SAJC 2024 JC2 H2 Econs Prelims P2 Suggested Answers

St Andrew’s Junior College JC2 Preliminary Examinations H2 Economics – Paper 2 (9570/02) Suggested Answers

2 © SAJC 2024 9570/02/Sep/24 1 A severe shortage of vets has made it challenging for clinics to hire and retain talent, despite offering significantly higher salaries. It typically takes around 8 years to become a vet. To attract new blood, clinic s are working towards offering better work-life balance and mentorship opportunities. Since the COVID -19 pandemic, pet ownership has risen by about 30 per cent despite calls for more responsible pet ownership. Adapted from CNA, 22 January 2024 (a) Explain why a severe shortage of vets still exists despite clinics offering significantly higher salaries. [10] (b) Discuss possible strategies to reduce the severe shortage of vets. [15] Part (a) Suggested answers Introduction: • Prices are determined by the interaction of demand and supply forces. The price mechanism helps to achieve allocative efficiency by adjusting to resolve disequilibrium (either the case of shortage or surplus). • Shortages arise when the quantity demanded for a good or service exceeds the quantity supplied for it. When faced with a shortage, the price mechanism would adjust upwards to resolve the shortage. • However, as given in the preamble, despite clinics offering significantly higher salaries, the severe shortage of vets still exists. R1: Explain how the above factors have caused a shortage of vets in Singapore One reason why a shortage may still persist in spite of a rise in salaries for vets is that the salary increase may be insufficient to attain market equilibrium when faced with an increase in demand for vets. Due to a rise in pet ownership (change in tastes and preferences) → increase in demand for veterinary services → therefore an increase in derived demand for vets. Due to the long gestation period + no vet courses available in Singapore + significant costs of pursuing a vet degree → low supply of vets An increase in demand would cause the demand for vets to increase from D1 to D2. Together with a low supply of vets, this would result in a shortage of vets at the original wage, W 1, as quantity demanded exceeds quantity supplied of vets, causing an upward pressure on wages. Wages (price of labour) Quantity of vets 0 S D1 D2 W1 Q1 = Qss Qdd2 Qdd Qdd” shortage W2 Q2 D3

3 © SAJC 2024 9570/02/Sep/24 Figure 1: Impact of low supply with a rise in demand on a significant rise in wages of vets When faced with the upward pressure on wages, the quantity supplied of vets would increase while the quantity demanded for vets would decrease. This will carry on until the shortage is cleared (where quantity demanded = quantity supplied) - at the point where quantity now increases from Q1 to Q2 while wages increase from W1 to W2. In theory, this is what would have happened to clear the shortage that originally exists. However, as explained, the increase in salary may have been insufficient to clear the shortage and thus causing the shortage to still exist despite the increase in salary. One possible explanation for this is that while salary has increased, the increase in demand for vet services due to the increase in pet ownership increased by a larger extent (D 1 increased to D3 instead of D2). As a result of the larger than expected increase in demand, the shortage arising would also be larger(Qdd” - Qss). As such, even though salary has increased to W2, it may not have increased sufficiently to clear the shortage (Qdd2 – Qss). This thus explains why the shortage still exists despite the rise in salaries. R2: Explain how PED & PES may also contribute to the shortage to persist despite higher salaries. 1. Demand for vets is price inelastic -> high degree of necessity for pet -owners to maintain the health and well-being of their beloved pets. 2. Supply of vets is price inelastic → long gestation → lack of spare capacity of vets Thus, when faced with the severe shortage of vets at W 1, while it will cause an upward pressure on wages of vets. As supply of vets is price inelastic, the increase in wages of vets will only cause a less than proportionate decrease in quantity demanded and a less than proportionate increase in quantity supplied of vet due to the low PED & PES values (PED < 1 & PES <1). Hence, a significant rise in wages of vets to W2 in Singapore is required to clear the shortage of vets in the market. It is likely that du e to this, despite the salary increasing, the shortage of vets still persist due to the low PED & PES values. Conclusion: Therefore, while the price mechanism seeks to resolve the shortage arising from the change in demand for vet services faced, however, due to the larger than expected increase in demand, the shortage still persisted. The low PED & PES values further exacerb ate the problem leading to the shortage existing despite the increase in salaries. Marking scheme Level Descriptors Marks L3 For an answer that is well -developed with the relevant rigour to demonstrate how a shortage may still exists despite the increase in salaries from the context given and how elasticity concepts impacted the extent of increase in wages of vets and the ability to clear the shortage. 8-10 L2 For an answer that show some degree of application of either demand and supply analysis to show a situation of a shortage or how elasticity concepts affected the extent of increase in wages of vets. 5-7 L1 For an answer that demonstrates superficial knowledge of demand and supply analysis, without applying to the context of a shortage or a significant increase in wages. 1-4

4 © SAJC 2024 9570/02/Sep/24 1 (b) Discuss possible strategies to reduce the severe shortage of vets. [15] Suggested Part (b) answers Introduction: • Given the shortage in the labour market for vets, veterinary clinics may consider some strategies that could influence the demand and/ or supply of vets, thereby eliminating or at least, relieving the extent of the shortage, and reducing the extent of the rise in wages of vets. R1: Supply-related strategies 1. Offer higher salaries • In view of the significant costs in pursuing studies in this field, better renumeration may be the nudge that potential vet students may need to increase the net benefit of becoming a vet → increase in quantity supplied of vets Figure 2: Impact of offering higher salaries in the market for vets • An increase in wages from W1 to W3 would increase quantity supplied and reduce quantity demanded for vets, thus, eliminating the shortage of vets. • Alternatively, students may also argue that due to the severe shortage mentioned in the preamble, the increase in wages may only reduce the shortage as the extent of increase in wages was insufficient to eliminate the shortage in the market for vets. 2. Better work-life balance and mentorship opportunities • Better work -life balance → includes things like reducing after -hours work and providing adequate breaks during work hours → a reduced and less stressful workload may attract more talent → increase in supply of vets • Mentorship opportunities → letting fresh graduates shadow experienced vets in general practice first to help them gain experienc