SAJC 2019-2023 JC1 H2 Economics Final Exams Answers

2024 JC1 H2 Economics FE Revision Package Answers 1 2024 JC1 H2 Economics Final Examinations Revision Package Suggested Answers Section A: Case Study Questions Question 1: Singapore’s Grocery Retail Market (Source: 2019 SAJC Final Examinations) Suggested Answers (a) (i) With reference to Figure 1, identify and explain the type of market structure operating in the Singapore grocery retail market. [2] Oligopoly. The 3 firm concentration ratio is 91%. (b) (ii) Identify and explain one possible barrier to entry that may exist in the grocery retail market in Singapore. [2] 1) Financial barriers Existing supermarkets e.g. FairPrice has large financial reserves for advertisements, partnerships with other companies such as Grab or even to engage in price war. Potential entrants must match FairPrice’s financial reserves to engage in non -price and price competition against FairPrice. Inability to do so may prevent them from entering. 2) Cost barriers Huge Capital Outlay/sunk costs and iEOS. To enter, potential entrants need to incur high sunk costs in the form of warehouses, shop spaces and delivery vehicles in order to set themselves up as a supermarket in Singapore. Any inability to bear such high costs, will prevent new firms from entering. Substantial iEOS: Potential entrants may not enjoy high iEOS. Hence, they may not be able to pass on any cost savings to consumers in terms of lower prices. This in turn mean that they may not be able to price their goods competitively and choose not to enter eventually. 3) Control of certain goods Inability to negotiate contracts with sellers of certain goods e.g. essential agriculture products because existing supermarkets have already established long term contracts with sellers will find themselves unable to sell the agricultural products. New firms may not enter knowing that they are unable to offer products that meet consumers’ needs.

2024 JC1 H2 Economics FE Revision Package Answers 2 (iii) Using Extracts 1 and 2, explain how the grocery retail firms in this market structure might compete with each other. [4] Mutual Interdependence between the small number of firms – i.e. high rival consciousness . Because of mutual interdependence, they may engage in price competition (and price wars) i.e. if a rival firm lowers price, they will have to also lower price. In addition to price competition, they may engage in non-price competition, particularly when firms choose to keep prices unchanged. Price competition E.g. • FairPrice engaged in price competition by reducing price of household essential items to match what its rivals do. • FairPrice partnered Grab to offer a new membership programme to allow members to enjoy rebates. Non-price competition • Sheng Siong Group launched rebate credit card to attract consumers to create convenience in payment • Partnership between NTUC and G