YJCPrelimsH2EconomicsP2Answers文档格式.docx
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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
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