TPJC_H1_ECONS_CSQ1_ANS

H1 CSQ 1 Suggested Answers (a) Using the data from Fig. 1, summarise how the price of COE had changed from March to December 2016. [3] General Trend: Overall, the price of COE had increased from March to December 2016. [1] Distinct Segments: The price of COE had gradually i ncreased from March to June 2016 [1] before prices declined stead ily from July to December 2016. [1] (b) With reference to Extract 1, use supply and demand analysis to explain the likely impact on the price of COE. [5 ] The price of COE is determined by the forces of supply and demand for COE. Demand factor As mentioned in Extract 1, with Uber and Grab sourc ing for new vehicles to be on the road coupled with minimal gov ernment intervention on 3 rd party apps, the demand for private-hire cars will be on the rise. As the increase in demand for new p rivate-hire cars will require COE, the demand for COE will increase, shifting the demand rightwards from D1 to D2, ceteris paribus. [1] Supply factor Also as mentioned in Extract 1, as COE quota is set to grow, supply of COE will shift rightwards from S1 to S2, ceteris paribus. [1] Justify which curve shifts more COE supply “is expected to rise sharply in 2016 to about 95,000, compared to about 58,000 in 2015” the numbers is expected to increase by almost twice we could justify that supply shifts by a greater extent compared to demand. [1] Diagram Market adjustment process Price of COE Quantity of COE S1 S2 D1 D2 Q1 Q2 E1 E2 P1 P2

At the original price P1, quantity supplied is grea ter than quantity demanded, this leads to a surplus and hence downward pressure on price from P1 to P2 till the surplus is eliminated. [1] Final Outcome Hence, prices of COE falls from P1 to P2 and quanti ty of COE increases from Q1 to Q2. [1] (c) (i) Define price elasticity of supply. [1] Price elasticity of supply measures the degree of responsiveness of quantity supplied to a change in the price of good itself, ceteris paribus. (ii) Using Extract 2, explain how the price elasticity of supply for private-hire cars might have changed with the need for the drivers to apply for a vocational license. [2] As mentioned in Extract 2, the private-hire car dri vers are required to apply for a vocational license where they need t o go through a medical examination, attend a 25 hours course and pass a test. This makes it relatively more difficult for an individual to be a private-hire car driver and may even deter some of the private-h ire drivers who drive to earn a part-time income. [1] Given an incr ease in price, the quantity supplied for private-hire cars increases b y less than proportionate. Hence, the introduction for the need to apply for v ocational license will make the price elasticity of supply for privat e-hire cars to be relatively more price inelastic. [1] (d) (i) Using Extract 3 , explai