2013 CJC H2 Econs P2 Prelim Question Paper with Answers

CATHOLIC JUNIOR COLLEGE JC2 PRELIMINARY EXAMINATIONS In preparation for General Certificate of Education Advanced Level Higher 2 ECONOMICS 9732/02 Paper 2 3 Sep 2013 0800 - 1015 Additional Materials : Writing Paper 2 hours 15 min READ THESE INSTRUCTIONS FIRST Write your name, class and question number on all the work you hand in. Write in dark blue or black pen on both sides of the paper. You may use a soft pencil for any diagrams, graphs or rough working. Do not use staples, paper clips, highlighters, glue or correction fluid. Begin each question on a new sheet of paper. Answer three questions in total, of which one must be from Section A, one from Section B and one from either Section A or Section B. At the end of the examination, hand in ALL questions separately. The number of marks is given in brackets [ ] at the end of each question or part question. This document consists of 2 printed pages

2 © Catholic Junior College 9732/02/Preliminary Exams /2013 Answer THREE questions in total. Section A One or Two of your three chosen questions must be from this section. 1 “The root cause of market failure is far more often lack of information than externalities, and this is where government should direct their efforts to improve the efficient working of the economy.” (a) Explain the two types of market failure described in the preamble. [10] (b) Discuss if legislation is the best way for government intervention in the above situations of market failure. [15] 2 There were 101,000 millionaires in Singapore by the end of 2012, a jump of 10.3 per cent over 2011 and their total income is estimated to have hit US$489 billion, up 11.5 per cent on the 2011 level. Measures are announced to reduce the inflow of foreign workers, and help our businesses adapt to the permanent reality of a tight labour market. Source: Adapted from Straits Times, 2012 Using economic analysis, discuss the likely impacts of abovementioned changes on various product markets in Singapore. [25] 3 (a) Explain how the size of firms affects the price and output decisions of various firms. [10] (b) Discuss the extent to which large firms in an industry impede economic efficiency. [15] Section B One or Two of your three chosen questions must be from this section. 4 (a) Explain the extent to which an increase in net exports will lead to a larger increase in real GDP. [10] (b) The pursuit of higher levels of real GDP per capita leads to higher standard of living. Discuss. [15] 5 The plan is for the Bank of Japan to print more money and to splurge on public works projects to reboot Japan’s recessionary economy. (a) Explain how the above approaches will help to reboot the Japanese economy. [10] (b) To what extent can Singapore adopt the above approaches to solve a recession. [15] 6 There is substantial evidence, from countries of different sizes and different regions, that as countries “globalise” their citizens benefit. (IMF May 2008) Explain how globalisation has changed Singapore’s pattern of trade and assess whether such changes have benefitted the Singapore economy. [25]

Prelim 2013 Answers CONFIDENTIAL DO NOT PRINT FOR STUDENTS 3 © Catholic Junior College 9732/02/Preliminary Exams /2013 Prelim 2013 H2 Essay Qn 1 Answers CONFIDENTIAL DO NOT PRINT FOR STUDENTS Qn 1 “The root cause of market failure is far more often lack of information than externalities, and this is where government should direct their efforts to improve the efficient working of the economy.” a) Explain the two types of market failure described in the preamble. (10m) b) Discuss if legislation is the best way for government intervention in the above situations of market failure. (15m) Part a Approach This is a straightforward question that requires candidates to explain two specific causes of market failure, i.e. externalities and lack of information. Good candidates need to be able to show explicitly why imperfect information and externalities can lead to the market being unable to allocate resources efficiently. Outline of essay: Introduction Define market failure, Essay overview: State with reasons why lack of information and externalities lead to market failure. Paragraph 1 Show explicitly externalities can lead to market failure  via external costs/benefits leading to divergence between MPC/MPB and MSC/MSB, resulting in deadweight loss and over/under consumption/production in the society. Paragraph 2 Show explicitly how lack of information can lead to market failure.  society is not aware of the external costs/benefits of certain goods resulting in over/under production/consumption. Paragraph 3 Show explicitly how lack of information can lead to market failure.  consumers are not fully aware of the private cost/benefits of merit/demerit goods resulting in under/over consumption. Conclusion Summary of points. Remarks For imperfect information, can use the idea of true MPC versus perceived MPC Level Descriptors Marks L3 Clear and well developed economic analysis. Able to show clearly how market failure is caused by lack of information and by externalities. Good use of relevant examples. Clear structure. 7 -10 L2 Some economic analysis. Able to show how market failure is caused by lack of information and by externalities, but lacking clarity. Some use of examples. Some structure. 5-6 L1 Poor economic analysis. Shows the concept of market failure, but unable to link to lack of information and/or externalities. Poor use of example. No real structure. 1-4

Prelim 2013 Answers CONFIDENTIAL DO NOT PRINT FOR STUDENTS 4 © Catholic Junior College 9732/02/Preliminary Exams /2013 Prelim 2013 H2 Essay Qn 1 Answers CONFIDENTIAL DO NOT PRINT FOR STUDENTS Part b a) Discuss if legislation is the best way for government intervention in the above situations of market failure. (15m) Approach This question tests how well candidates are able to explain and discuss the effectiveness of government intervention efforts through legislation in situations of market failure due to the lack of information and externalities, either positive or negative. Because this is a ‘discuss’ type question, candidates will need to use the TAS approach. Outline of essay: Introduction Link to part a Explain briefly why governments intervene in such situations Essay overview Paragraph 1,2 Show explicitly how legislation by the Singapore government is able to correct market failure associated with lack of information. Evaluate policy. Paragraph 3,4 Show explicitly how legislation by the Singapore government is able to correct market failure associated with externalities. Evaluate policy. Paragraph 5 Give a possible alternative policy to deal with the market failure associated with both the above causes. Conclusion Summary of points, final evaluation and stand Level Descriptors Marks L3 Clear and well developed economic analysis. Able to show clearly how legislation can help solve market failure in context of lack of information and externalities Good use of relevant examples. Clear structure. 9 -11 L2 Some economic analysis. Able to show clearly how legislation can help solve relevant market failure, but lacking clarity and/or consistent reference to context. Some use of examples. Some structure. 6-8 L1 Poor economic analysis. Unclear of link of legislation to solve market failures in context, and/or unable to show how policies can solve market failure in context. Poor use of example. No real structure. 1-5 E2 Evaluation with good indepth economic justification 3-4 E1 Evaluation without proper economic justification 1-2

Prelim 2013 Answers CONFIDENTIAL DO NOT PRINT FOR STUDENTS 5 © Catholic Junior College 9732/02