TPJC H1 ECONS EQ3 ANS

H1 EQ3 Suggested Answers 3 (a) Explain how the economic problem of scarcity could be overcome with the rise of globalisation. [10] (b) Discuss the view that globalisation is always benef icial to a small and open economy. [15] Suggested answer for (a): Introduction: • Define globalisation Globalisation is defined as the increasing integra tion of economies around the world especially through various forms like: - Free flow of goods and services ( free trade ) - Free flow of capital and investment ( financial flows) emergence of world financial markets & rapid movement of financial capital & rise and ex pansion of multinational corporations (MNCs) internationally - Free flow of people ( labour migration ) - Free flow of ideas and knowledge ( technology ) Define economic problem of scarcity Unlimited wants and limited resources resulting in scarcity thus required to make choices between competing us es incur opportunity cost, which is the next best alternative forgone. Body/Essay Development: Free flow of goods and services With globalisation Free flow of goods and services hence this allow c onsumers to gain access to goods and services internationally and ev en those that are not available in these home country Resulting in an increases in quantity, quality and varieties Thus increases consumers’ utilities and reduces the economic probl em of scarcity, i.e. there are unlimited wants but limited resources to produce where the do mestic country might not have the resources to do so, such as lack of knowledge, skil ls and technology etc. Hence with the rise of globalisation, the country can now consume beyond the production possibility curve (PPC). Free flow of capital and investment Globalisation opens up the country and results in an increase in the level of competition In order to remain competitive in the international ma rket, country would need to specialise in the production of goods that it has comparative advanta ge in i.e. lowest opportunity cost Increasing both individual as well as world output allowing countries to consume beyond their PPC Thus, reduces the problem of scarcity. At the same time, specialisation allows the countr ies to be more productive and efficient Leading to better allocation of resources Increasing quality and quantity of resources Increases productive capacity PPC shifts to the right/LRAS shifts to the right Reducing the problem of scarcity. Free flow of people/Free flow of ideas and knowledge Globalisation increases cross-border transfer of r esources, in terms of labour, capital and technology & knowledge. Labour Increase quantity of labour in the countries, with highly skilled labour, it will also increase in quality of work force Enhance productivity. Influx of low skilled foreig n labour will also lead to an increase in quantity of FOPs Increasing productive capacity Shift PPC or

LRAS to the right Hence reduce the resource constraints face by a co untry Reduce problem of scarcity. Capital and technology transfer Increase capital inflow and efficiency FDI increases thus lead to increase quality and quantity of resou rces Helping the country boost its productive capacity Shift PPC or LRAS to the right Hence reduce the resource constraints face by a country Reduce problem of scarcity. With the rise of globalisation More goods and services being produce, increase in labour, capital inflow and technology transfer both AD and AS rises increase real NY via the multiplier process Country achieve both actual growth and potential g rowth Achieving sustained economic growth speed up economic growth leading to more and greater utilisation of resources. Conclusion: Globalisation allows the economy to better utilise their resources due to the theory of comparative advantage. It also allows them to increase world ou tput, thus reduces the ‘limited resources’ constraint. At the same time, with more goods and s ervices available for consumption, it can also satisfy more wants, thus able to tackle the problem of ‘unlimited wants’. Marking Scheme for (a) Knowledge, Application, Understanding and Analysis. Level Descriptor Mark Range L3 • Well-developed answer using real-life examples to explain and illustrate how globalisation is able to reduce the problem of scarcity. • Minimum 3 aspects of globalisation covered, i.e. g oods and services, labour, capital and technology linking clearing how it can reduce the problem of scarcity of BOTH unlimited wants and limited resources. • Max. 7m for theoretical answer without using any e xample(s) for illustration purpose. 7 – 10 L2 • Sound explanation of only 2 aspects of globalisati on with no clear link to the problem of scarcity. Or answer that only focus on unlimited wants or limited resources. Insufficient or inadequate examp les given to support the analysis. • Max 5m: only 1 aspect of globalisation but well-ex plained with clear link to the problem of scarcity. 5 - 6 L1 • Smattering of points. • No link of globalisation to reduce the problem of scarcity. Superficial analysis with limited economic concepts and framework. • Presence of major conceptual errors and inaccuraci es. • High L1: only 1 aspect of globalisation well-expla ined with clear link to only unlimited wants or limited resources 1 - 4

Suggested answer for (b): Introduction: • Define globalisation Define globalisation: the process through which an increasingly free flow of ideas (exchange of knowledge), people, goods and services (trade), and capital leads to the integration of economies and societies. • Define small and open economy Example: Singapore is a relatively small economy w ith domestic markets that are limited in size and is an open economy where trade to GDP ratio exceeds 300%, amongst the highest in the world. Oth er economies, such as the US and Indonesia, have large domestic markets and are less open as trade to GDP ratio is much lower, at about 28 and 53% respectively. • Explain that globalisation benefits economies when they help the countries achieve their micro and macroeconomic goals (Economic growth, low inflation, full employment, healthy BOP position, efficiency and equity) Body/ EssayDevelopment 1. THESIS: Globalisation is always beneficial to a small & open economy • Small economies such as Singapore and Hong Kong depend heavily on trade and FDI to drive economic growth globalization which brings about increased trade and foreign investment will allow significant benefits to be reaped by small economies • Explain the extent of increase in AD via trade is greater for smaller economies. 2. ANTI -THESIS 1: Globalisation is not always beneficial to a small and open economy Possible dangers from globalisation to small and open economies which large and less open economy could be less susceptible to • Possibility of dd-pull inflation when export industries do not have pdtn capacity (i.e. small economy faces labour shortages and infrastructural inadequacies ) to cope with rising AD could erode X competitiveness Hurting EG 3. ANTI -THESIS 2: Large & less open economies may also benefit from globalisation may be more able to withstand downsides of globalisation • Domestic firms are larger and likely more productive efficient due to int. EOS. Free movement of gds & svs increase availability of export markets to them. Their firms more able to penetrate markets of small and open economies more effectively for greater profit, which when remitted improve BOP via the CA.

1. THESIS: Globalisation is always beneficial to a small & open economy (contd) • Both large and small economies gain access to other economies. But globalisation allows small an