2020 H1 econs CSQ1 Answers

© Anderson Serangoon Junior College Econ dept 2020 A Level Paper 8823/1 Question 1: The role of government in resource allocation Suggested answers (a) Using information in Extract 1, compare the government spending as a percentage of GDP in the UK to that in other countries. [3] Difference • UK government spending as a percentage of GDP is 3rd highest of all the countries shown in Table 1 whilst Singapore is the lowest. • Over the period 2008 to 2016, UK government spending as a % of GDP has fallen but Singapore government spending as % of GDP was relatively constant. Similarity From 2009 to 2011, both UK and Singapore’s government spending as % of GDP fell. (b) Using information from Extract 2A, identify and explain three factors that have caused the demand for passenger transport in the UK to change. [6] Evidence Factor Explanation Population size Population size Increase in population size means there was a greater number of people who need to commute → Demand increases. Level of economy activity Changes in income level During the financial crisis in 20007 —2008, there was a fall in the level of economic activity and thus a fall in national incomes and rise in unemployment. Hence, fewer people travel either to work, for business or leisure purposes. This led to a fall in demand for passenger transport as train and bus trips are normal goods. Train and bus fares went up Price of related goods (Substitutes) Motor vehicles and public transport are close substitutes. When public transport fares increased, this led to a fall in quantity demanded for public transport as people switched over to the relatively cheaper alternative. Thus demand for travel by cars/motor vehicles increased. 1m for evidence + 1m for explanation (c) Using supply and demand analysis, explain the conclusion reached in Extract 2B that ‘the usual market adjustment process simply does not work’ in the UK housing market. [6] Usual Market adjustment process Why it did not work… • With rising prices, perhaps due to an increase in demand, at current price P 0, there will be a shortage of QdQs. • Consumers will bid up prices. • Producers are incentivised to step up production because of the higher prices and profits and so quantity supplied of However, with rising prices, instead of causing a fall in quantity demanded, “it has instead caused an increase in demand” due to a change in expectations of future prices. Buyers expect future housing prices to increase and so they would rather buy now at a lower price rather than have to fork out more to buy the

© Anderson Serangoon Junior College Econ dept housing increases. Quantity demanded falls as some consumers are unable or unwilling to pay the higher prices. • This adjustment process will continue until quantity supplied = quantity demanded at a new equilibrium at E 1 where equilibrium price and quantity of housing has increased to P1 and Q1 respectivel