NJC H2 Economics Prelim P2 Ans

National Junior College 2023 SH2 H2 Economics Preliminary Examinations Paper 2 Section A – Essay Questions 1 A construction firm in Singapore is facing an incre ase in demand for residential properties which has led to an increased demand for labour. However, the construction industry has an increase in the attrition rate of their foreign workers, with aroun d one in three returning home after the borders reopened post COVID-19. This creates a problem for the construction industry where demand for labour is also inelastic. (a) With the aid of a diagram, explain how a firm’s tot al expenditure on its workforce will have changed as a result. [10] (b) Discuss whether changes in foreign worker levy is l ikely to be a better way than productivity improvements to address the labour shortage experienced by a construction firm. [15] Part (a) suggested answer Introduction  The equilibrium wage rate and the equilibrium quan tity of labour in the market for labour is determin ed by the interaction of the demand for labour and the supply of labour. o The demand for labour is a derived demand, depende nt on the demand for the firm’s final goods and services.  The change in the firm’s total expenditure on its workforce will depend on the extent of the change i n demand, supply of labour and the price elasticity of demand for labour.  The total expenditure on the firm’s workforce is e qual to the equilibrium wage rate multiplied by the quantity of labour demanded. Body: Assuming that the firm is a price taker who follows the equilibrium wage rate determined by the interaction of the demand for labour and the supply of labour in the labour market. Demand factor  There is increasing demand for residential propert ies in Singapore. The rise in demand for residential properties could be due to the expectations of future prices. As most households anticipate that property prices might rise, this had led to a higher speculative demand for res idential properties. In addition, with more inflow of foreign talents, this had added to the demand for residential properties.  Given an increasing demand for residential propert ies in Singapore, the construction firm is experiencing a rise in the demand for its goods.  Since labour is a factor input, more labour will b e required to produce more houses and there will be an increase in the demand for labour  This is illustrated by the rightward shift of the demand curve for labour from DD0 to DD1 in Figure 1.  A shortage is created (Q sQd).

Figure 1: Increase in demand for labour  With the increase in demand for labour, the firm w ill now employ 0Q 1 workers at the new equilibrium wage rate, W1.  Total expenditure on labour is now 0W 1E1Q1.  With the increase in demand for labour, the firm’s total expenditure on labour