2013 JJC H1 Econs Answer booklet

JURONG JUNIOR COLLEGE 2013 JC2 ECONOMICS 8819 (H1) PRELIMINARY EXAMINATION ANSWER BOOKLET © Jurong Junior College 2013 (H1)

©Jurong Junior College 2013 (H1) 2 Suggested Answers for 2013 J2 H1 (8819) Economics Prelim Case Study Questions Question 1 (ai) Compare the change in government expenditure on education between primary schools/secondary schools/junior colleges and tertiary sector for the period 2006- 2011. [2] Government expenditure on education for primary schools/secondary schools/junior colleges consistently increased whereas government expenditure on education for tertiary sector generally increased with the exception of Year 2007. [1] Overall change in direction. [1] Refinement: Whether the change is consistent or not / Rate of change (faster increase on tertiary education of 66% compared to 40% on primary schools/secondary schools/junior colleges). (aii) Identify the educational sector that has the highest government recurrent expenditure on education per student in Year 2011. [1] Tertiary sector. [1] (b) Extract 1 refers to the increased emphasis placed on private tuition as Asian parents try to give their children the best start in life. Use demand and supply analysis to explain the impact of the increased emphasis placed on private tuition by Asian parents on the private tuition market. [5] Step 1: Explain the demand factor  As mentioned in Extract 1, there is an increas ed emphasis placed on private tuition by parents as they want to give their children a head start. This is reinforced by the lure of advertisements on the services of "star" tutors in mass media which entices consumers as seen in Extract 1. This has resulted in a change in taste and preferences towards private tuition resulting in an increase in demand for tuition services. Step 2: Explain the supply factor  There are also incentives to offer tuition servic es as it is a lucrative and profitable industry, resulting in an influx of players in the industry. The increase in the number of producers leads to an increase in the supply of tuition services. Step 3 & 4: Dominating factor/Draw and describe diagram  The above factors will result in an increase in demand for private tuition services as shown below by a rightward shift of the demand curve from D 0 to D1 and an increase in the supply of private tuition services as shown by a rightward shift of the supply curve from S0 to S1.  The increase in demand for private tuition servic es is more than the increase in supply because of the large change in taste and preferences towards private tuition services as seen by the increased willingness to spend on private tuition services by parents.  This leads to both an increase in the price of private tuition services from P 0 to P1 and quantity of private tuition services from Q0 to Q1. Price S1 D1 D0 P1 P0 Q1Q0 Quantity S0

©Jurong Junior College 2013 (H1) 3 Up to 3 marks (1m for demand explanation, 1m for supply explanation and 1m for 2 pieces of evidence) for a well-developed explanation of 1 demand and 1 supply factor with the use of case study evidence. 1 mark to be awarded for candidates who commented on the dominating factor (either demand or supply) with justification. 1 mark to be awarded for a fully-labelled diagram with explanation. (ci) What is meant by price elasticity of supply? [1] The price elasticity of supply measures the responsiveness of the quantity supplied of a good to a given change in the price of the good itself, ceteris paribus. [1] (cii) Justify the value of the price elasticity of supply for tuition services. [2] The supply for tuition services is price elastic and the price elasticity of supply value is more than 1 [1] due to high factor mobility [1]. As evident in Extract 1, it is not difficult to employ private tutors, hence producers can increase the supply of private tuition services more readily. (d) Explain how the policy options mentioned in Extracts 2-5 can help Singapore achieve a sustained and inclusive economic growth. [6] With an increase in government expenditure on education, there will be more government projects available which might lead to recruitment of staff, hence increasing employment. This will lead to an increase in income, purchasing power and consumption. The increase in G and C will cause Aggregate demand (AD) to increase from AD 0 to AD 1, via the multiplier process, national income will increase by the multiple. Actual growth is achieved as a result. With a more educated workforce, this will lead to an increase in labour productivity and quality of labour. A better-skilled workforce is also more responsive to changes, and is more willing to take up further training to upgrade skills or to acquire new skills. In addition, the promotion of entrepreneurship education in schools and support by ACE which includes internship opportunities, will encourage the birth of more entrepreneurs, leading to an increase in the quantity of entrepreneurs. Entrepreneurs organize factors of production, explore new markets, innovate and take risks in anticipation of demand. With greater labour productivity and more entrepreneurs, it will lead to an increase in the productive capacity of the economy and long run aggregate supply (LRAS) from LRAS 0 to LRAS1. Potential growth is achieved as a result. With an increase in AD and LRAS, sustained growth is achieved as shown in the diagram below. Real national income has increased from Y0 to Y1. Real National Income 0 General Price Level Y0 Y1 LRAS0 LRAS1 AD0 AD1

©Jurong Junior College 2013 (H1) 4 As evident in Extract 3, MOE has expanded the school-based dyslexia remediation and provided more resources to SPED schools. There will also be more support for students from needy families. Extract 5 also showed that more healthcare related courses have been introduced to cater to the needs of Singapore’s aging population. With policies in place that aim to improve the welfare of the disadvantaged and less fortunate, it helps to achieve an inclusive growth for Singapore. Mark Scheme L2 Well-developed analysis of how actual, potential and inclusive growth is achieved, aided with a fully labelled/accurate diagram and with reference to the case study evidence. Maximum 5 marks for answers without diagram. 4-6 L1 Under-developed explanation of how actual, potential and inclusive growth is achieved Maximum 3 marks for answers without reference to case study evidence. 1-3 (e) With the aid of a diagram, explain how inefficient allocation of resources arises in the market for education. [5] Education is a merit good that yields positive externalities/external benefits and is deemed intrinsically desirable by the government. Positive externalities are the benefits to third parties who are not directly involved in the production or consumption of a good. It is not reflected in the price of the good. External benefits of education include a more educated workforce which will contribute to greater efficiency and productivity resulting in potential growth. Marginal private benefit (MPB) refers to the benefit like the knowledge gained by the consumer from an additional unit of the good consumed. Marginal private cost (MPC) is the cost incurred like school fees from an additional unit of the good consumed. Figure 2 illustrates the situation where the cons umption of a good generates positive externality. Marginal social benefit (MSB) is the additional social benefit from the last unit of a good consumed, MSB = MPB + MEB where MEB is the marginal external b