YJCPrelimsH2EconomicsP2Answers文档格式.docx

YJCPrelimsH2EconomicsP2Answers文档格式.docx

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2）Explaintheimpactofariseinfuelpricesonpublictransportfirms’supply

Explainthatfuelpricesaffectfirms’costofproduction.Fortransportindustry,fuelcostisalargeproportionoftotalcostofproduction.Whenfuelpricesrise,transportoperatorssuchasSBSTransitandSMRTwillexperienceasignificantriseintheircostofproduction.Ceterisparibus,ariseincostswillreducefirms’profitleadingtoareductioninproduction.Thus,transportfirmsmayreducetheirsupply.

3）Economicrecoverywillleadtoanimprovementintheeconomy’sperformanceandthushouseholds’incomewilllikelyincreaseaseconomicactivitiesincrease.Thus,thispositiveoutlookmaygiveincentivestoconsumerstoincreasespendingongoodsandservices.Thedemandforpublictransportwillriseandtheextentoftheincreasedependsonthenatureofthegood.

4）Publictransportisabasicnecessityforthemajorityofconsumers.Demandforpublictransportisgenerallyincomeinelastic.Asrealincomerises,thedemandforthegoodwillrisebylessthanproportionately.

5）Withafallinsupplyandariseindemandforpublictransport,theimpactontheequilibriumpriceandquantitytransacteddependontheextentofthefallinsupplyrelativetotheriseindemandforthegood.

6）However,giventhatpublictransportisanecessitytothemajorityofconsumeranddemandisincomeinelastic,theriseindemandislikelytobelessthanthefallinsupplycausedbyhighercostsofproduction.Analysehowtheimpactofashortageattheoriginalequilibriumpriceleadstoupwardpressurecausingariseinequilibriumpriceandafallinequilibriumquantityinthepublictransportmarket.Explainwiththeaidofadiagram.

Impactoftheeventsonthemarketforprivatetransport

7）Explaintheimpactofariseinfuelpricesonprivatecars.

Fuelisneededtodrivecars.Carsandfuelarecomplementarygoodsastheyareneededtogethertosatisfyconsumers’wants.Whenthepricesoffuelincreases,thequantitydemandedforfuelwillfallandthedemandforcarswillfall.Petrolandcarshavenegativecrosselasticityofdemand.Inaddition,asfuelandcarsarestrongcomplementarygoods,crosselasticityofdemandislikelytobehigh.

8）Explaintheimpactofaneconomicrecoveryonthedemandforprivatecars.

Economicrecoveryleadstorisingrealdisposableincomeofconsumers.Demandforcarsisincomeelasticasitisagenerallyaluxurygoodstothemajorityofconsumers.Asincomerises,thedemandforcarswillincreasebymorethanproportionately（demandforcarsisincomeelastic）

9）Impactonthefinaldemandforprivatecarsdependsontheextentofthechangeindemandarisingfromthe2events.

Possibleanalysis:

a）Increaseindemandforcarsismoresignificantthanthefallindemandarisingfromhigherpricesoffuel.Thus,thereisanetincreaseindemandforcarsinthemarket.

Reason:

Economicrecoveryleadstopositiveconsumerconfidenceandiftherecoveryisbelievedtobesustained,thedemandforprivatecarsislikelytoincreasesignificantly.Thus,thehigherpurchasingpowerofconsumersislikelytobeamoresignificantfactorininfluencingtheriseindemandforcarscomparedtothefallindemandarisingfromrisingfuelprices.Thiswillcauseanetincreaseindemandforcars.

b）Increaseindemandforcarsislessthanthefallindemandforcar.Thereforethereisanetfallindemandforcarsinthemarket.

Economicrecoveryisperceivedtobeweakbuttheriseinpriceoffuelisbelievedtobesustained.

10）Explaintheoverallimpactofanetrise/fallindemandandtheimpactonequilibriumpriceandquantityofcarsinthemarketusingdiagrams.

11）Explaintheimpactonpriceandquantitydependontheelasticityofsupplyforcars.Inthelongrun,asproductionofcarsbecomemoreresponsivetohigherdemand,theimpactonthechangeinpriceofcarswillbelessandtheimpactonthequantityofcarswillbegreater.However,Intheshortrunperiod,elasticityofsupplyisinelasticasproductionmaybelimitedduetoreasonssuchasfactorimmobility.

Conclusion:

Theequilibriumpriceandquantityinthepublicandprivatetransportmarketsdependontherelativechangeindemandandsupply.

Level

Descriptors

Marks

L1

Forananswerwhichismainlyirrelevant,eg,withsomereferencetodemandandsupplyanalysisbutmainlyinaccurateapplication.

1-9

L2

Forananswerwhichusesdemandandsupplyanalysistoexplaintheimpactofthe2eventsonthemarketequilibriumpriceandquantity.However,answerisnotthoroughinanalysis.

10-14

L3

Forananswerwhichisabletoanalysethoroughlytheimpactonequilibriumpriceandquantityonthe2marketsusingbothdemandandsupplyanalysisaswellasrelevantelasticitiesconcepts.

15-21

E1

Foranunexplainedjudgement.

1-2

E2

Forawellreasonedjudgementregardingextentoftheimpactonthe2markets.

3-4

2.Intherealworld,mostfirmsareeithermonopolisticallycompetitiveoroligopolisticinnature.

a）Explaintheabovestatement.[10]

b）Discusstheextenttowhichmonopolisticallycompetitiveandoligopolisticfirmsexploitconsumersgiventhattheyhavemarketpower.[15]

SuggestedOutline:

a）

ExplainreasonswhyMCandoligopolymarketstructuresaremorerealisticandhencemorecommon.

Monopolistsiccompetitivemarketstructure:

manysmallfirmsintheindustryeachsellingdifferentiatedproduct

▪lowbarrierstoentry,eglowinitialset-upcosts,nospecializedknowledgeortechnologyneededtoproducegoods.Eg.Hawkerstalls,hairsaloonsetc.

▪FirmsinMCmarketcatertothedifferentneedsofconsumersbyprovidingvarieties.TheytendtoprovideindividualizedservicesandhavelimitedscopeforEOS.Thus,theyhavelessincentivetobelarge（lowMES）

▪FirmsinMCmarketbehaveindependentlyofeachotherandthereisnorivalconsciousnessamongthefirmsaseachfirmcaterstoitsowngroupofcustomerswithdifferentiatedgoods.

▪Therefore,easierforfirmstoentertheindustryleadingtomanysmallfirmsintheindustry.

Oligopolymarketstructure:

afewlargefirmsdominatingtheindustry

▪Highbarrierstoentry,forexample,highinitialset-upcostneededfornewfirmstoenterthetelecommunication,transportationorairlineindustries.Highinitialset-upcostsincreasetherisksandreducethepotentialentryofnewfirms.Eg.Pharmaceutical,petroindustries.etc.

▪ThereissubstantialEOStobereapedsofirmstendtogrowinsizetoreapthesecostadvantages.

▪Globalisationleadstomoreintensecompetitionintheglobalmarketandthisforcedfirmstobemorecompetitiveandinnovativeinordertosurvive.Thus,firmshavetobelargertoincreasetheircompetitivenessintheglobalmarket.

▪Therefore,thehighbarrierstoentryleadtoafewlargefirmsdominatingtheindustry.

Answerisgenerallyvagueandirrelevantorwithouteconomicanalysis

1-3

Answerisabletoexplain2-3factorsforthepredominanceoffirmsinthetwomarketstructuresbutlackingingoodanalysisandexamples

4-7

Thoroughanalysisoffactorswhichaccountforthepredominanceoffirmsinthetwomarketstructureswiththeuseofexamples.

8-10

b）

1）Meaningofmarketpower–referstofirms’abilitytoinfluencethepriceoroutputinthemarketastheyarepricesetter.Thedegreeofmarketpowerdependsonfactorssuchasthenumberoffirmsintheindustry,thenatureofproduct（homogeneousordifferentiated）,thelevelofbarrierstoentry.

MCfirmsgenerallyhavelessmarketpowercomparedtooligopolisticfirmsastherearemanyfirmssellingsimilarbutdifferentiatedproductsintheindustry.AsthelevelofbarriersarelowerinMCmarketcomparedtooligopolymarket,theyhavelessmarketpowercomparedtolargerfirmsinoligopolymarket.

Thesis:

Greatermarketpowerleadstoconsumerexploitation

2）.Explainhowmarketpowerleadstoconsumerexploitation

-BothMCandoligopolyfirmshavethepowertosetpriceorquantityofsalesoftheirgoods.Theyarefacedwithdownwardslopingdemandcurve.Tosellanadditionalunit,firmsmustreducethepriceofallunits.Thus,MarginalRevenueislessthanAverageRevenue/Demandcurve.

-ProfitmaximizingfirmsinbothmarketstructureswillproducetillthequantitywhereMarginalCostequalsMarginalRevenue.Attheequilibriumoutput,priceisgreaterthanmarginalcostforthelastunitproduced.

-ExplainhowP>

MCleadstoallocativeinefficienyintermsofhigherpricesandunderproductionofgoodsandconsumers’welfarearenotmaximizedandconsumerexploitation.ExplainwiththeaidofdiagramsshowingMCandOligopolyfirmsinlongrunequilibriumwhereP>

MC）.

3）ComparetheextentofconsumerexploitationbetweenoligopolyandMCmarkets.OligopolymarketgenerallyhavegreatermarketpowerandthushigherdegreeofconsumerexploitationcomparedtoMCmarket.Reasons:

fewfirmsinthemarket,lesslevelofcompetitionandsolargefirmsinoligopolymarketgenerallyarefacedwithmorepriceinelasticdemandcurveandthushavegreatermarketpo