TMJC 2022 A Level H2 CSQ2

2022 A Level H2 Economics Suggested Answers to Paper 1 CSQ2 © TAMPINES MERIDIAN JUNIOR COLLEGE Question 2: Innovation is the key to prosperity in an age of new technologies (a) Distinguish between a rise in total output and a rise in productivity. [2] A rise in total output refers to an increase in the overall value or level of final goods and services produced in an economy [1] whereas a rise in productivity refers to an increase in the output per man-hour [1]. (b) Explain one reason why a firm with significant market power and long -run excess profits might choose to spend large sums on research and development (R&D). [2] Any one possible reason (with or without evidence) is acceptable. Contestability Based on the contestable market theory, the firm may engage in R&D due to the threat of potential competition . For instance, with more “localised production” (Extract 6), there could be transference of knowledge and technology, allowing potential new players from China and US to compete in car manufacturing. Hence, incumbent firms may engage in process innovation to lower their costs of production and remain price competitive relative to their potential competitors, thus allowing them to retain their supernormal profits and their market share. Alternative: Product development to keep the firm’s AR high and relatively price inelastic, allowing them to continue charging high prices without losing revenue, and thus their supernormal profits. OR Government Regulation The firm may engage in R&D due to government regulation. For instance, if the fines incurred (Extract 6) due to production of traditional cars significantly reduces the car maker’s supernormal profits , the car maker may find it more profitable to engage in R&D and switch to producing electric vehicles. Though expensive in the short term, such successful product development may keep the firm’s DD/AR high and relatively price inelastic , ensuring high revenue without having to pay fines. Thus, this may increase the firm’s overall profits. (c) Explain, with reference to Extract 8, what might be the opportunity cost of the $19 billion invested by the Singapore government to build the country into a global R&D hub. [2] “Although it has an abundance of capital, Singapore has faced talent shortages…” (Extract 8) suggests that the $19 billion invested in infrastructure and technologies could have resulted in less funds allocated for skills training and education. Hence the opportunity cost which is defined as the value of the next best alternative forgone [1] could be the potential investment revenue for Singapore because of more training and skills upgrading of local talent that is foregone. [1]

2022 A Level H2 Economics Suggested Answers to Paper 1 CSQ2 © TAMPINES MERIDIAN JUNIOR COLLEGE Any other potential area of government expenditure is also acceptable as the next best alternative foregone (d) Expl