export demand,
depreciation is
extremely effective..

SG is a small and
open economy
that lacks natural Domestic consumers find imports more expensive..assuming import demand is also price elastic, this leads to decrease in import expenditure.
resources such as
assuming marshall lerner condition holds..sum of PEDx and PEDm > 1..
sand, food and
oil..highly reliant
on imports as
FOP..

with this train of thought, and

COVID-19 root cause,, can
consider to conclude to say
that depreciation not very
effective, must wait for
recovery of global economy,
border reopening, not possible
to substitute a fall in (X-M)
with lower priced exports from
depreciation

While this solves

inflation, it by no means
solves the root cause
brought about by
border closures.. Think
easier to say demand
management policies
like fiscal and monetary
and western countries..
(read the VJC ans!)
dont think should explain imperfect info

Need to contextualise the additional costs to society —> see highlighted ans

think the idea is to explain the

considerations according to
costs, benefits and unintended
consequences, and unknown
information, the benefit of
intervention, which is the
reduction of deadweight loss
must be phrased and be
obvious enough? not like a
typical explanation of market
failure qn?
 Hm in explaining the benefits of intervention, i think that
only like the important parts of it like the contextualisation
of the costs, explaining the what is a external cost etc, no
need the full DWL explaination etc

see comments in answer attached regarding imperfect info

so all the explanation you had in the previous 2 pages for
the 2 respective market failures, they are supposed to be
here

Think there is a need to draw

the diagram to show a net
positive gain to society when
the elimination of DWL > loss of
CS and PS because that EC is
so high in the first place.
 this is
sound.

ok for both evaluations. think need to substantiate why gov will overestimate charges —> think that
plastic bags actually do help improve sanitation in singapore, so lowering its consumption could lead to
additional environmental consequences? therefore this could lead to overestimation of MEC?

higher costs of production,passed on to consumers in the form of higher prices, reduce equitability for society,

yeah, so perhaps the way to reduce DWL is to complement other policies such as recycling to reduce
the extent of EC to taxation, and to use public edcuation to solimperfect information. Point about lower
income groups could be elaborated, they already spend a large percentage of their income onto basic
necessities like groceries and hawker meals, to get them to pay more for hawker food or grocery
shopping to bring home food via plastic bag could really disproportionately reduce their material welfare.
 34

(b) Discuss how different countries will adopt different policies to tackle these
consequences. [15]

Requirement for (b):

R1: Explain how a country may use a particular macro policy tool (EFP/EMP/SS-side) to
tackle the consequences

R2: Explain how another country may use a different type of policy tool
(EFP/EMP/SS-side) to tackle the consequences

EV: Different countries will adopt different policies because:

- Possible difference in state/nature of their economy
- Possible difference in appropriateness/effectiveness of policies
- Possible difference in extent of impact (negative growth vs cost-push inflation)

Suggested answer (b):

Introduction

In our analysis in part (a), countries will face a fall in national income and a rise in the
general price level, both of which indicate negative performance in the economy. As such,
countries will undertake policies to tackle these consequences.
Different countries may adopt different macroeconomic policies to deal with the negative
consequences of a closure in international borders. This may be due to differences in the
effectiveness of similar policies used or degree of these consequences.

Body

[P] A country may use expansionary demand management policies to tackle the
consequences in the form of negative economic growth.
[E, E] To tackle the consequences of negative economic growth, a country may adopt
expansionary fiscal policy to boost its AD. For example, a country that has a large domestic
economy such as the US will experience a significant impact on its GDP when components
of the AD such as C, I and G changes. This can be done via a cut in direct tax or an increase
in government spending, G. A cut in personal income tax will increase the disposable
income for households to boost their consumption spending, C. A cut in corporate tax will
increase the post-tax profits of investments for firm to encourage more investment spending,
I. The rise in C, I and G will help increase AD that bring about a positive multiplier effect to
raise national income. thats why tax cuts (if any) are not effective, same point can be used for monetary policy

[EV] However, the extent of increase in C and I is dependent on the expectations of the
economy in the future. If the outlook is bleak, households and firms may withhold their
spending. For countries with a smaller domestic sector and where sentiments are weak,
boosting C and I may not be effective to promote economic growth.

[EV] Similarly, the cut in taxes and rise in government spending may worsen the fiscal
budget. Any borrowing by the government to fund its budget will result in crowding-out
effect, where the rise in government borrowing to fund its rising budget deficit, lead to rise in
interest rate which leads to reduction in consumption and investment, off-setting the
expansion in AD that was created by the rising budget deficit. For countries with a tight fiscal
budget, expansionary fiscal policy may be limited. RI has said not to use crowding out effect, cuz gov may not borrow money
from banks, but what is certain is that gov can reduce expenditure in the
future.

Would probably say that FP is effective due to large multiplier in western nations and give example in essay of large increases in
gov expenditure. and say that this targets the root cause of large falls in C and I domestically.
 35
to rmb that opp costs of saving has also fallen.

[E, E] An alternative policy to boost AD could be expansionary monetary policy. For

example, a country like the US can do this via a reduction in the interest rate. When interest
rates are cut, households may be encouraged to consume more because the opportunity
cost to do so would have fallen. This is because the utility to consume is now higher than the
interest payments derived from deposits. At the same time, the cost of borrowing would have
also fallen. This would encourage households to borrow more to spend on big-ticket items;
and firms are encouraged to invest more. This is because the MC of investment would have
fallen. Since the MB is now greater than the MC, investments that were previously
unattractive would now be lucrative enough for firms to take on. The rise in C and I will help
increase AD that bring about a positive multiplier effect to raise national income.
VJC style of saying that rate of return for projects > costs of borrowing, therefore leading to higher qty of loanable funds demanded.

[EV] Similarly, the extent of increase in C and I is dependent on the expectations of the
economy in the future. If the outlook is bleak, households and firms may withhold their
spending. For countries with a smaller domestic sector and where sentiments are weak,
boosting C and I may not be effective to promote economic growth.
would have just said that it is interest inelastic demand for loanable funds.

The rise in the AD, whether by expansionary fiscal or monetary policy, will lead to an
unplanned fall in inventory levels that causes firms to step up on production. As the firms do
so, household incomes will rise because firms now hire more workers. This rise in income
will result in a rise in induced consumption that leads to a further rise in the AD. This will
result in firms stepping up on production again that leads to a further rise in households’
incomes. This process will continue until total injection = total withdrawal. A new level of
equilibrium national income is achieved that is a multiple of the initial rise in the AD. As such,
national income rises while demand-deficient unemployment falls.

[L] Hence, expansionary demand management policies may be adopted by countries to

tackle the negative economic growth and reduce demand-deficient unemployment.

[EV] Different countries may achieve a similar effect to a different extent because of the
difference in the size of the multiplier. A country with a lower degree of leakages such as
the US will have a stronger multiplier effect than one with high leakages such as Singapore.
The heavy reliance on imports and high savings rate in Singapore will lead to higher leakage
compared to the US.

[P] A country may use supply-side policies to tackle the consequences of negative
economic growth and inflation
[E, E] For countries like Singapore that rely heavily on foreign workers and imported raw
materials may choose to adopt supply side policies instead. This is because the rise in
UCOP may be more severe than the fall in AD. In our analysis above, the rise in UCOP has
resulted in negative economic growth and inflation. Supply-side policies may be used to
offset the rise in UCOP, thereby reducing inflation and restoring the loss in national income
from a fall in the AS.
Jobs Support For example, automation may be adopted to offset the reliance on Malaysian workers who
Scheme was the
main SHORT are now unable to cross the border to work in Singapore. With the rises in labour productivity
RUN SUPPLY
SIDED POLICY from adopting automation, and assuming productivity rises by more than the wage rate, unit
employed during
the recession to labour cost falls. Government may also provide temporary wage relief to firms to offset the
offset COP to
keep workers rise in wage cost. Other forms of cost reliefs could also come in the form of temporary tax
employed
holidays. Such supply-side policies will lead to an increase in the AS for an economy
because it is now cheaper to produce the same units of output. The resulting downward shift
in the horizontal portion of the AS curve due to a fall in UCOP will lead to a movement along
the AD curve. Hence, national output rises when GPL falls. mechanism of policy
[L] Hence, a country that suffers the effects of cost-push inflation to a larger degree may
adopt supply-side policies to tackle the consequences of a border closure.
Comparing of issues, perhaps like what you said, Cost Push Inflation more likely for S & O countries
 36

[EV] For a country that was initially suffering from demand-pull inflation, the fall in AD caused
by the closure of international borders would actually be beneficial for them. Hence, such a
country would most likely choose to adopt supply-side policies that will shift the vertical AS
rightwards instead because it helps to reduce the rise in GPL and leads to a rise in national
income to better target the root cause of the cost-push inflation.

Conclusion/Evaluation

[Stand] The effectiveness of the policies adopted by different governments hinges very much
on the problem(s) created by the closure of international borders (which is partly
dependent on the initial state of the economy), the nature of their economies and the mix of
policies that are adopted by the governments.

[Substantiation]
The initial state of the economy may determine whether a country would choose to adopt
supply-side policy or demand-management policies. If the economy was initially suffering
from demand-pull inflation, the fall in AD from the closure of international borders helps to
reduce the problem; and the use of supply-side policies would be more effective to generate
actual growth and lower inflation. think you have this

The extent / type of problems created the closure of international borders determines to a
large extent what policies a government chooses. For some countries, the effects of rise
in UCOP may be more severe than fall in AD because of the nature and their initial state of
the economy. In this case, the use of supply-side policies will better target the root cause
(horizontal vs vertical portion of AS) of their problem more effectively. For example, a country
like Singapore that relies on imported raw materials and foreign labour, she should adopt
short-term supply-side policies to mitigate the rise in UCOP.
small
domesti
c market
In addition, for a smaller country like Singapore, the use of fiscal policy to address the
is not
same as
recession caused by border closure might not be as effective as in the US. This is because
small
mutliplie
although Singapore does not face a crowding-out effect, she has a smaller domestic
r
market and a much smaller multiplier size due to her high MPS and MPM. Thus, besides
expansionary fiscal policy, Singapore also uses supply-side policy like wage subsidy to
generate actual growth. On the other hand, a big and less open economy like US could
use fiscal policy but will face the issue of crowding-out effect. Hence, to boost the
effectiveness of demand management policies, the country tends to also use expansionary
monetary policy like interest rate cuts.
A country like the US could also use wage subsidy, but the scope of its use would be more
limited compared to Singapore, given its lack of fiscal reserves.
or say that singapore has fiscal reserves to effectively apply jobs support scheme sot
save jobs in aviation and transprottion industries
Mark Scheme

Level / Descriptors
Marks
L3 Well-explained analysis on how and why different countries used different
8 - 10 policies to tackle negative economic growth and cost-push inflation. Answer
should be supported by appropriate examples or contexts.

L2 Analysis that has some gaps in explanation (cursory explanation) of how

5-7 policies work and lack examples to illustrate.

Max 6 m: For analytical explanation of only 1 policy or policies that only tackle
one problem (consequence).
 10

ESSAY Q1
(a) Explain what needs to be considered when a government makes rational decision on
whether to intervene in the market for single-use plastic products (SUPPs). [10]
(b) Plastic pollution is a major environmental issue. Countries should strengthen domestic
policies, and work towards the reduction of plastic pollution.
Discuss whether a government’s plan to ban SUPPs is likely to be better than a policy of
charging SUPPs in reducing plastic pollution. [15]

Suggested mark scheme

Part (a)
Introduction
➢ Government seeks to maximise net social welfare, BCA approach
➢ Government intervention=> needs political support
➢ Government intervention in the market for SUPPs
o Single-use plastics, or disposable plastics, are used only once before they are thrown
away or recycled. These items are things like plastic bags, straws, coffee stirrers, soda
and water bottles and most food packaging.

Body
Explained the basis of a government’s rational decision-making process => an explanation of a
need to weigh up costs and benefits, intended and unintended consequences, constraints (fiscal
budget) and trade-offs

• Marginalist Principle
Government in pursuit of maximisation of society’s net welfare, would steer consumption of
SUPPs up to the point where the marginal social benefit (MSB) = marginal social cost (MSC) of
the last unit

Figure 1: Rational decision making by government

I would not explain both sides wrong, and center is correct..just say center is correct..

At output below Qe, say at Q1,

o the last unit consumed/usage adds more to society’s benefit (aQ1) than it does to
society’s cost (bQ1). Society’s welfare can be increased by raising usage from Q1 to Qe
as it would add as much as Q1aeQe to society’s benefit but only Q1beQe to society’s cost,
yielding a net social benefit or economic welfare of abe. Seen in another way, restricting
usage of plastic bags to Q1 would mean forfeiture of society’s economic welfare (or
welfare loss) of abe.

© DHS 2022 9757/02/2022

 11

At output above Qe, say at Q2,

o the last unit consumed/usage adds more to society’s cost (cQ2) than it does to society’s
benefit (dQ2). Society’s welfare can be increased by lowering usage from Q2 to Qe as it
would create as much as QeecQ2 of cost savings for society while forgoing only QeedQ2
of social benefit, avoiding a potential welfare loss of edc.

At Qe,
o marginal social cost = marginal social benefit = eQe. At this point, it is not possible to
increase the society’s net benefit or economic welfare further by adjusting the level of
output. This is the point of optimisation where society’s economic welfare is maximised.

reduction
Government needs to consider
➢ Intended benefits => the extent of market failure => negative externality & imperfect
information in this SUPPs:
o achieve allocative efficiency by correcting the over-consumption of SUPPs, MEC to
the environment which is ignored by consumers and firms. Charging for the usage =>
internalise the MEC => reduce usage => eliminating the DWL (candidates to explain
with a diagram
o Used roughly 300 million tons of SUPPs each year and half of it is disposable! World-
wide only 10-13% of plastic items are recycled. The nature of petroleum based
disposable plastic makes it difficult to recycle and they have to add new virgin
materials and chemicals to it to do so. Additionally there are a limited number of items
that recycled plastic can be used.
o Petroleum based plastic is not biodegradable and usually goes into a landfill where it
Think need to explain the is buried or it gets into the water and finds its way into the ocean. Although plastic
explicit costs of Additional
Costs of Monitoring? will not biodegrade (decompose into natural substance like soil,) it will degrade (break
Planning and monitoring and
to pay admin costs to down) into tiny particles after many years. In the process of breaking down, it releases
impose fines, easiest to
explain with a example toxic chemicals (additives that were used to shape and harden the plastic) which
make their way into our food and water supply.
Unintended consequence:
so now like hawkers have o These toxic chemicals are now being found in our bloodstream and the latest
to also charge for
additional plastic bags for research has found them to disrupt the Endocrine system which can cause cancer,
tabao?
infertility, birth defects, impaired immunity, and many other ailments
Current inflationary ➢ Unintended consequences:
conditions that has
already led to severe o adverse impact on business, different perspectives for different businesses, eg food
increases on costs think I would have said about the one regarding you used NTUC plastic bag to
of living? caterers => higher unit COP throw away trash —> could lead to additional environmental costs of deposting
rubbish
o difficulties in refuse disposable / additional cost on consumers
Gov has to consider the fact that info is hardly available, and when it is available, it is subjective.

For a government to make rational decisions:

a. the government needs to have accurate, complete, timely information
b. in reality, quality information, rather than readily available, is often difficult and costly to
obtain. For instance, a government needs to hold numerous public consultation sessions to
gather necessary information – cost of decision making.
Information is imperfect and might be asymmetry=> varies from whose POV
Eg: Singapore Government has encouraged NTUC to start charging for the usage of plastic
bags (per transaction model) since 2021 in selected outlets. Then Government with
supermarkets reviewed the results-using the available data, revise their expected values of
benefits and costs, and assess whether a course correction is necessary. In 2022,
Government made the necessary changes, based on current economic situations =>
making adjustment to her original plan => implementation period will be delayed by a year
to mid-2022, based on per transaction model.

Conclusion
The government may consider the extent of market failure in deciding to intervene in this market
In the case of SUPPs, if a government deems the intervention to be essential such that net benefit
is high => review & make necessary adjustments => rational decision marking

© DHS 2022 9757/02/2022

 12

Knowledge, Application, Understanding, Analysis

Response did not use MSB/MSC framework or analysis
L1 1-4
Some attempt to explain marginalist principle with diagram
L2 5-7
Lacked exemplification => SSUPs
A well-developed explanation of 2 factors a government would consider whether to
L3 intervene in market for SUPPS 8-10

b) Plastic pollution is a major environmental issue. Countries should strengthen domestic

policies, and work towards the reduction of plastic pollution.

Discuss whether a government’s plan to ban SUPPs is likely to be better than a policy of
charging SUPPs in reducing plastic pollution. [15]

Suggested mark scheme

• Compare the 2 types of government intervention: ban SUPPs vs charging SUPPs, in reducing
plastic pollution
• Singapore: 4 per cent, Singapore’s plastic recycling rate is the lowest compared to other
waste streams. This means that most plastics are incinerated after just a one-time use.
• Additionally, poor waste management leads to plastic pollution in the environment.
Every year, around 11 million tonnes of plastics leak into the oceans, where it breaks
down into microplastics that linger in the waters for hundreds of years.
• Reducing plastic consumption is still the best answer to tackling plastic waste

• Over-consumption of SUPPs due to both negative externality & imperfect information

$ MSC = MPC actual + MEC
Think this is the one about imperfect info, that we are too stupid to
MPCactual understand that we are actually eating plastic when we use plastic
a bags daily, or anyhow throw plastic straws away in disposable
MPCperceived drinks etc.

MPB = MSB
(assume MEB = 0)
QS QP Quantity (accept sparate diagrams=> externality & imperfect information)
The over-consumption of SUPPs may be depicted as one where consumers under-estimate
the cost of consuming the good (e.g. effect of plastics pollution on their own health). In this
case, the perceived MPC is less than the actual MPC. To add to the problem of imperfect
information, the consumption of SUPPs also gives rise to negative externality/MEC. Together
with the under-estimation of the actual private cost, the existence of external cost raises the
MSC even further above the MPCperceived. Consumers, making decisions based on perceived
costs and benefits, will therefore consume at Qp, more than the socially optimal level Qs. Due
to this over-consumption, Qp Qs, society has to bear a cost (area QScaQP) that is in excess of
the benefits (area QScbQP), giving rise to a welfare loss or deadweight loss of area abc.

© DHS 2022 9757/02/2022

 13

Policy 1: Ban SUPPs

If the private optimal quantity for the usage of SUPPs where MPB = MPC is QP. There exists
explanation of a very large magnitude of external costs (shown by the divergence between the MSC and
welfare loss MPC) at output level QP, yet the social optimal quantity exists at a very small output level Q S
under ban could
be better where MSB = MSC. For the units QSQP produced and consumed in excess of the socially
contextualised optimal level, the additional cost to society (area QScaQP) exceeds the additional benefit to
—> plastic bags society (area QScbQP), and a deadweight loss of area abc arises.
do bring great
sanitation
benefits in asian In situations like this, the governments could ban SUPPs, Australia has had a plastic bag
societies esp in ban since 2018. India followed the UK with a ban on straws, cutlery and food packaging in
congested July 2022. Although the society still incurs a welfare loss, it has been reduced with the use of
Singapore…
how about
a ban. The original welfare loss is represented by area abc. Following a ban, quantity
conveniences consumed falls to zero, equivalently an under-consumption of OQS units. The welfare loss in
when dapaoing this instance is represented by area cef, the excess of MSB over MSC had OQS units been
food? consumed. Comparing the deadweight loss before and after the ban, it can be seen that while
Then say that
the ban in does not remove deadweight loss altogether, it reduces the size of the deadweight
gains by loss. this is not clear. probably needs to
reducing DWL be justified.
to 0 > loss of CS However, in the short run, the deadweight loss arising from the ban might be larger than the
and PS, so net
gain to society. deadweight loss in the absence of the ban. A government should consider moving away from
an outright ban to alternative measures. In Australian plastic bags still can be found in all
supermarkets => chargeable => to reduce usage

Policy 2: Charging SUPPs to reduce wastage => plastic pollution

A government may choose to impose a policy of charging the usage of SUPPs, eg, large
supermarkets will be required to charge a minimum of 5 cents for each disposable
carrier bag from mid-2023, in reducing plastic usage => hopefully the charge will internalise
the value of the marginal external costs (MEC) generated at the socially optimum level of
output. (Work like an indirect tax)

© DHS 2022 9757/02/2022

 14

Figure: Indirect tax to correct negative externality

In the figure above, the charge for the usage works like an indirect specific tax equal to ab per
unit of output will increase consumers marginal cost, shifting the marginal private costs (MPC)
upwards to MPC1. The new private optimum level of output occurs at QP’ where MPC1 = MPB,
down from the original private equilibrium output QP where MPC0 = MPB. The new private
optimal output QP’, MSC = MSB. In other words, by charging the usage of SUPPs, an amount
equivalent to the MEC at QS. Faced with the higher cost, consumers will therefore cut back its
usage to the socially optimal level, eliminating the deadweight loss.

• Encourage consumers to use alternatives => reduce plastic pollutions

• Source of revenue for supermarkets => other usage for this fund
• Higher unit cost for other industries => food catering business, consumers may have to sought
other method for refuse disposal

(candidates can compare to zero charges/FOC => successful in reducing wastages => reduce
plastic pollution)

Judgement: Which is better?

• Problems of charging:
i. Imperfect information on the part of the government – set the charges above / below the
socially optimal level
ii. Supermarkets need to monitor and enforce at self-checkout counters => affecting
productivity level
iii. Political resistance/ customers unhappiness => patronise smaller outlets => not required
by las to charge for the usage of plastic bags
iv. Higher unit COP for related industries => these higher COP will be passed to consumers
in the form of higher prices
• Use any FRESH criteria to compare
▪ Which has a higher cost to the society?
▪ Any Incentives to reduce pollution? Whether Singapore should have a recycling facility for
plastic bottles? Better public education to reduce plastic pollution?
▪ Certainty & allocative efficiency
Market-based Command and Control
Uncertain, depends on the extent to
Certainty in
which the market responds to such Certain – by mandate
outcome
measures
Inefficient; Blanket rule applies to all,
Allocative Efficient; Individuals respond by
regardless of individual cost and
Efficiency weighing their cost and benefit
benefit

© DHS 2022 9757/02/2022

 15

Knowledge, Application, Understanding, Analysis

For an answer that shows some knowledge of 2 types of government policies =>
L1 ban vs charging SUPPs 1-4
- Without economic framework/ analysis
▪ Some attempt to explain the 2 policies, with good use of diagrams
▪ Descriptive answers, lacked exemplification
L2 5-7
▪ One-sided answer => no limitations for the 2 policies
▪ Explain 1 case only
▪ Well-developed analytical explanation of how the 2 policies help to reduce
L3 plastic pollution, with goof use of diagrams 8-10
▪ Balanced answer => at lease 1 limitation for each policy
Evaluation
E1 For an unsupported judgment => which policy is better in reducing plastic pollution 1
For an answer that makes some attempt at an evaluative appraisal about which
E2 2-3
policy is better
For an evaluative conclusion which synthesizes economic arguments to arrive at
E3 4-5
well-reasoned judgments.

© DHS 2022 9757/02/2022