HCI_H2_ECONS_Case_Study_Q1

C2 H2 Economics Prelims 2015 Case Study Question 1 and suggested answers (a) With reference to Tables 1 and 2, use a relevant elasticity of demand concept to explain the likely reason for the changes in cargo tonnage passing through Singapore. [4]  Changes in Container tonnage into Singapore is larger than the changes in world’s GDP and generally it is positively related. (1m)  Evidence: the cargo carried are luxury goods e.g. cars, furniture as well as raw materials used as factors of production in goods which are likely to be luxury goods.(1m)  Thus the income elasticity of demand would be positive and greater than one.(1m)  As global economic activities increases, world income increases leading to higher demand for goods, thus the derived demand for transportation (shipping) increases leading to a rise in volume of cargo, c.p. (1m) Note: Normal good argument is acceptable too. Basic necessities argument should be used with the correct evidence e.g. with cars, to be acceptable. If candidate equate cargo tonnage as Singapore’s export cannot be accepted. If candidate quote uses only one year of evidence (assuming the rest are correct), max 3 marks. Candidates may analyse in terms of both increase of tonnage and increase of world GDP for the time period. Direct relationship – 1m YED > 0 or YED > 1 – 1m evidence (normal/luxury) – 1m Derived demand – 1m (b) Explain whether data suggest the melting Arctic ice cap has significantly affected the volume of cargo tonnage handled by Singapore between the period 2009 and 2012. [2]  The tonnage of ships using the NSR has grown tremendously (from 40,000 to 1.26million which is phenomenal at more than a 3000% growth. On the other hand, Singapore’s cargo tonnage increased by 14%.(1m)  However, the represent a small percent of the cargo traffic that passes through Singapore for both years.   The 1.26 m ton that passes through NSR is very insignificant (less than 1%) relative to total tonnage of 472 .3m and 560.9m handled by Singapore. (1m)  OR  However, it is not known if the cargo that passed through the NSR are those that were meant to go through Singapore. So it has no basis for comparison. Note: Candidates must ‘prove’ that they understand the significance of the data. They shouldn’t just state that melting Arctic ice cap has small significance for Singapore to obtain full marks. If candidate says NSR is insignificant and world income factor is more significant can give 2m. (c) How might shipping firms make the decision to take either the NSR or SSR route? [4] Cost reasons (2m) Higher variable costs:  Wages for sailors through NSR could be higher due to harsh climate they have endure.  Even during summer months, ice breaker ships are hired to guide the ship.

Lower variable costs: Lower fuel cost by taking the NSR. In Table 3, The benefit is in terms of cost savings where the fuel consumption can be reduced by 39% Revenue reasons