NJC_H2_ECONS_P2_Answers

National Junior College Economics Department Preliminary Examinations 2017 Paper 2 Answer Booklet Senior High 2 H2 Economics (Syllabus 9757)

 NJC 2017 9757/02/A/17 1 Examiners’ Report for 2017 H2 Economics Preliminary Examinations- Paper 2 1 Mobile devices such as smartphones are available in different models. The recovery of the global econo my and the rise in labour cost are likely to affect the sales of various models of smartphones in different ways. (a) Explain how elasticities of demand can assist in un derstanding the effect of each of these changes on the sales volume of different models of smartphones. [10] (b) Assess the likely combined impact of both of these changes on the revenue earned from the sale of different models of smartphones. [15] Suggested Answer: Introduction • Define sales volume. • The recovery of the global economy and rise in labo ur would cause changes in the market equilibrium, a ffecting both equilibrium price and quantity. • The use of price elasticity of demand (PED) and inc ome elasticity of demand (YED) can be used to illus trate the extent of change in the market for smartphones. Body 1: Use of PED concpet Identify and explain the supply factor that would cause the change in quantity of smartphones • Supply Factor: Rise in labour cost → increase in cost of produc)on fall in quantity supplied at every price levels supply decreases → equilibrium quan)ty decreases ( movement along the demand curve), hence fall in sal es volume • However, the extent of the fall in sales volume dep ends on price elasticity of demand for different mo dels of smartphones • Define PED • The magnitude of the PED value tells us the type of demand the good has, i.e.: demand is price elastic (PED>1) or price inelastic (PED<1) • Different models of smartphone have different PED value. • Smartphone models such as iPhone 7 Plus, Samsung Galaxy S7 are more luxurious. • Demand for these smartphones are relatively price elastic with |PED| > 1. • Hence given a rise in price quantity demanded for l uxury smartphone models will decrease more than proportionately. • Sales volume thus decreases by a larger extent, from Q 0 to Q 1. • Smartphone models includes basic specifications. • Demand for these smartphones are relatively price inelastic with |PED| < 1. • Hence given a rise in price, quantity demanded for smartphones decreases less than proportionately sales volume thus decreases.

 NJC 2017 9757/02/A/17 2 Body 2: Use of YED concept Identify and explain the demand factor that would cause the change in quantity of smartphones • Rise in income, demand can increase or decrease depending on the sign of YED • For normal smartphones demand will increase given an increase in income level • Smartphones that are seen as necessities (income-in elastic), YED < 1, demand will increase