AJC_H1_ECONS_P1_Answer

2018 JC2 H1 Economics Preliminary Examination – Sample Answers Anderson Junior College Economics Department Page 1 Anderson Junior College JC2 2018 H1 Economics Preliminary Examination Case Study Question 1 – Aging population: Burden or opportunity? a (i) Describe the trend for the health spending in Japan from 2000 – 2017. Trend: increasing from 2000 – 2017 1 (ii) Discuss how far the concept of price elasticity of demand may account for the above trend in health spending. P1: The concept of PED may account for the above trend Shrinking workforce  fall in SS  price increase. As 0 < |PED| < 1 (lack of substitutes)  increase in price will lead to a less than proportionate decrease in quantity demanded  increased in total expenditure  account for the increase in health spending P2: However, the concept of PED may not account for the above trend  Limitation of ceteris paribus assumption or PED could actually be more than one (|PED| > 1 due to substitutes available such as robotics)  price increases  increase in price will lead to a more than proportionate decrease in quantity demanded  total expenditure will actually decrease  cannot account for the increase in health spending In addition, other factors may account for the above trend Increase in demand due to aging population (Ext 1)  increase demand  equilibrium price and quantity increase  total expenditure increases EV: Make a stand and justify E.g., demand factor more significant as population “rapidly greys” (Ext 2) E.g., more information needed, for instance on the PED value Mark scheme: Level Knowledge, Application, Understanding and Analysis Marks L2 An answer that clearly explains with economic framework on how PED may account for the trend 4-6 L1 An descriptive answer with multiple basic conceptual errors on how PED may account for the trend 1-3 Evaluative comment Up to 3 further marks for an evaluative appraisal of possibly which factor is the main factor 9 b With reference to data, discuss the likely effects of a shrinking workforce in Japan and technological advancement on the robotics market. 8

2018 JC2 H1 Economics Preliminary Examination – Sample Answers Anderson Junior College Economics Department Page 2 Shrinking workforce (Ext 1)  fall in supply of labour  wages increase Thus demand for robotics which are substitute for labour will increase (Ext 4: funding development of elder care robots to help fill a projected shortfall of specialised workers)  shift DD curve to the right Tech advancement  fall in unit COP  more profitable  increase in SS  shift SS curve to the right P1: increase in DD > increase in SS  equilibrium P and Q increase It takes time to develop and create robotics suitable for different types of healthcare services, coupled with the aging population. It is likely that increase in demand will outweigh the increase in supply in the SR. Henc