2023 ACJC H2 Price Mechanism Tutorial

©Property of ACJC Economics Dept/2022/Price Mechanism 1 ANGLO-CHINESE JUNIOR COLLEGE JC1 Economics H2 PRICE MECHANISM & ITS APPLICATION Tutorial Worksheet 2 Question 1: Market for bubble tea in Singapore With the aid of a diagram, explain the effects of the following events on the market for bubble tea in Singapore: a) Increase in workers’ productivity after attending training courses b) Increased spending on advertisements by bubble tea shops c) Singapore experiencing negative economic growth and a higher Goods and Services Tax Question 2: Supermarkets offer drivers higher pay amidst shortage UK’s 3 largest supermarkets, Asda, Tesco and Sainsbury’s reported increased delivery costs after having to raise wages of their driver. Big supermarket chains, desperate to ensure their food products such as ice -cream, salad and canned drinks get to their stores, these supermarkets are offering drivers of heavy goods vehicles (HGV) nearly double the market rate. Industry insiders say HGV drivers’ wages have already risen by between 10% and 20% as a result of the shortage HGV drivers. Logistics UK, which represents freight owners including supermarkets, has estimated a shortage of 90,000 HGV drivers. It can take more than six months to train a new HGV driver. A surge in demand for home delivery during the pandemic has offered a whole range of alternative employment for drivers, especially for drivers capable of driving long -distances in HGVs. The situation is exacerbated by EU workers leaving the UK following Brexit. Source: The Guardian, 27 July 2021 a) Using demand and supply diagram, account for the increase in UK’s HGV drivers’ wages. b) Do you think it is possible for the earnings of the Grab driver or food delivery rider to increase as high as that of the HGV driver? Explain your reason. c) Consider the effect of the increase in drivers’ wage on prices of supermarkets’ food items. Section A: Discussion Questions

©Property of ACJC Economics Dept/2022/Price Mechanism 2 Question 3: Apple and Huawei’s brand image Apple has perfected the art of pushing up the price of its flagship phones, but without any significant impact on demand. However, the best thing for Apple is that, with this strategy, even a drop in volumes will ensure high revenue. Its success comes from its understanding that smartphones are the most essential commodity for a lot of its users. These customers will buy it at a higher price as they are convinced of the value it brings to them. In recent years, Apple has also developed a range of products — like Apple Arcade, Apple Music, AirPods, and the Apple Watch. The iPhone serves as a catalyst to lure people into its ecosystem and keep them hooked for whatever may be next. Huawei’s new flagship smartphone shows it has the technological know-how to compete with the best Apple and Samsung products on the market but to really take on the top two it needs to work on building its brand. Source: Marketing Week, 17 October 2018 and Business Insider, 27 April 2020 a) Do you think Hu awei should follow Apple’s pricing strategy to increase its total revenue from its smartphone sales? b) How can Huawei increase its total revenue for its smartphone sales? Question 4: Cross elasticity of demand and income elasticity of demand Cross–price elasticity of: Income elasticity of demand With Respect to a change in price of: Chicken Beef Fish Chicken -1.64 0.28 0.29 1.07 Beef 1.10 -2.61 -0.23 2.19 Fish 1.57 -0.19 -2.48 1.44 Source: Khoiriyah Nikmatul Et. Al., Animal Food Demand In Jakarta, Indonesia, Russian Journal Of Agricultural And Socio-Economic Sciences, April 2019 a) Explain the relationship between fish and chicken from the data above. b) Explain the likely XED value and relationship between fish and fries. c) Why is the XED of chicken to a change in price of beef much higher than the XED of beef to the change in price of chicken? d) How can the supermarket operator use the above information on elasticities of demand in planning its sales strategies to increase its revenue?

©Property of ACJC Economics Dept/2022/Price Mechanism 3 Question 5: (2019 H2 CA1) Extract 2: Sugar tax on pre-packaged drinks The Ministry of Health (MOH) is considering imposing sugar tax on manufacturers and importers of high-sugar pre-packaged drinks, which includes not only soda drinks but also juices and pre- packaged dry drinks, such as three -in-one coffee, tea and chocolate drinks that people just need to add water to. Countries that have already implemented such a tax are happy despite collecting very little tax revenue, as the tax is doing its job of reducing the amount of sugar in these drinks in their fight against obesity and diabetes. The higher cost would push the producers to reduce the amount of sugar in their products and motivate them to move tow ards producing healthier drinks to remain competitive. The tax will also encourage consumers to shift their consumption patterns towards the healthier options. However, large industry players such as Nestle, Coca-cola, PepsiCo and Food Industry Asia (FIA) said that many scientific studies have suggested the limited effectiveness of a sugar tax on reducing consumption of sugar -sweetened beverages. Consumers could easily substitute the pre-packed sugary drinks with other sugary food and drinks that are not taxed, such as bubble tea and coffees and teas made on the spot. Source: CNA, 4 December 2018 a) Using a diagram, explain the effect of a sugar tax on consumers and producers of sugary drinks. b) Identify and explain possible unintended consequences the government may encounter in imposing the sugar tax on pre-packaged drinks?

©Property of ACJC Economics Dept/2022/Price Mechanism 4 Question 6 Table 2: Annual Car Population in Singapore Source: LTA Using Table 2, describe the trend of car population between 2012 and 2019. [2] Question 7 Figure 2: Global price of palm oil Using Figure 2, compare the overall change in global palm oil prices from Jan-2009 to Jan-2011 with that of mid-2012 to mid-2015. [1] Question 8 Figure 3: Percentage of Ecommerce Revenue by Device Using Figure 3 , compare the trend in the percentages of ecommerce revenue by tablet and desktop between Jan 2015 and Jan 2020. [2] Section B: Data Response Questions 2012 2013 2014 2015 2016 2017 2018 2019 No. of cars 605,149 607,292 600,176 575,353 552,427 546,706 551,575 555,540 *projected revenue from 2018-2020

©Property of ACJC Economics Dept/2022/Price Mechanism 5 Question 9: Fashion at What Cost (Adopted from VJC 2019 Promo Exam) Extract 1: The Rise of Polyester The popularity of cotton is no accident. Cotton textile has a long history with man, and it has endured because its unique properties make it ideal for clothing . Cotton textile is attractive, durable, comfortable, takes to dyes and most importantly its’ fibre is naturally occurring. However, as production of cotton has plateaued, polyester has stepped in to fill the void. Polyester is a generalised term for any fa bric or textile, which is made using polyester yarns or fibres. It is a shortened name for a synthetic, man -made polymer, most commonly made from crude oil. Because polyester is easy to blend with other materials, remarkably improved in its look and feel, it has allowed clothing manufacturers to keep churning out more and more cheap clothes. Polyester accounts for roughly half of the overall textile market and around 80 per cent of synthetic textile, according to the Textile Exchange Preferred Fibre Material Report. In 2016, polyester production is estimated at 52 million metric tons. The price slide for polyester began in 2014 when oil prices fell by more than half. The ex