SAJC 2025 JC2 H2 Econs Prelims P1 Suggested Answers

Suggested Answers Question 1: The housing market in Singapore (a) With reference to Figure 1, compare the change in HDB resale and private homes prices in Singapore from 2016 to 2021. [2] Similarity: Both the prices of HDB resale and private home generally increased from 2016 to 2021. Difference: Prices of private homes increased at a faster rate than that of HDB resale from 2016 to 2021. Examiner’s Comments: Content Strength: • Most students were able to provide one similarity and one difference in the change in prices. Areas of Improvement: • Be mindful that the question asked about changes in prices. It is incorrect to state that “private homes prices were always higher than HDB resale prices,” since the focus is not on levels but on changes over time. • When highlighting differences, students should compare the entire trend from 2016–2021. For example: While private homes prices consistently rose throughout 2016 –2021, HDB resale prices fell from 2016–2018 before recovering. • Carefully read off the data, especially for the years in which HDB resale prices fell. The numerical indices show that HDB resale prices declined until 2018, not 2019. • Students should state that private homes prices increased at a higher relative rate of change compared to HDB resale prices. Skills Areas of Improvement: Students need to improve their data reading skills (interpreting numerical indices accurately) and writing skills (expressing changes over the entire period clearly). (b) Extract 1 states that prices of private homes hit new records. Explain why there was such a high rise in the price of private homes in 2021. [3] Rise in demand due to (any one point below) – [1] -lower cost of borrowing as interest rate fall

-rise in income due to economic recovery led to rise in demand for normal goods such as private homes -pent-up demand indicating greater taste and preference for private homes PES of private homes <1 as long time required to construct private home due to delays in construction resulting in a longer time to develop new private housing units or limited inventory stock of unsold units available– [1] Shortage at original equilibrium prices exerts upward pressure on prices and it takes sharp bidding up of prices as quantity supplied of private homes rise less than proportionately. This results in a high rise in the price of private in 2021. – [1] Other possible answers: Multiple factors of DD leading to an overall large rise in DD OR Explain high rise in price with the use of YED >1 or PES <1 Examiner’s Comments: Content: Strength: • Many students correctly identified that housing demand increased and supported their answers with at least one factor and relevant evidence. Areas of Improvement: • While many explained the price adjustment process, students must also account for the sharp increase in prices. This requires applying concepts such as PES or YED to justify why prices rose by a large magnitude. • For students who applied PES: they should elaborate that when supply is price inelastic (PES < 1), the shortage is harder to clear, so a larger increase in price is required compared to when PES > 1. Skills Areas of Improvement: • Should support PES values with case study evidence. • Need to use correct phrasing: “Supply is price inelastic” or “PES < 1.” Avoid “PES is inelastic,” as PES is a value, not a descriptive term. • Students should focus on explaining only one demand factor; it is not necessary to include multiple factors. (c) With reference to Extract 2, explain how an increase in stamp duty on property developers is likely to affect total expenditure on private homes. [5]

“Fast-growing prices did not hamper demand, and sales were brisk across many project launches” suggest quantity demanded fell less than proportionately indicating PED <1 – [1] An increase in stamp duty, which is an additional fee that the developer has to pay when acquiring residential property for development, it raises the cost of constructing or developing new private homes, leading to a fall in supply of private homes from SS1 to SS2.[1] [Note that stamp duty is an ad -valorem tax and thus a pivotal shift in SS] With reference to the diagram below, when there is an increase in price of private housing due to the increase in stamp duty from P1 to P2, there would be a less than proportionate fall in quantity demanded for private housing from Q1 to Q2. [1] Since total expenditure (TE) = price x quantity, the rise in TE caused by the increase in buying price of private housing indicated by Area P1P2XY is greater than the fall in TE caused by the less than proportionate fall in quantity demanded from Q1 to Q2 as shown by the Area Q2YZQ1. [1] Hence, overall, the increase in stamp duty is likely to cause an increase in the total expenditure on private housing. [1] Marking Tip: Accept answers where students explain PED>1 and fall in TE- cap 4marks since the answer does not explain rise in sales mentioned in the extract. Pivotal shift of SS to indicate ad valorem tax Examiner’s Comments: Content: Strength: • Several students recognised that a tax on property developers raises land costs and reduces supply of private housing.

Areas of Improvement: • Many did not apply the total expenditure (TE) concept with PED and therefore missed out on explaining the change in TE using the market DD–SS diagram. • Some students mistakenly drew a firms diagram instead of a market DD–SS diagram. This question requires market analysis, not firm analysis. • To fully explain the overall increase in TE, students must compare: • the loss in TE from the less than proportionate fall in quantity demanded, versus • the gain in TE from the higher price. • Since the gain outweighs the loss, TE rises overall. Skills Areas of Improvement: • Should use case study evidence to support PED values. • Avoid introducing extra demand factors unless the question uses the command word “Discuss whether.” With ceteris paribus, the tax is the only factor to consider. (d) ‘The Government announced a package of measures to cool the private residential and HDB resale markets in December 2021.’ (Extract 2) (i) Explain why the Singapore government may be concerned about the rising housing prices. [2] Housing is a necessity [1] which should be and remain affordable to everyone including lower income group. Due to the rising housing prices, some of the lower income group may be “priced out” and not have access to this necessity. This would mean that the government would be concerned about the rising housing prices as it would not be able to achieve one of its microeconomic goal of promoting equity [1]. Examiner’s Comments: Content: • Many students did not clearly state that housing was a necessity or the concern was equity. Some mentioned income inequality and did not link to how rising housing prices would worsen inequity. Skill: Some students indicated the concern as worsening of standard of living or allocative inefficiency. Since the preamble in the question states

Extract 2, they should make use of the information provided in the extract which suggest inequity with the phrase “social disparities”. (ii) Discuss whether the lowering of Loan to value (LTV) limit mentioned in Extract 2 would help to address the concern identified in d(i). [8] Question Analysis Command Word Discuss whether Content Lowering of Loan-to-Value limit Context Singapore Schematic Plan Introduction: The main challenge facing the housing market in Singapore is inequity. There may be inequitable allocation of resources in th