NJC 2022 H1 Economics Prelim P1 Ans

National Junior College Economics Department Preliminary Examination 2022 Paper 1 Answer Booklet (Students’ Version) Senior High 2 H1 Economics (Syllabus 8823)

2022 SH2 H1 Economics Prelim Suggested Answers National Junior College Humanities Department (Economics) 2 Suggested Answer Outline and Examiners’ Comments: Case Study Question 1 (a) Compare the relative change in the retail revenue for Amazon, Walmart and Home Depot in 2010 and 2020. [2] • Similarity: All three firms have seen an increase in their retail revenue between 2010 and 2020. • Difference: However, the rate of increase in the retail revenue for the three firms are different, with Amazon experiencing the largest increase (2,800%), followed by The Home Depot (466%) and Walmart (90%). (b) Using a diagram, explain how the rapid adoption of internet access impact a country’s production possibility curve. [5] • The rapid adoption of internet access worldwide would mean a rapid improvement in technology by firms in the economy as well. This would result in an increase in both the quantity and quality of capital resource in Singapore. • Firms that rely on technology (internet access in their production) will be able to produce more output. • The expansion of Singapore’s production possibility curve can be illustrated by a skewed outward shift of Singapore’s PPC from PPC0 to PPC1 as shown in Fig. 1. • Diagram. Fig 1: Production Possibility Curve (c) Identify and explain the two main characteristics of a public good, and comment on whether these are likely to be possessed by the Wi -Fi services provided by telecommunications firms. [6] Explain • A public good are goods or services that have the features of non-rivalry and non- excludability. • Define non-rivalry: non -rivalry means that the consumption of the good by one person does not reduce/diminish the benefit of the good available to others. • Define non-excludable: non-excludability means that it is technically impossible or economically unfeasible to exclude anyone from the benefits of the good once it is provided. Comment • The services provided for Wi -Fi access may not possessed the characteristics of non-rivalry and non-excludability. Technology-related goods Non- technology related goods PPC0 PPC1 0

2022 SH2 H1 Economics Prelim Suggested Answers National Junior College Humanities Department (Economics) 3 • The Internet is technically rivalrous in the sense that the computer networks on which it depends (its “physical layer”) accommodate a finite amount of traffic. • Wi-Fi access is excludable since the users must pay for Internet access via the subscriptions, they pay for the services provided for Wi -Fi acces s by the telecommunications firms in the country. (d) Explain the likely value of the price elasticity of supply (PES) for the services provided by online retailers. [2] • The likely value of PES for the services provided by online retailers is likely to be more than 1. • This could be explained by the durable nature of the products offered by these online retailers, namely, e-retail, computing services, consumer electronics which allows the online retailers to easily stock up and keep the stocks of good available. (e) Using a relevant elasticity concept, explain how Amazon’s differentiation strategy may have contributed to the change in its revenue. [5] • Amazon worked on differentiating their services, for e.g. priorities were placed on customer feedback and service were prompt and this has the effect of changing the taste and preferences of consumer towards the services provided by Amazon, leading to an increase in demand for their services. • The increase in demand leads to a new equilibrium where price and quantity will increase. • Their differentiation strategy promotes customer loyalty who believes that the high standard of services could not be found in the services provided by their rivals, that is the service offered by Amazon is not easily substitutable • With PED<1, hence, Amazon could increase the price of their products/services, leading to a less than proportionate decrease in quantity demanded. Hence its revenue will increase. (f) Using information from Extract 1, discuss whether demand factors or supply factors have a greater impact on the online transaction volume for e-commerce in the long run. [10] Introduction: • The impact on the online transaction volume for e-commerce in the long run will be discussed by an analysis of the demand and supply factors affecting online e - commerce transactions. Body: (1) Demand side factor – Changes in consumers’ taste and preferences and increase in the size of digital consumers. ● Consumers’ taste and preferences can change over time. Taste and preferences can be affected by the latest developments e.g., the advent of the internet and the ongoing digitalization of modern li fe, thus changing tastes and preferences favorably towards online shopping. This is illustrated by the rightward shift of the demand curve (from D0 to D1) in Fig. 2 below. (2) Supply side factor – Fall in the costs of relevant resources ● For firms providing online retailing, internet access and services could be seen as one of their factors of production. The fall in the price of internet access will in turn lead to a fall in their cost of production, hence increasing the market supply of e -

2022 SH2 H1 Economics Prelim Suggested Answers National Junior College Humanities Department (Economics) 4 commerce services. Thus, the supply curve shifts right from S 0 to S1 in Figure 2 below. (3) Impact on the online transaction volume for e-commerce • The increase in demand combined with the increase in supply will result in a new market equilibrium quantity at quantity Q1 as shown in Figure 2 below, indicating a higher volume of online transaction in the e-commerce market. Figure 2: Market for e-commerce Evaluative Conclusion: Supply factors may be have a greater impact on the online transaction volume for e - commerce in the long run. • According to Extract 1, over the last few years, e -commerce has become an indispensable part of the global retail network. • Since the impact of COVID-19 has been a significant force in influencing consumers’ taste and preferences as well as the number of online consumers, but its further progression is unpredictable. • On the othe