2023 ASRJC H2 Econs Prelim Paper 1 Suggested Answers

1 © ASRJC Economics Department 9570/01/JC2 Prelim/2023 Anderson Serangoon Junior College 2023 JC2 Preliminary Examination H2 Economics 9570/01 Suggested Answers and Marker’s Comments Question 1: Big technology firms and the COVID-19 pandemic (a) Compare the changes between Amazon’s sales revenue and profit and suggest a reason for the difference. [3] Amazon’s sales revenue and profit are increasing but its revenue is increasing to a much larger extent than its profit. A reason for the larger increase in revenue could b e that Amazon is increasing its spending on R&D and/or logistics infrastructure to make its delivery services more efficient. Thus, with increased spending (ie costs), the profit that remains is much lower. (b) Extract 1 states that “Families bought iPads an d Macs as work and school went virtual.” Using a diagram, explain how this impacted consumer and producer surplus in the technology market. [5] Extract 1 states that there is an increase in the d emand for products in the technology market. This was a result of the pandemic that resulted in lockdowns in several countries. Since people stayed home more, they were more incli ned to purchasing electronics like laptops and electronic notepads that enabled them to work from home or to attend lessons virtually. This increase in taste and preference in creased the demand for technological products. This is illustrated by the rightward shif t in the demand curve from D 0 to D 1 as seen in the diagram below. At the original price, P 0, a shortage is created and this causes an upward p ressure on price since consumers who were initially unable to obtain the products now bid up prices. The subsequent increase in quantity supplied and fall in quantity demanded will continue until the market reaches a new equilibrium. Thus, both equilibrium price and quantity have increased from P 0 to P 1 and from Q 0 to Q 1 respectively. As seen in the diagram, the increase in demand will lead to an increase in consumer surplus (from area BE 0P0 to area AE 1P1) and producer surplus (from area CP 0E0 to area CP 1E1)

2 © ASRJC Economics Department 9570/01/JC2 Prelim/2023 (c) With reference to Extract 2, explain the likely PED value of Amazon’s e-commerce service. [2] The PED value for Amazon’s e-commerce services is l ikely to be less than 1. This is because there are few close substitutes. Extract 2 states that “you know when you will likely receive a product” when you place an order with Amazon. In contrast, other delivery websites provide no such certainty. Thus, this make s Amazon’s delivery services less substitutable. (d) Explain a barrier to entry that exists in the i ndustry that Amazon operates in. [2] A likely barrier to entry i