2024 SAJC JC1 H1 Price Mechanism and its Applications Part 2 Tutorial

1 Price Mechanism and its Applications Part 2 Elasticities of Demand & Supply Section A: Short Excerpts from Case Studies Question 1 [2016 MI H2 Prelim] Extract 1: Tougher times for Amazon As Amazon marks its 20th anniversary this year, it is also facing fiercer competition in the market of e-readers in Britain. First, traditional players such as John Lewis and D ixons raised their game – particularly with “click and collect” services. John Lewis uses its sister food chain, Waitrose, as a “physical” collection point for web purchases of th eir e-readers as an example of how established chains are finally starting to act smar ter. Amazon lacks its own network of physical stores, although it has begun offering a c lick-and-collect service by opening “lockers” in selected sites. Second, Tesco’s successful launch of its own-brand, low-cost Hudl tablet and the expansion of its TV-and-film streaming service Blin kbox are aimed at Amazon’s Kindle Fire tablet and LoveFilm movie service. Source: The Straits Times, 23 October 2013 Questions (i) Explain how the value of price elasticity of demand for Amazon’s electronic reader has changed with the entry of new rivals such as Tesco. [2] (ii) With reference to the concept of price elasticity of demand and the extract, explain the expected impact of a price fall on Amazon’s total revenue from the sale of electronic readers. [3]

2 Question 2 [Adapted from 2023 TMJC H1 Prelim] Extract 4: Water pricing in Singapore There are three components to the water price in th e monthly bill: water tariff, water conservation tax and waterborne fee. The Water Tariff covers the costs incurred in various stages of water production process and is charged based on the volume of water consumed. The Water Conservation Tax (WCT) was introduced in 1991 to encourage water conservation and to reflect its scarcity value. WCT is imposed as a percentage of the water tariff to reinforce the message that water is precious from the very first drop. The Waterborne Fee goes towards meeting the cost of treating used water and maintaining the used water network. It is charged based on the volume of water usage. Source: pub.gov.sg/watersupply/waterprice , accessed 26 July 2023 Questions (a) Explain the impact of the price elasticity deman d for water on the extent of the tax revenue earned from the imposition of a ‘water conservation tax’. [5]

3 Question 3 [Adapted from 2023 RI H1 Prelim] Figure 1: World Cotton Prices (US$) Source: Macrotrends, March 2023 Extract 1: Cotton Farmers in India and Pakistan Bea r the Brunt of Extreme Hear, Unpredictable Rainfall Farmers have been growing cotton in India and Pakis tan for thousands of years. Both countries’ economies are thriving because they have been part of the top 10 cotton exporters along with the US, China, and Brazil. Ind ia alone contribute