MI 2024 PU3 H2 Econs Prelim P1 Suggested Ans for Sharing

2024 PU3 H2 Economics (9570) Prelim Paper 1 Suggested Answers [Turn over Question 1 (a)(i) With reference to Figure 1, state the change in the number of street-hail trips and ride-hail trips from 2021 to 2023. [1] The quantity of street-hail trips has decreased while the quantity of ride-hail trips has increased [1]. (a)(ii) Using Extract 1 and a demand and supply diagram, give two reasons for the trend observed in the ride-hailing market in (a)(i). [4] Demand for ride -hail rides ha s increased due to changes in consumers’ taste and preferences. Consumers prefer knowing the fare in advance for ride-hail rides as compared to the uncertainty of fares for street-hail rides. [1] OR The increase in surcharges for street -hail rides led to an increase in demand for ride - hail rides, given that street -hail rides and ride -hail rides are substitutes (in demand), with their cross-price elasticity of demand (XED) > 0. Supply of ride -hailing rides ha s also increased, as more drivers are also choosing ride - hailing due to the cheaper rental of a private car as compared to a taxi. [1] The changes in demand and supply are illustrated by a rightward shift in the demand curve from D0 to D1 and a rightward shift of the supply curve from S 0 to S1, as shown in Figure 1 below. [1] The combined changes in demand and supply results in a change from the original equilibrium (P 0, Q 0) to the new equilibrium (P 0, Q 1) with a larger equilibrium quantity, corresponding to the observed trend of a larger quantity of ride-hail trips. [1] Figure 1: Market for ride-hailing in Singapore 2m for explaining any two DD or SS factors. 2m for DD/SS diagram showing shift in DD/SS and explaining change in quantity. (b) Define price discrimination and explain why imposing location surcharges for taxi rides can be considered a form of 3rd degree price discrimination. [3] Price discrimination occurs when a producer charges different prices for the same product for reasons not associated with differences in cost. [1] Price Quantity D1 O Q0 Q1 D0 S1 S0 P0

2024 PU3 H2 Economics (9570) Prelim Paper 1 Suggested Answers 9570/01/EYE/MI/24 [Turn over Location surcharges are considered 3rd degree price discrimination as the taxi companies divide their consumers into different groups (by location and time) and charge a different price to each group. [1] In this case, a surcharge (i.e. different price) is levied on the first group of consumers who hail a ride to or from a specific location such as the airport, while those who hail a ride to other locations do not pay a surcharge. [1] (c) Using a diagram, explain how carbon emissions can cause market failure in the ride-hailing market. [4] The case of c arbon emissions in the ride -hailing market can cause negative externality , which is a form of market failure where resources are not being allocated efficiently. Negative exter