YJCPrelimsH2EconomicsP2Answers文档格式.docx

1、2）Explain the impact of a rise in fuel prices on public transport firms supplyExplain that fuel prices affect firms cost of production. For transport industry, fuel cost is a large proportion of total cost of production. When fuel prices rise, transport operators such as SBS Transit and SMRT will ex

2、perience a significant rise in their cost of production. Ceteris paribus, a rise in costs will reduce firms profit leading to a reduction in production. Thus, transport firms may reduce their supply. 3）Economic recovery will lead to an improvement in the economys performance and thus households inco

3、me will likely increase as economic activities increase. Thus, this positive outlook may give incentives to consumers to increase spending on goods and services. The demand for public transport will rise and the extent of the increase depends on the nature of the good. 4） Public transport is a basic

4、 necessity for the majority of consumers. Demand for public transport is generally income inelastic. As real income rises, the demand for the good will rise by less than proportionately.5） With a fall in supply and a rise in demand for public transport, the impact on the equilibrium price and quanti

5、ty transacted depend on the extent of the fall in supply relative to the rise in demand for the good. 6）However, given that public transport is a necessity to the majority of consumer and demand is income inelastic, the rise in demand is likely to be less than the fall in supply caused by higher cos

6、ts of production. Analyse how the impact of a shortage at the original equilibrium price leads to upward pressure causing a rise in equilibrium price and a fall in equilibrium quantity in the public transport market. Explain with the aid of a diagram. Impact of the events on the market for private t

7、ransport7）Explain the impact of a rise in fuel prices on private cars.Fuel is needed to drive cars. Cars and fuel are complementary goods as they are needed together to satisfy consumers wants. When the prices of fuel increases, the quantity demanded for fuel will fall and the demand for cars will f

8、all. Petrol and cars have negative cross elasticity of demand. In addition, as fuel and cars are strong complementary goods, cross elasticity of demand is likely to be high. 8） Explain the impact of an economic recovery on the demand for private cars.Economic recovery leads to rising real disposable

9、 income of consumers. Demand for cars is income elastic as it is a generally a luxury goods to the majority of consumers. As income rises, the demand for cars will increase by more than proportionately （demand for cars is income elastic）9）Impact on the final demand for private cars depends on the ex

10、tent of the change in demand arising from the 2 events. Possible analysis:a）Increase in demand for cars is more significant than the fall in demand arising from higher prices of fuel. Thus, there is a net increase in demand for cars in the market. Reason:Economic recovery leads to positive consumer

11、confidence and if the recovery is believed to be sustained, the demand for private cars is likely to increase significantly. Thus, the higher purchasing power of consumers is likely to be a more significant factor in influencing the rise in demand for cars compared to the fall in demand arising from

12、 rising fuel prices. This will cause a net increase in demand for cars.b）Increase in demand for cars is less than the fall in demand for car. Therefore there is a net fall in demand for cars in the market. Economic recovery is perceived to be weak but the rise in price of fuel is believed to be sust

13、ained. 10）Explain the overall impact of a net rise/ fall in demand and the impact on equilibrium price and quantity of cars in the market using diagrams. 11） Explain the impact on price and quantity depend on the elasticity of supply for cars. In the long run, as production of cars become more respo

14、nsive to higher demand, the impact on the change in price of cars will be less and the impact on the quantity of cars will be greater.However, In the short run period, elasticity of supply is inelastic as production may be limited due to reasons such as factor immobility.Conclusion: The equilibrium

15、price and quantity in the public and private transport markets depend on the relative change in demand and supply. LevelDescriptorsMarksL1 For an answer which is mainly irrelevant, eg, with some reference to demand and supply analysis but mainly inaccurate application. 1-9 L2 For an answer which use

16、s demand and supply analysis to explain the impact of the 2 events on the market equilibrium price and quantity. However, answer is not thorough in analysis.10-14L3 For an answer which is able to analyse thoroughly the impact on equilibrium price and quantity on the 2 markets using both demand and s

17、upply analysis as well as relevant elasticities concepts. 15-21 E1 For an unexplained judgement.1-2 E2 For a well reasoned judgement regarding extent of the impact on the 2 markets.3-4 2. In the real world, most firms are either monopolistically competitive or oligopolistic in nature. a） Explain the

18、 above statement. 10 b） Discuss the extent to which monopolistically competitive and oligopolistic firms exploit consumers given that they have market power. 15Suggested Outline:a）Explain reasons why MC and oligopoly market structures are more realistic and hence more common. Monopolistsic competiti

19、ve market structure: many small firms in the industry each selling differentiated productlow barriers to entry, eg low initial set-up costs, no specialized knowledge or technology needed to produce goods. Eg. Hawker stalls, hair saloons etc.Firms in MC market cater to the different needs of consumer

20、s by providing varieties. They tend to provide individualized services and have limited scope for EOS. Thus, they have less incentive to be large （low MES）Firms in MC market behave independently of each other and there is no rival consciousness among the firms as each firm caters to its own group of

21、 customers with differentiated goods.Therefore, easier for firms to enter the industry leading to many small firms in the industry. Oligopoly market structure : a few large firms dominating the industryHigh barriers to entry, for example, high initial set-up cost needed for new firms to enter the te

22、lecommunication, transportation or airline industries. High initial set-up costs increase the risks and reduce the potential entry of new firms. Eg. Pharmaceutical, petro industries.etc.There is substantial EOS to be reaped so firms tend to grow in size to reap these cost advantages. Globalisation l

23、eads to more intense competition in the global market and this forced firms to be more competitive and innovative in order to survive. Thus, firms have to be larger to increase their competitiveness in the global market. Therefore, the high barriers to entry lead to a few large firms dominating the

24、industry. Answer is generally vague and irrelevant or without economic analysis1-3 Answer is able to explain 2-3 factors for the predominance of firms in the two market structures but lacking in good analysis and examples4-7 Thorough analysis of factors which account for the predominance of firms in

25、 the two market structures with the use of examples. 8-10 b） 1） Meaning of market power refers to firms ability to influence the price or output in the market as they are price setter. The degree of market power depends on factors such as the number of firms in the industry, the nature of product （

26、homogeneous or differentiated ）, the level of barriers to entry. MC firms generally have less market power compared to oligopolistic firms as there are many firms selling similar but differentiated products in the industry. As the level of barriers are lower in MC market compared to oligopoly market

27、, they have less market power compared to larger firms in oligopoly market. Thesis: Greater market power leads to consumer exploitation2）.Explain how market power leads to consumer exploitation- Both MC and oligopoly firms have the power to set price or quantity of sales of their goods. They are fac

28、ed with downward sloping demand curve. To sell an additional unit, firms must reduce the price of all units. Thus, Marginal Revenue is less than Average Revenue / Demand curve.- Profit maximizing firms in both market structures will produce till the quantity where Marginal Cost equals Marginal Reven

29、ue. At the equilibrium output, price is greater than marginal cost for the last unit produced. -Explain how P MC leads to allocative inefficieny in terms of higher prices and under production of goods and consumers welfare are not maximized and consumer exploitation. Explain with the aid of diagrams

30、 showing MC and Oligopoly firms in long run equilibrium where P MC）.3） Compare the extent of consumer exploitation between oligopoly and MC markets. Oligopoly market generally have greater market power and thus higher degree of consumer exploitation compared to MC market. Reasons: few firms in the market, less level of competition and so large firms in oligopoly market generally are faced with more price inelastic demand curve and thus have greater market po