2024 HCI Prelims H1 EC Paper 1_mark scheme

HCI H1 Economics Preliminary Exams 2024 Case Studies Suggested Answers Question 1: Trends in the market for e-commerce (a) With reference to Figure 1 and the concept of ‘price sensitivity’ mentioned in Extract 1, explain what could have led to the growth in the global e-commerce sales revenue. [4] In Extract 1, it was mentioned that “Online shoppers tend to be more price sensitive compared to traditional brick -and-mortar shoppers.” This means that demand goods sold through e-commerce could be price elastic. [1] In Extract 1, “the ease of comparing prices across different online retailers and the abundance of options available make it convenient for consumers to find the best deals”. This could be due to high degree of substitutability of goods sold online. [1] In Extract 1, “consumers are more likely to switch to alternative online stores offering lower prices. In addition, e-commerce firms often use promotions, discounts, and special offers to attract customers and drive sales.” A lower price leads to more than proportionate increase in quantity demanded. [1] The increase in sales revenue due to lower prices outweigh that of loss in revenue due to increase in prices. Figure 1 shows an increase in e-commerce sales revenue over the years. [1] (b) With reference to Table 1, explain the likely value of the price elasticity of supply for the goods sold through e-commerce. [2] The likely value of Price Elasticity of Supply (PES) for the goods provided through e - commerce retailers is likely to be more than 1. In other words, the supply of the goods are price elastic. [1] This could be explained by the durable nature of the products offered by these online retailers, namely electronics, fashion, toys which allows the online retailers to easily stock up and keep the stocks of good available. [1] (c) With the aid of a demand and supply diagram, explain one demand factor and one supply factor that could have caused the supermarket industry in China to be left ‘high and dry’. (Extract 2) [6] In Extract 2, “consumption habits began steadily shifting from in -store to online” and “took away the demand from supermarket by about 12% per year on average”. Thus demand fall due to competition with e -commerce (lower price of substitutes in terms of e -commerce goods and services reduce demand for supermarket goods and/or the change in taste and preference) [2] In Extract 2, “With rentals and growing wage pressure by an average of 8% per year from 2015 to 2020. This shows that supply for supermarkets goo