RVHS H1 ECONS P1 CSQ 1 Soln

RVHS H1 Case Q1 Suggested answer (a) (i) Describe how Singapore government healthcare spendi ng has changed from 2006 to 2015. [2] It generally increases [1] at an increasing rate [ 1]. (ii) Explain the change in opportunity cost given this change in healthcare spending. [2] The opportunity cost increased [1] since increased number of projects in other sectors might have to be forgone or scale down give n more funds have to be diverted. [1] (students can also provide specific e.g of projects in other sectors. E.g. transportation projects such as increasing the numb er of buses on the roads and education projects such as upgrading the existing education facilities. (b) Extract 1 states that the number of elderly Singapo re will rise to 610,000 by 2020. (i) Using supply and demand analysis, explain how this estimation serves to impact the market for private healthcare services. [6] With ref to the diagram below, demand for healthcare increased [1] from D 0 to D1 as the population continues to aged with more suff ering from chronic age- related ailments [1]. On the other hand, this estimation will cause supply for healthcare to increase [1] from S 0 to S 1 as existing private healthcare providers expand and new players enter the market in view of the higher expected demand. [1]. 1 mark will be awarded for the accurate drawing of the diagram. Price Quantity Figure 1: Market for private healthcare O S0 S1 D0 D1 P1 P0 Q1 Q0

Given the increase in demand and increase in supply for healthcare, equilibrium quantity of healthcare will increase from Q 0 to Q 1 [0.5] while equilibrium price of healthcare is uncertain [0.5] depending on the relative magnitude of shift of demand and supply. OR While equilibrium price of healthcare is likely to increase from P 0 to P 1, the increase in demand is likely to outweigh the increa se in supply since the “number of elderly Singaporeans is growing faster t han ever” and/or that competition for land intensified in a small country like Singapore. [0.5] (ii) Comment on how the above analysis might affect Singapore government healthcare spending going forward. [2] Analysis based on an increase or a decrease in price is acceptable, and any 1 of the below comments is worth 2 marks. (analysis based on a decrease in price) The fall in price in private healthcare helps keep private healthcare affordable. (1) As such, there is no need for government to increase its spending further to ensure equity. (1) (analysis based on an increase in price) Possible comments Candidates may give the following combination to get a max of 2 marks. Pt 1+2 Pt 3+4 Pt 1+3 - In view of equity issue for healthcare which is a necessity, the Singapore government will need to do more e.g. provision of more grants and subsidies to keep healthcare affordable. (1) -However, given that the Singapore government has been promoting self-responsibility in the aspect of personal healthcare through compul sory healthcare savings (i.e. MediSave), the increase in government healthcare sp ending may not increase substantially.(1) - The increase in price of private healthcare will also cause consumers to switch over to public healthcare, increasing the demand for pub lic healthcare. As such, the government will have to spend more to increase publ ic healthcare facilities to cater to this rising demand. (1) -The extent will depend on the degree of substituta bility of private with public healthcare. If the public hospitals are able to off er similar medical treatments with reasonable waiting time, more patients will switch over to public hospitals given the increase in price for private healthcare. As such, the government would see a larger increase in their healthcare expenditure. (1)

(c ) (i) Explain how the expenditure of foreign patients seeking different types of treatment in Singapore might change given the strengthening of the Singapore dollar. [4 ] Given the strengthening of the Singapore dollar, the price of medical treatment in foreign currency increased. As such, there would be a change in the expenditure of these foreign patients seeking different types of treatment in Singapore. The change would depend on the elasticity of demand for the different types of medical treatment. The demand for complex medical treatment is more price inelastic due to a lack of close substitutes for complex treatment in the region. [1] When the price of such treatment increases, the qua ntity demanded would fall less than proportionately and hence total expenditure of patients seeking these kinds of treatment increases [1]. However, the demand for simple medical treatment, s uch as the hip replacement surgery, is more price elastic as there are close substitutes available in Malaysia and Thailand etc. [1] When the price of such treatment increases, the qua ntity demanded would fall more than proportionately and hence total expenditure of this group of patients decreases [1]. (ii) Given that “medical tourists are looking elsewhere for treatment”, explain one strategy private hospitals in Singapore can employ to attract them back to Singapore. [2 ] Private hospitals in Singapore can employ both pricing and non-pricing strategies to attract medical tourists back to Singapore. Ans Based on part ci), the demand for simple medical tr eatment is price elastic. Hence, in order to attract tourists to seek treatme nt back in Singapore, private hospitals should decrease the price of such treatme nt [1]. This would lead to a more than proport ionate increase in the quantity demanded for the tr eatment. [1]. Alternative Ans Private hospitals can also employ product different iation, specifically product promotion or product development. Point 1+3= 2marks Or Point 2+3= 2marks 1) Product development is to create real difference s such as those employed by Farrer Park Hospital mentioned in the extract, w here services, like meals ordering for patients, are enhanced by the adoption of technology. [1] OR 2) Product promotion can include publicity about th e quality of medical treatment here [1]. 3) These strategies aim to change the taste and preferences of medical tourists in favour of Singapore This reduces the substitutability of the medical treatment in Singapore and make the demand less price elastic [0.5].

With the demand for the simple medical treatment be coming more price inelastic, it would deter the quantity demanded to fall that significantly [0.5]. (d ) Explain whether the government should provide full subsidy for health screening. [4 ] The government should provide full subsidy for heal th screening if there is complete market failure. However, a complete government intervention in the form of a full subsidy is not necessary because healthcare screening is a private good as it displays characteristics of rivalry and excludability. It is rival in consum ption as one additional person seeking healthcare screening will deprive another patient f rom health screening at the same time, given the finite amount of resources and time a doctor has. (1) As such, the marginal cost (MC) is not equal to zero. For socially optimal level of consumption, price must be equal to MC. Given that MC is not equal to zero, it is possible for the market to produce at the socially optimal level since price is greater than 0. (1) Health screening is also excludable as patients who are unwilling to pay for the servi