NYJC H2 Economics P1 Answers

Nanyang Junior College  2014 JC2 Prelim Examinations  H2 Economics Paper 1  Suggested answers:  Question 1:  (a) (i) Compare the trends in the percentage of population aged 60 and over for the developed and developing countries from 1950 to 2050. - There is a rising trend in the percentage of population aged 60 and over for both the developed and developing countries. (1) AND - The percentage of population aged 60 and over is higher for developed countries compared with developing countries for the period shown.(1) OR - developing countries are predicted to experience a faster rate of increase in percentage of those aged 60 and above of the total population over the forecasted period. OR - Over the recorded period, developed countries experienced a faster rate of increase of those 60 and above than developing countries. (maybe give % figures) [2] (ii) Account for the above demographic trends. 2 factors [1 for identifying 1 for explaining] x 2: (4m) - Longer life expectancy due to better healthcare services - Falling birth rates (fertility rates) due to higher opportunity costs in having children. - The percentage of population aged 60 and over for the developing countries is lower because of higher population growth rates. [4] (iii) With the use of a diagram, explain the likely effects of this demographic change on a product market. - Increase in demand for hospital beds, walking sticks, healthcare etc. - Rightward shift in the demand, c.p, upward pressure on price due to a shortage at the existing price  increase in P and Q. - Demand factor identified (1m) - Brief explanation of price mechanism – impact on P& Q (1m) - Diagram (1m) [3] (b) With reference to extract 4, explain a redistributive measure that the government could implement to reduce income inequality. - Government transfer money from its coffers (revenue collected from progressive taxes) to low income earners through transfer payme nts like workfare income supplement, the Special Employment Credit, conservancy charge rebates, subsidies for skills upgrading programme etc. - This will increase the disposable income of the low income earners and hence close the income gap Redistributive measure - (1m) - Explaining redistribution how income is redistributed from the rich to the poor. – (2m) [3]

- ‘measures’ that are not clearly redistributive eg . – “Skills training programme” Allowing lesser skilled workers to upgrade themselves and be able to command a higher wage thus narrowing the income gap. Measure - (1m) Explanation– (1m) (c) Discuss the impact of an ageing population on an economy. Negative impacts 1. Slow down economic growth 2. Fall in labour force participation rate  fall in labour supply, c.p,  increase in wage  increase in costs of production. 3. Fall in income of the older workers  fall in purchasing power  fall in consumption  fall in AD  fall in real NY 4. Increase in government expenditure on healthcare needs, transfer payments for the aged & pensions government may run a budget deficit. There is opportunity costs in this financing expenditure  impede economic growth 5. Ageing population may worsen income inequality (extract 4) 6. Fall in productivity of the aged However, the negative impacts of the aged on economy may not be so serious if the 1. Aged workers are highly educated. 2. There is improvement in technology which can enable the aged to continue working Positive impacts 1. Benefited the pharmaceutical companies (extract 1). A new source of income from discovery of new drugs for the aged. This will cover the loss of their income due to expiry of patents. 2. Development of silver industry like tourism, healthcare, etc Judgement - How significant the impact will depend on the government taking preemptive policy measures - Possible measures the government could undertake to mitigate long term negative effects - Restructure economy to better cater to the needs of the aged L2  A well-developed 2-sided answer, supported by case evidence and theoretical framework, that discusses the positive AND negative effects of an ageing population on the economy  A well-developed 1-sided answer (positive or negative effects) using an economic framework discussing the impact of an ageing population on an economy (max 4)  An undeveloped 2-sided answer that discusses both positive and negative impacts of ageing on an economy with limited use of an economic framework 4-6 [8]

 An answer with some reference to data [max 5] L1 Brief and/or superficial answer that merely lists information with no or limited explanation 1-3 E Evaluative comments with justification 1-2 (d) With reference to data, discuss whether building more hospitals by the government is the best way of addressing the healthcare needs of the aged. Based on extract 3, the rapidly ageing population will lead to an increasing demand for healthcare needs like hospitals, nursing homes, outpatient health services and social services. This increase in demand for hospitals will result in a shortage of hospitals and the healthcare needs of the aged are not taken care of. (diagram) Thesis : Building more hospitals by the government is an efficient method to meet the healthcare needs of the aged Government has to build more hospitals to cater to the needs of the aged because 1. Market dominance : There is under supply of hospitals due to the presence of monopoly power. If left to the market, the numbers of hospitals is below the socially optimum quantity, and the price charged is greater than MC. There is a deadweight loss due to the undersupply of hospitals (diagram). 2. Income inequality (affecting affordability) . Lower income aged may not be able to afford healthcare. If left to the market,(aged) low income earners may not be able to afford hospitalization. Market may function to serve only those who are able to pay. – “The retired, elderly poor, for example, will not benefit from higher wages - but will suffer the inflation that comes in tandem, he notes. This group, who are both old and poor, will continue to grow” – Government to build more hospitals to cater to the needs of the low income earners. 3. Merit Good and Imperfect Info: Healthcare underconsumed from society’s point of view due to imperfect information and external benefit not captured in the decision making process of the consumer thus leading to an inefficient allocation of resources (diagram). In reaction to underconsumption producers underproduce. Government intervenes to build more hospitals increasing supply and thus lowering price and encouraging consumption. Therefore, Anti-Thesis : Building more hospitals by the government is not an efficient method to meet the healthcare needs of the aged Limitations 1. The supply of hospitals is price inelastic, hence the increase in supply may not meet the increase in demand. 2. There is also a shortage of healthcare workers to work in the hospitals. 3. Costly to build hospitals Alternative measures 1. Improve the outpatient healthcare se rvices for eg, provide home visits so that the aged can recuperate at home instead of staying in the hospital 2. Collaborate with the private hospitals and community hospitals in terms [10]

[Tot al: 30]                                                       of the usage of resources like doctors, nurses and hospital beds. This will help to reduce the demand for government hospital services. 3. Extend healthcare subsidies to the private hospitals and clinics such that the demand for government hospitals would be reduced. 4. Preventive measures for them to stay healthy………… Conclusion There is a limit in which government can increase the number of hospitals due to high costs involved and shortage of healthcare workers. The long term solution