- Discuss whether the concepts of elasticity of demand are useful to the government for discouraging the use of private cars. [25] Introduction The elasticity of demand for a good is a measure of the degree of responsiveness of the quantity demanded or the demand to a change in a determinant of demand, ceteris paribus. There are three concepts of elasticity of demand each relating to one of the determinants of demand: price elasticity of demand (PED), income elasticity of demand (YED) and cross elasticity of demand (XED). The usefulness of the concepts of elasticity of demand to the government for discouraging the use of private cars can be discussed with reference to PED, XED and YED. Body The concept of PED may be useful to the government for discouraging the use of private cars. The PED for a good is a measure of the degree of responsiveness of the quantity demanded to a change in the price, ceteris paribus. PED can be expressed mathematically as % Δ Quantity Demanded PED = -------------------------------------- % Δ Price The PED for a good is negative due to the law of demand and the common practice among economists i[...]
Author archives: Edmund Quek
- (a) Compare the characteristics of the market structures of monopolistic competition and oligopoly. [10] (b) Discuss whether firms in a highly competitive market are more vulnerable than firms in a less competitive market in a recession. [15] Introduction (a) Market structure refers to the characteristics of a market such as the number of firms, the nature of their products, the availability of knowledge and the extent of barriers to entry which affect the behaviour of the firms in the market. The market structures of monopolistic competition (MPC) and oligopoly can be compared in terms of the number of firms, the extent of barriers to entry, the presence or absence of strategic interdependence, the nature of their products and the availability of knowledge. Body MPC and oligopoly differ in terms of the number of firms. MPC is a market structure where there are a large number of small firms each with a small market share. An example of MPC is the restaurant market. Due to the large number of firms in the market and hence the large number of substitutes, the demand for the good of an MPC firm is likely to be price elastic. Therefore, an MPC firm[...]
- (a) Explain whether the demand for private cars is elastic or inelastic in Singapore with respect to price and income. [10](b) Discuss the effects of a sharp rise in the prices of Certificates of Entitlement in Singapore on expenditure by consumers on different types of cars. [15] Introduction a) The price elasticity of demand (PED) for a good is a measure of the degree of responsiveness of the quantity demanded to a change in the price, ceteris paribus. The income elasticity of demand (YED) for a good is a measure of the degree of responsiveness of the demand to a change in income, ceteris paribus. Body The demand for private cars is likely to be price elastic in Singapore. PED can be expressed mathematically as % Δ Quantity DemandedPED = -------------------------------------- % Δ Price The PED for a good is negative due to the law of demand and the common practice among economists is to omit the negative sign. If the PED for a good is greater than one, such as in the case of luxury watches, the demand is price elastic which means that a change in the price will lead to a larger percentage change in the quantity demanded. If the PED for a good is less tha[...]
- (a) Explain how the different characteristics of the market structures of monopolistic competition and oligopoly affect pricing and output decisions. [10] (b) Discuss whether the behaviour of oligopolistic firms is consistent with the objective of profit maximisation. [15] Introduction (a) Market structure refers to the characteristics of a market such as the number of firms, the nature of their products, the availability of knowledge and the extent of barriers to entry which affect the behaviour of the firms in the market. The market structures of monopolistic competition (MPC) and oligopoly differ in terms of the number of firms, the extent of barriers to entry and the presence or absence of strategic interdependence which affect pricing and output decisions. Body A firm will maximise profit when it produces the output level where marginal cost (MC) is equal to marginal revenue (MR). Diagram In the above diagram, profit is maximised at Q0 where MC is equal to MR. If the firm increases output from Q0, both total revenue and total cost will rise. However, at an output level higher than Q0, such as Q1, MC is higher than MR. Therefore, the inc[...]
- 10 years ago
- Oil prices are currently around US$35. It is virtually public knowledge that the slide in oil prices from US$115 in June 2014 to the current level is due to a combination of events, namely the increase in shale oil production in the United States and the increase in crude oil production in OPEC, particularly in Saudi Arabia. Accordingly, oil prices will rise when shale oil production in the United States or crude oil production in OPEC decrease. However, both scenarios are unlikely, at least in 2016. Some people have been wondering why OPEC, particularly Saudi Arabia, has persistently refused to reduce crude oil production to increase oil prices which will lead to an increase in government revenue and export revenue due to the price inelastic nature of the demand for oil. It is true that a cut in crude oil production in OPEC will reduce the world supply of oil, as OPEC accounts for about 40 percent of the world supply of oil, resulting in a rise in oil prices. However, doing so will increase the profitability of shale oil production in the United States which will induce the U.S shale oil producers to increase production. This will lead to an increase in the world supply of oil res[...]
- To obtain the marks required to achieve a good grade, you need to know what the markers look for and show them in your answers. The following mark scheme will give you an idea of what the markers look for when marking and grading economics essays. As you will see, it all boils down to the five core thinking skills in economics tuition of knowledge, comprehension, application, analysis and synthesis, and evaluation. Although the following mark scheme is for a full-length 25-mark essay question, the scales and criteria also apply to a two-part essay question. Typically, a two-part essay question is split into Part (a) that carries 10 marks and Part (b) that carries 15 marks. Some two-part essay questions, however, are split into Part (a) that carries 12 marks and Part (b) that carries 13 marks. Full-length 25-mark Essay Question An answer to a full-length 25-mark essay question will be marked in the following way. Knowledge, Comprehension, Application, Analysis & Synthesis Level 1 (Lower) 1-5 marks is mostly irrelevant has only a few valid points Level 1 (Higher) 6-9 marks shows some knowledge of the question does not indicate that [...]
- This question will be discussed in the ninth week of term 3 (JC2) in economics tuition. Discuss whether increasing labour productivity in Singapore would be desirable for the economy. [25] Answer Introduction Labour productivity refers to output per hour of labour. The question on whether increasing labour productivity in Singapore would be desirable for the economy can be discussed in terms of the effects on the balance of payments, national output and hence national income, unemployment, inflation and income equity. Increase in National Output/National Income Increasing labour productivity in Singapore will lead to an increase in aggregate supply resulting in an increase in national output and hence national income. Aggregate supply is the total supply of goods and services in the economy over a period of time and is determined by the production capacity and the cost of production in the economy. When labour productivity in Singapore rises, firms will need a smaller amount of labour to produce any given amount of output. Therefore, the cost of production in the economy will fall. Furthermore, to increase labour productivity in the economy, the government may increase the skills[...]
- This question will be discussed in the eighth week of term 3 (JC2) in economics tuition. Discuss whether globalisation would benefit firms and households. [25] Answer Introduction Globalisation refers to the increased integration of economies through an increase in flows of goods and services, capital and labour across international borders. The effects of globalisation on firms and households can be discussed in terms of the effects on the profits of firms, the incomes of households and the prices of goods and services. Increase in Profits: Revenues Globalisation may increase the profits of firms through increasing their revenues. The production of low value-added goods such as disk drives requires low-skilled labour. Due to their larger amounts of low-skilled labour, less developed economies (LDEs) such as China have a comparative advantage over developed economies (DEs) such as the United States in producing low value-added goods. Therefore, through the increase in international trade, globalisation will lead to an increase in the demand for low value-added goods produced in LDEs. When this happens, the revenues of firms that produce low value-added goods will increase whi[...]
- This question will be discussed in the second week of term 3 (JC2) in economics tuition. “A fall in the terms of trade is undesirable for the economy.” Discuss the statement. [25] Answer Introduction The terms of trade (TOT) refer to the number of units of imports that can be obtained with one unit of exports. It is expressed as the ratio of the price of exports to the price of imports. The effects of a fall in the TOT on the economy can be discussed in terms of the effects on the balance of payments, national output and hence national income, unemployment and inflation. Deterioration in the Balance of Payments: Demand Factors A fall in the TOT due to demand factors will lead to a deterioration in the balance of payments. The balance of payments is a record of all the transactions between the residents of the economy and the rest of the world over a period of time and is made up of the current account and the capital and financial account. The TOT may fall due to a decrease in the demand for exports. When the demand for exports falls, the price will fall which will lead to a fall in the TOT. For example, the fall in the demand for exports in Singapore in the 2008-2009 Global[...]
- This question will be discussed in the seventh week of term 2 (JC2) in economics tuition. Discuss the view that Singapore has few policies to deal with an external shock. [25] Answer Introduction An external shock is an unexpected external economic event that has undesirable effects on the economy. There are two types of external shocks: external demand shock and external supply shock. The view that Singapore has few policies to deal with an external shock can be discussed with reference to the effectiveness of monetary policy, fiscal policy, exchange rate policy and short-term supply-side policies in Singapore. Decrease in National Output/National Income An external demand shock will lead to a decrease in national output and hence national income. An external demand shock occurs when an unexpected external economic event leads to a substantial fall in exports and hence aggregate demand. For example, the 2008-2009 Global Financial Crisis caused by the Subprime Mortgage Crisis in the United States led to a substantial fall in exports in Singapore. Aggregate demand is the total demand for the goods and services produced in the economy over a period of time and is comprised of [...]
- This question will be discussed in the fourth week of term 2 (JC2) in economics tuition. Discuss whether an increase in savings in Singapore would lead to problems in the economy. [25] Answer Introduction Savings are the excess of disposable income over consumption expenditure. The question on whether an increase in savings in Singapore would lead to problems in the economy can be discussed in terms of the effects on the balance of payments, national output and hence national income, unemployment and inflation. Deterioration in the Balance of Payments An increase in savings in Singapore may lead to a deterioration in the balance of payments. The balance of payments is a record of all the transactions between the residents of the economy and the rest of the world over a period of time and is made up of the current account and the capital and financial account. Given any amount of disposable income in Singapore, an increase in savings will lead to a decrease in consumption expenditure. For example, the increase in savings in Singapore due to the decrease in consumer sentiment and the wealth of households in the 2008-2009 Global Financial Crisis led to a decrease in consum[...]
- This question will be discussed in economics tuition in the sixth week of term 2. Discuss the economic effects of a redirection of government subsidy from petrol to education. [25] Answer Introduction The economic effects of a redirection of government subsidy from petrol to education can be discussed in terms of the effects on allocative efficiency, income equity, the balance of payments, national income, unemployment and inflation. Decrease in Allocative Inefficiency: Petrol Market If the government redirects subsidy away from petrol, allocative inefficiency in the market will decrease. Allocative efficiency is achieved when it is impossible to change the allocation of resources in the economy in a way that will increase the welfare of society. This occurs when marginal social benefit (MSB) is equal to marginal social cost (MSC) where MSB is the sum of marginal private benefit (MPB) and marginal external benefit (MEB) and MSC is the sum of marginal private cost (MPC) and marginal external cost (MEC). External costs and benefits, or externalities, are costs and benefits of consumption or production experienced by society other than the producers or the consumers. The consum[...]