2022 SH2 H2 Prelim EQ3 (Suggested answer)

3 Children who grow up in lower-income families have less access to quality education. Singaporegovernment will start to level the playing field by providing more assistance to those in danger ofbeing left behind during pre-school years. Inaddition, thegovernment will alsodoublespendingonthe pre-school sector to $1.7 billion by 2022. Discuss thefactors that theSingaporegovernment shouldconsider initsdecisiontointerveneinthepre-school education market.[25] Suggested Answer Outline Introduction ● Indecidingwhether tointerveneinthepre-school educationmarket,thegovernmenthastogatherthe necessary information fromvarious economic perspectives, consider its constraints, weighthebenefits versus the costs of such intervention and consider its unintended consequences. Thisapproach is known as the decision-making framework. Body Benefits of intervening in the pre-school education market Benefit 1 Correct market failure due to positive externalities in consumption to achieve allocativeefficiency ● The benefits of early education extend to society as a whole. The third party (society) benefitsthroughbetter workforceinthelongtermaspre-schooleducationmightenabletochildtodevelopgood cognitive skills which will translate to more year of schooling and better labour work forcewhich will bring about more innovation and higher productivity.● Hence, thepresenceof marginalexternalbenefits(MEB)createsadivergencebetweenthemarginalprivate benefits (MPB) and marginal social benefits (MSB) where MSB= MPB + MEB.● Assuming no negative externality, marginal private cost (MPC) equals to marginal social cost (MSC).

Figure 1: Market failure from the underconsumption of pre-school education ● Inthepursuit of self-interest, consumers will onlyconsider their ownprivatecostsandbenefitsandconsume at 0Qp, where MPC=MPB. However, the socially optimum output level is 0Qs, whereMSB=MSC.● Thus, there is an underconsumption of QpQs units leading to a deadweight loss of areaABCandallocative inefficiency. ● Hence, government intervention can be beneficial via attaining allocative efficiency (the aboveexplain the need for government intervention not the benefit of it).● The subsidy will reduce the MPC, shifting the MPC curve from MPC to MPC + subsidy per unit,causing the consumers to consume pre-school education up to the level of Qs, hence coinciding withthe socially optimal output level. Figure 2: Subsidy for pre-school education Evaluation of benefit 1 ● Due to imperfect information, it is difficult to accurately measure the amount of MEB. Benefit 2 Correct market failure due imperfect information to achieve allocative efficiency ● If left tothefreemarket, it is likelythat pre-school educationwill alsobeunder-consumedbecausethe family/household undervalue the family’s private benefits from the consumption of pre-school.● Most parents perceivedtheMPBof pre-school educationtobeacquisitionof simpleknowledgebytheir children.● However, parents have underestimated the amount of true benefits to pre-school education.● As most parents maybeunawareof theextent of thefull benefitsfrompre-schooleducation.Withreference to figure 3, due to imperfect information, there is adivergencebetweenMPBperceivedand MPBactual.● Hence, withimperfect information, therewill beanunderconsumptionofQp’Qaunitsofpre-schooleducation and the welfare loss is represented by area ABC.● To attain allocative efficiency in the case of imperfect information, the government couldprovidecampaign to inform parents of the true benefits to

● Hence, thebenefit of government interventionwouldbetocorrect market failureduetoimperfectinformationinthecaseofmeritgoods,agovernmentcanprovidethenecessaryinformationthrougheducational campaigns to help consumers make rational decisions.● For example, there are advertisements on the actual benefits of pre-school education.● Assuming that social optimal level of information is provided to parents to learn about the fullbenefit, the demand for pre-school education would increase as illustrated by the shift fromMPBPerceivedtoMPBActual (Figure3) thus achievingallocativeefficiencywheredeadweightlossiseliminated. Figure 3: Imperfect information Evaluation of benefit 2 ● For somelower-incomefamily, whileparents areinformedof thetruebenefits andtheparentsarewilling to send their child to pre-school, but they might be unable to afford the school fees. Benefit 3 Reduce inequity from allocating resources to pre-school education market ● Inequalityinfamilyfinancial resources contributetoachievement gaps that manifest veryearlyinachild’s life. Pre-school educationis essential toadequatelypreparethestudents for primaryschoolandbringingabout moreequal opportunities inthechild’sfuture/long-termdevelopments(tertiaryeducation and career opportunities). Costs of allocating resources to pre-school education ● Thecosts incurredbythegovernment frominterveninginthepre-schooleducationmarketincludesthe costs of subsidy and the construction fees are incurred from building the pre-school centres. Constraints facedbygovernment indecidingwhethertointerveneandtheunintendedconsequencesofgovernment’s intervention

● Land constraints – Land scarcity has been a perennial issueinSingapore. Government has variousplans to use the limited land for developments of pre-school centres, elderlycarecentres andforbusinesses. Evaluative conclusion ● For Singapore, the most important factor that Singapore government should consider in theirdecision to intervene in the pre-school education market should be the extent of thebenefit andcosts.● Thegovernmentshouldallocateresourcestopre-schooleducationifthebenefitsoutweighthecostsof doing so.● Secondly, the decision to allocate resources to pre-school education could also depend on thepriority of the government.

Marking Scheme Levels Descriptors High L3 18 - 20 For an answer that demonstrates knowledge, understanding, application andanalysis: EXCELLENT breadth that considers the following economic concepts inexplainingmultipleandbalancedperspectives,viewpoints,relationshipsandfactors. ALL points chosen should be of relevance and significance inanswering the question. EXCELLENT depth in economic analysis that reflects the following in ALLexplanations.✔ Accurateuseof economic concepts, clear elaborationandpreciseuseofeconomic terminologies, language and phrasing. The answer should also be supported by: Well-labelledandwell-referredtodiagram(s)/tool(s)ofanalysisdrawnwithprecision (where appropriate). Relevant examples and accurate use of facts. Logical structure Low L3 15 - 17 For an answer that demonstrates knowledge, understanding, application andanalysis: At least VERY GOOD breadth that considers the following economicconcepts in explaining multiple and balanced perspectives, viewpoints,relationships and factors. MOST points chosenshouldbeof relevanceandsignificancein answering the question. At least VERYGOODdepthineconomic analysis that reflects thefollowingin MOST explanations. Accurate use of economic concepts, clear elaboration, and precise useofeconomic terminologies, language and phrasing. The answer should also be supported by: Well-labelledandwell-referredtodiagram(s)/tool(s)ofanalysisdrawnwithprecision (where appropriate). Relevant example(s) and accurate use of facts. Logical structure.

High L2 12 - 14 For an answer that demonstrates knowledge and understanding but lacksapplication and analysis: At least GOODbreadththat considersthefollowingeconomicconceptsin explaining multiple and balanced perspectives, viewpoints,relationships and factors. MOST points chosen shouldbeof relevanceandsignificancein answering the question. At least GOODdepthineconomic analysis that reflectsthefollowinginMOST explanations. Accurate useof economic concepts, clear elaboration, andpreciseuseof economic terminologies, language and phrasing. The answer should also be supported by: Diagram(s) / Tool(s) of analysis that maynot bewell-labelled, maynotbe well-referred to and may not be drawn with precis