TJC_H1_ECONS_EQ3_Ans

Suggested Answer for H1 Prelim EQ3 Malaysia will begin imposing its tourism tax on hot els from Aug 1 this year, starting from RM2.50 (S$0.80) per room each night, according to d etails published on the Royal Malaysian Customs Department's website. Concurrently, recovery from the Global Financial Crisis has seen a rise in business activities and increasing income levels. (a) Explain how scarce resources are allocated in the free market. [10] (b) Discuss how the above factors may affect the total consumer expenditure on different types of hotels in Malaysia. [15] Question Dissection a) Explain how scarce resources are allocated in the free market . [10] Schematic Plan Explain a process: Identify the start & end point Define scarcity and establish the link between scarcity & resource allocation. Resource allocation End point Define free market. Price mechanism start point Introduction • Explain scarcity and how it necessitates choices regarding resource allocation. • Explain the 3 categories of choices each society have to make. Body • Illustrate how resources are allocated among competing needs via the price mechanism, using DD-SS models. • Explain how the price mechanism determines the distribution of goods or services produced. Conclusion (summary)

Suggested Answer for H1 Prelim EQ3 Suggested Answer Comments The central problem of economics is scarcity, which refers to the situation where limited resources are insufficient to meet society’s unlimited wants and needs. Due to scarcity, it is i nevitable that choices have to be made and every choice involves s acrifice. In economics, the value of the next best alternative t hat had to be forgone to satisfy a particular want is termed opportunity cost. All societies face the same fundamental economic pr oblem of scarcity and require a method of allocating scarce resources. There are three main categories of choice, arising from t he problem of scarcity, to be made in any society: ‘what and how much’, ‘how’ and ‘for whom’ to produce. How these decisions are made depends on the economic system of the society. The free market refers to an economic system where all economic decisions are ta ken by individual households and firms, and with no govern ment intervention. In a free market, resources are allocated via the p rice mechanism. Any change in demand or supply in one market affect s the product and factor prices within that market and also other related markets. Producers and consumers respond to these price chan ges by channeling resources from declining markets to expa nding ones. Thus, scarce resources are automatically allocated among competing uses. Sup