AJC H2 ECONS P1 Answer

2018 JC2 H2 Economics Preliminary Examination – Sample Answers Anderson Junior College Economics Department Page 1 Anderson Junior College JC2 2018 H2 Economics Preliminary Examination Case Study Question 1 – Aging population: Burden or opportunity? a From Extract 1, Identify and explain a factor that could be responsible for the upward trend in Japan’s health spending shown in Figure 1. Aging population (Ext 1)  increase in demand  increase in P and Q  increase in spending [2] b With reference to data, discuss the likely effects of a shrinking workforce in Japan and technological advancement on the robotics market. Shrinking workforce (Ext 1)  fall in supply of labour  wages increase Thus demand for robotics which are substitute for labour will increase (Ext 4: funding development of elder care robots to help fill a projected shortfall of specialised workers)  shift DD curve to the right Tech advancement  fall in unit COP  more profitable  increase in SS  shift SS curve to the right P1: increase in DD > increase in SS  equilibrium P and Q increase It takes time to develop and create robotics suitable for different types of healthcare services, coupled with the aging population. It is likely that increase in demand will outweigh the increase in supply in the SR. Hence, equilibrium price and quantity will increase (Fig 1). P2: increase in DD < increase in SS  equilibrium P falls, Q increases Once the technology is fully developed, they may be able to produce more robotics. Hence it is likely that increase in supply will outweigh the increase in demand in the LR. Hence, equilibrium price will decrease while equilibrium quantity will increase (Fig 2). [8]

2018 JC2 H2 Economics Preliminary Examination – Sample Answers Anderson Junior College Economics Department Page 2 Evaluation Ext 2: With the rapidly aging population and, as the robotics are seen as a close substitute to the workers, demand for the robotics will increase significantly. However, given the exis ting technology, supply of robotics is unlikely to increase significantly. Hence the increase in demand is still likely to persist and outweigh the increase in supply. Hence, equilibrium price and quantity will increase. Level Knowledge, Application, Understanding and Analysis Marks L2 An answer that clearly discusses the different impact on the robotics market 4 – 6 L1 An answer that is descriptive without much economic framework linking the factors to the robotics market 1 – 3 Evaluative comment Up to 2 further marks for an evaluative appraisal of possibly which factor is the most significant and hence eventual impact on the market c Explain two possible changes that may occur to the demand curve of healthcare workers given the introduction of robots. Robots are deemed as substitutes for healthcare workers (Ext 4: development of elder care robots to help fill a projected shortfall of 380,000 specialised workers)  increase in supply of robots causes fall in price of robots  increase in quantity demanded of the robots  fall in demand for the healthcare workers  leftward shift of the demand curve. With the introduction of robots, there are now more substitutes available, therefore demand for healthcare workers also becomes more price elastic/less price inelastic  demand curve becomes gentler / less steep. [4] d What is the main characteristic of a normative economic statement? Identify one example of such a statement from Extract 3. A normative economic statement expr esses value judgements (opinions) about economic fairness or what the outcome of the economy and policy measure(s) ought to be. [2]

2018 JC2 H2 Economics Preliminary Examination – Sample Answers Anderson Junior College Economics Department Page 3 One example is “So, Japan’s demography, paradoxically, is not an onus, but a bonus”. Other accepted statements: - “Prime Minister Shinzo Abe said Japan’s aging, shrinking population was not a burden, but an incentive to boost productivity through innovations.” - “ I have absolutely no worries about Japan’s demography.” e Is a publicly funded nursing facility an example of a public good? Provide reasons for your answer. Public goods exhibit both characteristics of non-excludability (NE) and non- rivalry (NR) in consumption. Excludability  an elderly’s consumption of the nursing facility is made contingent on payment, while other individuals who do not pay for the nursing facility can be effectively excluded from enjoying the benefits  can exclude non-payer from staying in the public nursing home AND Rivalry in consumption  the consumption of the nursing facility by one elderly reduces the amount of benefit that is available to others. Concluding statement  since publicly funded nursing facilities do not fulfil characteristics of NE and NR, they are not an example of public good. [4] f Discuss the factors that the Japanese government should consider in allocating resources towards the development of elder care robots. The objective of a government is to maximise social welfare, which is achieved when production takes place up to the quantity where marginal social benefits (MSB) is equal to marginal social cost (MSC). In deciding how to allocate its resources towards development of robots for elder care, the Japanese government would consider various factors such as its constraints, the benefits and costs from allocating additional units, as well as gather information and consider the perspectives of relevant stakeholders. One factor that the Japanese government needs to consider is the constraints it faces, as the constraints will limit the available choices and their associated benefits and costs. These constraints include the budget constraint and the priority of economic aims. For example, if Japan is facing budget deficit, the amount of resources that they can allocate to the development of elder care robots will be limited. Moreover, it also depends if they have other pressing issue such as worsening of growth which would require them to allocate resources towards, hence fewer resources available for the development of elder care robots. Another factor that the Japanese government needs to consider will be the benefits from the development of elder care robots such as achieving efficiency and equity in the economy. Positive externality could arise due to the consumption of elder care robots such as easing the manpower shortage and promoting higher rates of economic growth as the younger generation would be more able to focus better at work and be more productive once their parents are cared for by these robots, (Ext 4: “robotics expertise to help [10]

2018 JC2 H2 Economics Preliminary Examination – Sample Answers Anderson Junior College Economics Department Page 4 cope), resulting in under-consumption of elder care robots. Hence, allocating recourse to the development of elder care robots would help to achieve allocative efficiency. In addition, the development of elder care robots by the government would also ensure that people who require it will be able to access it such as the lower-income elderly, hence achieving equity. Another factor that the Japanese government needs to consider will be the benefits from the development of elder care robots such as achieving economic growth. The government coul d generate export revenue from the sale of elder care robots (Ext 4: potentially lucrative export industry). With increasing export revenue, net exports will increase, ceteris paribus. Hence aggregate demand will increase, leading to multiplied increase in real national income, hence achieving actual growth. Another factor that the Japanese government needs to consider will be the costs from the development of elder care robots