EAns - All Essay (J2)

Discuss the extent to which such government expenditure on infrastructure projects will lead to a rise in living standards 

• R1: High SOL due to positive EG (Link m and nm SOL) 

  • Eval: SG small multiplier -> limited increase SOL 

• R1: Lower SOL due to trade-off with externalities 

  • More pollution (Eg. Cross Island MRT Line is over 50km long and is the longest underground MRT line in Singapore -> require large scale deforestation = pollution) 

  • Eval: Depends on construction methods 

• Overall eval: 

  • Government is still able to increase national income significantly by increasing G to a larger extent -> SOL boosted to a large extent

  • SG rich -> afford new technologies or less disruptive construction methods

1. Discuss impact of rise of digital infrastructure on EG 

• R1: increase EG via AD 

• R2: increase EG via AS

Explain how BOE faced by firms can determine types of profits earned = Zenith flowchart! 

• If got time, give examples of natural and artificial BOE 

• High BOE (Oligopoly) -> few large firms -> highly differentiated product -> high market power and price setting ability -> demand high and inelastic -> supernormal profits (No LRAC bruh) 

  • Example of BOE: GSK has a patent preventing other firms from obtaining the same knowledge to produce the same drug -> potential entrant must spend a lot of money and time on own R&D to produce different vaccine for the same cancer

• Low BOE (MonoC, the opposite) 

Discuss the effectiveness and desirability of implementing the price ceiling on the market for new apartments in affluent Seoul districts (R1 and R2)

• R1: Effectiveness 

  • How price ceiling works 

  • Shortage -> black market 

  • Eval: Price ceiling can be effective if accompanied by harsh penalties + proper monitoring to prevent black markets BUT these penalties are politically unpopular as they show a lack of trust -> government do not want to implement 

• R2: Desirability (CS, PS, AE!) 

  • CS increase, welfare loss (PES inelastic as luxury apartments require significant investment in land, materials and skilled labour -> smaller shortage and less welfare loss -> less allocative inefficiency 

  • Eval: NO price ceiling: Policy not targeting consumer it aims to target - middle income and complementary policies not effective -> Balloting: not equitable or fair as balloting does not ensure that these apartments go to the intended group (middle-income)

Discuss the effectiveness and desirability of implementing the price ceiling on the market for new apartments in affluent Seoul districts (final eval)

• Final eval: NO price ceiling 

  • Luxury housing does not require government intervention.

  • Price ceiling would aggravate inequity → benefits mainly the rich with effective demand

  • Government faces financial and resource constraints → should target middle-income consumers instead

  • Better policy: increase supply of regular (non-luxury) apartments -> Lowers prices + Increases Qs -> Enables more middle-income consumers to afford property

  • Superior policies exist that achieve goals without drawbacks of a price ceiling

With reference to both revenue and cost factors, explain why bicycle manufacturers of hand-built customisable brands charge higher prices than manufacturers of mass-produced standardised brands.

• R1: Cost factors (common sense) 

• R2: Revenue factors = PED! 

  • Mass: PED > 1

  • Hand-built: PED < 1

Discuss whether such a growth strategy will benefit the British bike manufacturer and consumers (Acquisition) (R1 and R2)

• R1: Benefit and no benefit to bike manufacturer 

  • Benefit: Lower MC/AC and high AR/MR 

  • No benefit: DEOS + examples 

  • Eval: Overall impact positive as Brompton is small firm -> less likely to incur DEOS and likely to enjoy EOS + greater benefits from backward integration as large proportion of costs is raw material costs 

• R2: Benefit and no benefit to consumers 

  • Benefit: Cost savings -> lower prices + innovation 

  • No benefit: If incurs DEOS -> higher price + higher market share -> no DE + higher prices 

Discuss whether such a growth strategy will benefit the British bike manufacturer and consumers (Acquisition) (Final eval)

• Final eval: Depends on type of acquisition 

  • If CW is significantly affected, anti-trust laws such as breaking up the merged firm, taxes on the firm or other forms of regulation may be implemented ->l reduce the negative impact on consumers + reduce the benefits that Brompton enjoys

Explain how level of competition affects firms pricing and output decisions 

• Include BOTH SR AND LR 

• SR: PC firms will produce and set the highest price possible of P1 at the profit-maximising level of output of q1, where MC = MR1 -> short run supernormal profit of (P1-C1) x q1

• LR: Firms enter -> SS increase -> … -> no more incentive for new firms to enter the market and perfectly competitive firms will be producing at the new profit maximising output of q2, where MR2 = MC, and charge the highest price possible at this output of P2

Why SG prefer IR over ER 

• R1: Why ER 

  • SG heavily reliant on X revenue given small and open economy 

• R2: Why NOT IR

• Small size of SG makes SG a price taker in world market for funds 

• (rest of answer in notes) 

Discuss extent to which conflicts limit scope of fiscal policy 

• R1: Conflict 

• R2: Other reasons that limit use of fiscal policy (limitations) 

Explain internal and external factors contributing to slowdown of EG 

• R1: External: USD appreciate against SGD  

  • (X-M) increase -> AD increase -> GDP increase

  • Pm increase -> UCOP increase -> SRAS decrease -> GDP decrease 

  • OVERALL, increase in GDP from AD exceeds fall from SRAS, so EG increase at slower rate 

• R2: Internal: HH income increase  

  • M increase -> (X-M) fall 

  • C increase