RI 2022 H2 Y6 Common Test - Examiner's Report

ECONOMICS Higher 2 Syllabus 9757 Examiner’s Report Year 6 Common Test 2022 Raffles Institution Nurturing the Thinker, Leader & Pioneer TEL: 65 6419 9888 ● FAX: 65 6419 9898 http://www.ri.edu.sg ● One Raffles Institution Lane, SINGAPORE 575954

Y6/9757/CT/2022 2 © RI 2022 [Turn Over ECONOMICS Y6 H2 Common Test 2 2022 Paper 9757/02 Paper 2 Question 1 1. The degree of competition within an industry depends on a number of factors.  a. Using examples, explain possible factors that have caused some markets to become more competitive. [10] b. Discuss whether innovation is the best strategy for a firm seeking to increase its profits. [15] Part (a) Introduction • Link “more competitive” to increase in the level of competition → increase in the number of firms in the industry, fall in market share of firms and market power. • Some important factors are government intervention and advancement of technology. Other possible factors include globalization, shift in culture towards greater risk taking and greater availability of market information to both producers and consumers Factor 1: Government intervention may cause markets to become more com petitive. • Government can reduce monopoly power and market share of large firms through lowering the barriers to entry in many industries. • Reduce legal barriers to entry (BTE) by issuing more licenses to more firms to operate, for example, the Spore government issued more licenses in various industries such as those in telecommunication, power distribution and public transport (bus). These industries were previously dominated by one or two firms and in recent years, the number of firms in each industry has risen subs tantially and the incumbent firms’ market power has fallen, leading to the industry becoming more competitive. • Reduce man-made BTE by implementing anti-trust laws to prevent predatory and anti- competitive behaviour of large firms thus ensuring fairer and greater competition. For example, in 2005, Competition and Consumer Committee Singapore (CCCS) was set up to eliminate or control practices which have adverse effect on competition in Singapore. It has the power to enforce against unfair practices like ab use of dominance, anti -competitive mergers and agreements in industries which might lead to reduction in number of firms and increased market share. For example, it intervened to prevent a potential dominance and lack of competition situation when a few diagnostic and laboratory services in the medical sector were bought over by a major player. It put in place measures to ensure fair practice to allow new entrants to compete in that sector  more firms, lower market share  more competitive. • With lower BTE, the entry of new firms would lead to increase in the number of firms in the industry and reduce the market share of the incumbent firm as illustrated in diagram b