VJC 2024 H1EC Prelim Answers and Mark Scheme (20 Sep) Final

1 Answers and Marks Scheme to 2024 H1EC Prelim Exam Question 1 (a) (i) Describe the trend in the average selling price of graphics processing units (GPUs) from Q1 2019 to Q2 2022. [General trend] The a verage selling price of GPUs experienced an overall increase from Q1 2019 to Q1 2022 [1]. [Refinement] However, there was a reversal of trend after Q3 2021, where the average selling price of GPUs fell from Q3 2021 to Q2 2022. [1] [2] (ii) Using Extract 1 and a diagram, explain the observed trend in the average selling price of GPUs. The rise in average selling price of GPUs is due to a fall in supply and rise in demand for GPUs. There was a rise in demand for GPUs due to the change in tastes and preferences of consumers. During COVID -19, consumers staying home bought more GPUs for gaming and crypto -mining, leading to a rise in willingness to purchase GPUs at all prices and hence increase in the demand for GPUs (rightward shift of the demand curve from D0 to D1). [1] There was a fall in supply of GPUs due to supply chain disruptions and shipping delays, causing a reduction in the number of units of GPUs producers were able to offer for sale at every price level. This resulted in a fall in the supply of GPUs (leftward shift of the supply curve from S0 to S1). [1] The rise in demand and fall in supply results in a shortage of (Qd-Qs) units at the initial equilibrium price of P0, resulting in an upward pressure on prices. [1] As price increases, quantity demanded will fall and quantity supplied will rise until equilibrium is attained at E1 where quantity demanded = quantity supplied at Q1, where equilibrium price has increased from P0 to P1. [1] [5]

2 Diagram [1] (b) With reference to Extract 1, explain why a graphic processing unit has the characteristic of excludability. According to Extract 1, a GPU commands a price. [1] This means one must pay to obtain the good. Non -payers are excluded from consuming this good. [1] [2] (c) Explain the likely impact of the introduction of software such as “cuLitho” on the total revenue of GPU producers, and comment on whether this is likely to hold in the future. Explain impact of “cuLitho” on TR of GPU producers [4] With the introduction of “cuLitho”, there would be a fall in the marginal cost of production of GPUs due to a speed up in computational lithography, leading to a rise in supply as GPU producers are now willing and able to produce more GPUs at every price level. [1] With a rise in supply, the resultant surplus would result in a fall in equilibrium price and a rise in equilibrium output. [1] The demand for GPUs is likely to be price inelastic due to a lack of close substitutes. As such, a fall in the price of GPUs would lead to less than proportionate rise in quantity demanded. [1] [6]

3 The fall in revenue from a fall in price thus outweighs the rise in revenue from a rise in quantity dema