SAJC 2024_JC2 H1_Econs_CSQ_Prelims_Suggested Answers

St Andrew’s Junior College JC2 Preliminary Examinations H1 Economics (8843/01) Suggested Answers

2 © SAJC 2024 8843/01/Aug/24 Question 1: E-books - a tale of digital disruption, and the expansion of Integrated Resorts Suggested Answers (a) With reference to Extract 1, Figure 1 and using a supply and demand diagram, account for the change in pricing of e-books in Germany from 2010 – 2019. [5] Changes in tastes and preferences following the rise in popularity of mobile devices and e - readers have led to an increase in demand, from D1 to D2. Tech advancement, fall in COP resulting in an increase in supply, resulting in a rightward shift from S1 to S2. Assuming that the increase in supply outweighs the increase in demand given the leap in technological advancement, At the original equilibrium price, there is a surplus which exerts a downward pressure on the prices of e-books. There was a fall in prices of e-books from P1 to P2. [DDSS Diagram] (b) “According to the German industry association for booksellers, the average price level for e -books increased by 4.9 percent to 6.63 Euros in 2020, attributed to 'gross profiteering' from e -book publishers. These publishers trawled through university reading lists, identified the commonly used textbooks, classified them as essential and raised the price of these e-books.” Explain how the above strategy led to ‘gross profiteering’ and comment on whether the strategy is the only reason for the increase in e-book publishers’ profits. [6] • By classifying commonly used textbooks as essential, this raises its degree of necessity. • Demand for e-textbooks is price inelastic (|PED|<1). A rise in price will result in a less than proportionate decrease in quantity demanded. • Producers will thus adopt the strategy of increasing prices. The increase in TR from increase in price > decrease in TR from less than proportionate decrease in quantity demanded. • Since profits = TR – TC, assuming that total costs remain constant , there will be an increase in profits earned by e-textbook publishers. • Given that there was an increase in demand following consumers’ raised perception of benefits and willingness to pay for e-books, this resulted in an increase in equilibrium price and quantity, and thus an increase in revenue. • Additionally, this is not the impact on all e -books, only those identified as essential textbooks. • The increase in e -book publishers’ profits can also be due to a fall in TC arising from technological improvements. (c) Using the information in Extract 2, explain whether knowledge possesses the characteristics of a public good. [4] • Non-excludability occurs when the