PJC_H2_ECONS_P1_Q1

PIONEER JUNIOR COLLEGE (E CONOMICS DEPARTMENT ) 1 PJC 2017 H2 Prelim Exam Paper 1 Question 1: Pharmaceutical Industry and Healthcare (a) (i) Using Table 1, compare the trends of total health spending per capita and government spending on health per capita in Singapore between 2010 and 2014. [2] Suggested answer : Both the total health spending per capita and government spending on health per capita increased between 2010 and 2014. Government spending on health per capita rose at a faster rate than the increase in total health spending per capita. Other accepted answer: Total health spending per capita is increasing at a decreasing rate while government spending on health per capita is increasing at an increasing rate. (a) (ii) Identify a reason for the difference in the trends observed in (a)(i). [1 ] Suggested answer : Singapore is facing an ageing population and govern ment would be giving more subsidies for aged patients, resulting in faster increase in government spending on health per capita than total health spending per capita. OR With the introduction of MediShield Life, governmen t would be giving more subsidies for people to purchase it, resulting in faster increase in government spending on health per capita than total health spending per capita. (b) Explain the type of market structure that pharmaceutical companies are likely to operate in. [2] Suggested answer : The market structure that pharmaceutical companies are likely to operate in is oligopoly. In the pharmaceutical industry, there are high barr iers to entry such as high innovation cost/ high cost of developing new medicine, ability to reap economies of scale (EOS) and the existence of patents. These high barriers to en try could result in few large firms producing a drug with large market share. OR The mutual interdependence between the pharmaceutical companies results in collusion or mergers to reduce competition and uncertainty. Thes e are the typical behaviour in an oligopolistic market structure. (c) Explain whether the high price of pharmaceutical drug is caused by demand or supply factors. [4] Suggested answer : According to extract 1, the high price of pharmaceu tical drug could be caused by high research and development (R&D) cost which is a supp ly factor. High R&D cost raise cost of production which shifts supply curve leftwards, leading to increase in price. Pharmaceutical companies also market/advertise thei r drugs to ensure demand. Such marketing influences taste and preferences which in creases demand, shifting demand

PIONEER JUNIOR COLLEGE (E CONOMICS DEPARTMENT ) 2 curve rightwards, leading to increase in price. Demand factor likely to be the main factor causing high price of pharmaceutical drug as the cost of innovation is mainly fixed cost rather than variable cost, thus supply does not rise by l