2022 JC2 H2 Prelim Essay Q1 (Suggested Answers).docx

1 The sales volume of electric cars increasesdespitetheriseinmaterial cost. Highpetrolprices also encouraged drivers to switch away from petrol cars to electric cars.Governments are considering providing subsidies to encourage adoption of electric cars. (a) Explainwhysalesvolumeofelectriccarsincreasesdespitetheriseinmaterial cost.[10] (b) Discuss whether providing subsidies is the best way to further increase salesvolume of electric cars. [15] Suggested Answers for 2022 H2 Prelim Exam – Essay Q1 Question Analysis (3’Cs’ Approach): Command ExplainMaking clear of causal links, supported by economic analysis.Economic analysis: Demand and supply framework Content Rise in material cost how does it affect the market of electric cars? Demand and Supply factors to explain why sales volume of electric carsincrease (Qty)What are demand and supply factors?What are the relevant elasticity factors?What framework and tools of economic analysis to use? Context No specific context Question Approach:This question tests on the demand and supply factorstoexplainwhysalesvolumeof electriccars increase despite rising material cost. Besides demand and supply factors, there can beapplication of elasticity concepts such as PES and XED. Suggested Answer: Introduction (Explain impact of rising material cost on Qty):● Sales volume of electric cars is also known as equilibrium quantity. It is determined bymarket forces such as demand and supply factors.● A rise in material cost such as car body parts can lead to a higher COP of electric cars,profitability falls, producers less willing and able to produce at every price level, hencesupply falls and quantity (sales volume) of electric cars will decrease, ceteris paribus.● However, there are other demand and supply factors changes that will leadtoincreaseinquantity of electric car (sales volume of electric cars). Body Paragraph 1: Increase in demand

● As mentioned in the preamble, factors like high prices of petrol andmoreawarenessthatelectriccarsgenerallyemit lesser pollutionduringitsusagecomparedtopetrol carsleadtoachangeintasteandpreferencestowardselectriccars. Sincepetrol carsrequiredtheuseof petrol tokeepthesecarsmoving, withtheriseinpetrol prices, it will leadtoanincreaseoverall cost to own a petrol car and also more pollutive when driven around, car ownersmight prefer switching over to electric cars that are more environmentally friendlyandnotsubjected to immediate changes in petrol prices. Demand for electric car is likely toincrease. The demand curve shifts rightwards from D1 to D1, Qty increases. Body Paragraph 2: Increase in supply● Overall supply of electric cars is likely to increase despite rising cop.● Due to improvement in technology such as better lithium-ion batteries and more energyefficient car batteries with breakthrough in research and development for electric carsproducers find it profitable producers are more willing and able to supply at all pricelevelssupply for electric car islikelytoincrease. Thesu