RVHS 2023 J2H2 Prelim P1 CSQ SAMS

© RVHS 2023 9570/01 RIVER VALLEY HIGH SCHOOL 2023 JC 2 Preliminary Examination Q1 Suggested Answers a) Compare the changes in sales share of battery EV s and ICE vehicles between 2018 and 2030. [2] Sales share of battery EVs increases while that of ICE vehicles decreases. The rate of change in sales share of battery EVs is lower/slower than that of ICE vehicles. OR The decrease in sales share of ICE vehicles is larger than the increase in sales share of battery EVs. b) With reference to Extract 2, explain why EV charging points should not be classified as a public good. [2]  EVs charging points are rivalrous in consumption, as evident in Extract 2 where the Singapore government is planning to build more EV charging points to “meet expected EV charging demand”, suggesting that a driver’s use of a particular charging point means that other EV drivers will not be able to use that particular charging point. The following answers are NOT acceptable as there is no evidence from Extract 2.  EVs charging points are excludable in consumption, for instance, users are required to make payment to charge their cars, similar to how petrol pumps work.  EVs charging points are rejectable, where petrol-car drivers and non-drivers have the option to not use the charging points even though they are provided at public carparks or private residences. c) Explain how focusing on EVs by the Chinese government is likely to have benefited the China economy. [4] As mentioned in Extract 3, China is producing more EVs and batteries to power the EVs. If more factories were built, coupled with increased R &D to push battery technology forward, this has resulted in an increase in investment. At the same time, consumption will have increased as consumers buy more EVs. The increase in consumption and investment will lead to an increase in aggregate demand and as such, mul tiple increase in national income, bringing about actual economic growth. The increase in quality and quantity of factors of production will also lead to an increase in productive capacity, leading to potential economic growth. As national income increases, more output a re being produced (i.e. EVs and batteries), this will generate more jobs especially in the auto manufacturing sector, thus increasing employment. Extract 3 also pointed out that focusing on EVs has allowed China to reduce importing vehicles from Western countries and it also helps to create another long-lasting export industry. This will help to improve China’s balance of trade / balance of payment position as exports increase while imports fall, ceteris paribus. With a rise in exports, it also helps to generate more jobs in the export-related sectors, thus increasing employment.  At least TWO macroeconomic objectives (EG, employm ent or BOP) to be touched on. d) Extract 4 explains that Tesla forges separate pricing strategies in China and the US.

2 © RVHS 2023 9570/01 urn over Explain ONE possible cost factor and ONE possible revenue factor to justify this move by Tesla. [4] Tesla raises price in the US while keeping prices steady in China.  Demand for Tesla is relatively price elastic in Ch ina as Tesla faces competition from EV makers like Nio Inc. and Xpeng while in the US, demand for Tesla is relatively price inelastic as it enjoys a stronger branding and its main rivals are legacy automakers like Ford and General Motors, which generate only a fraction of their sales from EVs. As there are more and closer substitutes in China, demand is relatively more price elastic in China, keeping prices steady or lowering price w ill probably lead to a more than proportionate increase in quantity demanded and as such, increase total revenue that Tesla can earn in China. One the other hand, increasing price where demand is price inelastic in US will lead to a less than proportionate fall in quantity demanded and thus, an increase in total revenue.   Cost of production is lower in China compared to t hat in the US as there are cheaper local components, including batteries in China. As such, Tesla can set a lower price in China and yet still earn normal profits to survive. e) Discuss whether demand factors or supply factors have a greater impact on the adoption of EVs. [8] Introduction Adoption of EVs has been unequal globally; with hig h adoption rates in China as seen in Extract 3 and relatively low rates seen in Singapor e in Extract 2. The main barrier to the adoption of EVs tends to be the higher retail price s of EVs compared to that of internal combustion engine (ICE) vehicles. Demand and supply factors hence come into play in determining whether the prices of EVs could potentially fall to levels that are comparable with ICE vehicles. Requirement 1: Demand factors have a greater impact on the adoption of EVs Changes in taste and preferences where consumers are persuaded to switch away from ICE vehicle towards EVs do play a part in increasing the adoption of EVs. In China, the advent of local EVs manufacturers who launched successful mar keting strategies like optimizing new technologies to meet the real-life needs of consumers as seen in Extract 3, had forged a strong perception of locally built EVs among the locals. T his changes taste and preferences and translate to higher demand for EVs. Government policies to stimulate demand also contri butes towards accelerated adoption. There are direct and indirect effects of such polic ies. For direct effects, tax breaks given in China and rebates given in Singapore has the effect of giving grants to buyers of EVs. This can help to increase the demand for EVs. Indirect effects can be through government spending on the infrastructure required to support the adoption of EV such as the charging network and training automotive workers to pick up skills in se rvicing EVs as seen in Extract 2. Such complementary investment may convince more potential EV buyers to be willing to buy an EV, hence increasing the demand. An increase in demand as reflected by a rightward shift of the demand curve from D 0 to D 1 will increase the equilibrium quantity, reflecting a greater adoption of EVs.

3 © RVHS 2023 9570/01 urn over Figure 1 Market for EVs Requirement 2: Supply factors have a greater impact on the adoption of EVs Supply factors also have an impact on the adoption of EVs. Government policies in the form of subsidies for EV production as seen in Extract 3 can help to increase the supply of EVs. Subsidies help to lower the cost of production for EV producers. This increases their profitability and incentivizes them to increase their supply. Lower input prices are also crucial to increasing t he supply of EVs. From Extract 3, an important input in EVs is the battery cell which ta kes up a significant share of the cost of producing an EV. Extract 1 further highlights that the raw materials needed for battery production are in limited supply. Hence, the supply of EVs tend to be rather dependent on the prices of batteries. If more investments are made e lsewhere in producing cheaper batteries as seen in China in Extract 3, the input price can be lowered and supply of EVs globally will increase. An increase in supply will lead to a rightward shift of the supply curve from S 0 to S 1 as seen in Figure 1. An increase in supply will increase the equilibrium quantity of EVs too. Synthesis/Evaluation Ultimately, both demand and supply factors do have an impact on the adoption of EVs. Should demand increase rapidly without a corresponding increase in supply, there will be a large increase in the equilibrium price of EV which may derail the progress of the adoption of EVs. An in