2013 NYJC H1 Econs Essay Q3 and Qn4 Suggested Answers

1    2013 NYJC H1 Prelim Suggested Answers to Essays 3. From June 1st 2013, there will be a cap imposed on the number of times financially vulnerable patrons visit a casino each month. Administered by the NCPG, the Casino Visit limit will complement the current Casino Exclusion system by providing another option for individuals and their families to control gambling habits. – Adapted from Channel News Asia 28th May 2013 a. Explain with examples, the factors affecting the demand for and supply of gambling services in Singapore. [10] Synopsis: Candidates are to explain BOTH demand and supply factors that could affect the market for gambling services in Singapore. Please do note that the market for gambling services and the market for casinos are NOT the same. Candidates do not need to show the impact of the changes in the market as the question only requires an explanation of the factors thus just by stating the direction of the shift or movement along the Demand/ Supply curve would be sufficient. The demand and supply factors stated below are not exhaustive and any plausible and accurate explanation of the factors could also be accepted. Possible Non-price Demand Factors: (i) Change in the income levels of people : A RISE in affluence of the people in Singapore could lead to the demand for gamb ling services to increase. This is due to the fact that gambling services is a luxury service thus when people have a higher disposable income, they would consume more of it at all price levels. It would bring about a rightward shift of the demand curve since the rise in income levels is a non-price factor change. (ii) Change in the Government Policies : An implementation of a new government policy to restrict the number of people entering the casino or any other gambling places could cause the Demand for gambling services to decrease. This could cause a leftward shift of the demand curve and it would mean that people would be demanding less of gambling services at all price levels. Possible Demand Price Factor: (i) Change in the price of gambling services : Due to a change in the cost of production of gambling services, it could cause a change in the price of gambling services. Assuming that the cost of pr oduction for gambling services were to increase, then there would be an upward movement along the demand curve. Possible Non-price Supply Factors: (i) Change in price of factor inputs: Due to a change in the cost of production, it could be seen that the supply of gambling services could be affected since the suppliers are now not able to produce as much gambling services. This would be a leftward shift of the SS curve. Example could be a possible increase in the wages for croupiers and also the price of plastic chips. (ii) Change in the number of gambling providers: With an increase in the number of suppliers or gambling providers, it would cause a right shift of the SS curve. Though the number of legal casinos is controlled by the government, there are

2    still other illegal casinos around. Such as the increase in Casino cruises or illegal gambling dens. Possible Supply Price Factors: (i) Change in the price of gambling services : Due to any changes in the above demand non-price factors, it could affect the price of gambling services in Singapore. This could bring about a upwards or downwards movement along the SS curve. Level Descriptor Marks L3 Clear explanation of BOTH demand and supply factors with contextual examples. Accurate description includes the correct identifying of a shift or movement along the demand and supply curves. Any 2 demand AND 2 supply factors (both price and non- price factor allowed) 7-10 L2 Clear explanation with examples of Demand OR Supply factors with contextual examples. Or candidates who explained BOTH demand and supply factors with examples that are not in context or a weak explanation 5-6 L1 Mere listing of Demand and/or Supply factors 1-4 b. Discuss the view that this new policy of imposing a cap on the number of visits for financially vulnerable patrons is the best option available to tackle the problem of gambling addiction in Singapore. [15] Synopsis: Candidates are required to examine how the new policy (ie a quota) set on the financially vulnerable people would useful. In this case, the students would first have to show how there is a market failure resulting from gambling on the financially vulnerable (hence the x-axis would require it to be for the financially vulnerable). After showing how the quota would be useful, the candidates would have to show the limitations and also the introduction of other policies that can be implemented. Limitations of the other policies and also a conclusion would be required. Introduction  Identify and define POSSIBLE sources of market failure: Demerit good and Negative externalities from consumption. (EITHER ONE will do) Body  Explain one source of market failure in the market for casinos  Demerit Good: Explain why governments view casino gambling as a demerit good.  In the free market, there will be an over-consumption of casino gambling as consumers may be unaware of the negative externalities associated with its consumption.  Identify and explain that in the case of casino gambling: - Private benefit (MPB): refers to the enjoy ment, the excitement experienced of betting against the odds in the hope of winning, a reward that an individual can give oneself as often and as long as one likes. - Private cost (MPC): refers to the cost of casino gaming chips needed to play the various casino games available including slot machines and table games such as roulette and baccarat, transportation and accommodation costs. Medical costs to

3    treat conditions related to physical health (eg. gastro-intestinal distress) as well as for psychiatric conditions (eg. preoccupation with casino gambling, feeling of loss of self- control). - External Cost (MEC): refers to the cost imposed on third parties to play the various casino games available including family members and neighbours: the continued and increased frequency of casino gambling can cause hardship (emotional, physical and mental) to the family members and neighbours of the gambler.  Figure 1 illustrates the divergence between marginal private cost and marginal social cost. Next, the student would have to show how the cap on the number of visits by financially vulnerable people could help to correct the market failure. Thus with the implementation of the quota, if the government were to be able to accurately place the quota at the quantity R, then the government would be able to force the financially vulnerable consumers to consume at where th e socially optimal output is. The deadweight loss would also be eliminated. Limitations of this policy are to be addressed as well in the answer. (i) These limitations could be the quota not accurately set to the socially optimal level could either result in deadweight loss still present or the deadweight loss incurred due to loss of benefits from under-consumption. (ii) Problem with the classification of the financially vulnerable people (in this case, the income bracket of the people to be deemed as financially vulnerable). Figure 1:  Negative Externality resulting in  allocative inefficiency  $  Quantity of casino visits by the financially vulnerable  gamblers  0  MSC = MPC + MEC MPC MPB = MSB R Q  A  E1  ●  E0 ●  MEC ●  DWL  Figure 2:  Negative Externality resulting in  allocative inefficiency  $  Quantity of casino visits by the financially vulnerable  gamblers  0  MSC = MPC + MEC MPC MPB = MSB R Q  A  E1  ●  E0  ●  ●  Quota

4    (iii) Not going to be well supported by people who are affected by this policy (government