h2 revision lecture

Lecture 3H2 Revision Package

2013Essay Q2

2) Singapore was listed as the world's most affluent country in terms of property and wealth. Singapore's total fertility rate fell from 1.28 in 2008 to 1.22 in 2009 and 1.16 in 2010.

Using demand and supply analysis, discuss the likely effects of the above situation on product and service markets relating to preschool children. [25]


5Cs to AContent Demand & Supply

Market

Command DiscussCondition Likely effectsContext Product & Service market

Preschool Children

Compare N.A

Singapore was listed as the world's most affluent country in terms of property and wealth. Singapore's total fertility rate fell from 1.28 in 2008 to 1.22 in 2009 and 1.16 in 2010.

Source: Channel News Asia, 18 January 2011


Discuss what is possible to happen to price and quantity of goods and services for 3 to 5 years old

kids using demand and supply factors

Introduction

Body

Conclusion

Demand & Supply for service market + elasticity = P & Q

Evaluationwherever

appropriate

+ elasticity = P & QDemand & Supply for product market

Introduction

• most affluent country income level↑

• low fertility rate due to change in people’s mind-set

• affects dd & ss of goods and services for preschool children who are about 3 to 5 years old

• dd & ss affects price and quantity

QuestionSingapore was listed as the world's most affluent country in terms of property and wealth. Singapore's total fertility rate fell from 1.28 in 2008 to 1.22 in 2009 and 1.16 in 2010.


Introduction

Body

Conclusion


Evaluationwherever

appropriate


Body – Service Market Demand for childcare services might• ↓ smaller total number of preschool children

• demand may also ↑ due to changing lifestyle dual income families, does not stay with parents engage childcare services

• ↑ in dd > ↓ in dd due to (i) high need for working parents(ii) fall in number of Singaporean children offset by expatriates

who may bring over their children

• Overall, demand should ↑

Price Elasticity of Supply of childcare services• Supply is price inelastic caregivers and

educators take time to learn specific skills and qualifications in the short run, lack of spare capacity

Body – Service Market

• dd ↑ along price inelastic supply curve, Si from D0 to D1 Price ↑ from Po to P1 Equilibrium quantity ↑ less than proportionately from Qo to Q1 for the market of childcare services.

0

P2

Q2

P1

P0

Q0 Q1

D1D0

Se

Si

Quantity of Childcare service

Price of Childcare service


Supply for childcare services might• ↑ due to the potential profits that can be

generated more firms enter supply ↑


Price Elasticity of Demand for childcare services • Demand is price inelastic (i) high need (ii) a lack of close substitutes


• ss ↑ along price inelastic demand curve, Di from S0 to S1 Price ↓ from Po to P1 Equilibrium quantity ↑ less than proportionately from Qo to Q1 for the market of childcare service

Di

0

P2

Q2

P0

P1

Q1Q0

De

S1S0




• With demand ↑ and supply ↑

• Equilibrium quantity will ↑

• change in price depends on extent of change of dd & ss

• ↑ dd > ↑ supply

• need time to build childcare services


• combined effects of ↑ dd > ↑ in supply where both demand and supply are price inelastic causes price of childcare service to ↑ from Po to P1 while equilibrium quantity increase from Qo to Q1 in the market for childcare services

D1D0

S1S0

0

P0

P1

Q1Q0




Introduction

Body

Conclusion


Evaluationwherever

appropriate


Demand for preschool children’s recreational services • ↑ affluence of parents ↑ income level of

household

• ↑ purchasing power ↑ willingness and ability to buy normal goods and services such as children’s recreational programs

• demand for recreational services such as children play gyms ↑

Body – Service Market 2

Income elasticity of demand for preschool children's’ recreational services • Demand tends to be more income inelastic for the

higher-income parents takes up a relatively small portion of the household income

• Demand tends to be more income elastic for the lower-income parents takes up a relatively higher portion of the household income; and is not a necessity Nonetheless, ↑ in income ↑ purchasing power and demand for such normal goods


Income elasticity of demand for preschool children's’ recreational services • Overall, demand likely to ↑ (i) most household ↑ level of income compared to

past (ii) lesser children per household parents ‘invest’

more in their kids


Price Elasticity of Supply for preschool children’s recreational services • Supply is price inelastic such facilities need

time to build supply is limited/fixed in short run


demand ↑ along price inelastic supply curve Price ↑ from Po to P1 Equilibrium quantity ↑ from Qo to Q1 for the market of preschool children’s recreational services

D1D00

P0

P1

Q1Q0 Quantity of recreational services

Price of recreational services


Introduction

Body

Conclusion


Evaluationwherever

appropriate


Demand for Toys (Traditional)• Even though ↑ in income dd for traditional toys

might not ↑ significantly due to change in taste and preferences

Price Elasticity Supply for Toys (Traditional)• Supply becomes more price elastic more space

capacity exists

Body – Product Market

Supply for Toys (Traditional)• given the changing demand less incentive for

producers to produce Supply for traditional toys ↓

Price Elasticity Demand for Toys (Traditional)• Demand becomes more price elastic need

for these toys ↓.


• slight ↑ in demand and huge ↓ in supply both along price elastic supply and demand respectively results in increase significant ↑ price of traditional toys from Po to P1 and with significant ↓ in equilibrium quantity from Qo to Q1 in the market for traditional toys

D1D0

S1

S0

0

P0

P1

Q1 Q0 Quantity of traditional toys

Price of Traditional Toys


Demand for Toys (modern/electronic)• likely to ↑ significantly due to parents’ +

children’s changing taste and preferences

Price Elasticity Supply for Toys (modern/electronic)• price elastic able to alter level of stock via

production level


Supply for Toys (modern/electronic)• technological advancement high-tech toys

production less costly COP ↓ Supply ↑

Price Elasticity Demand for Toys (modern/electronic)• Demand becomes more price inelastic ↑ in household level, these toys takes up smaller proportion of income


• ↑ demand likely > ↑ supply (i) Taste and preferences changes

quickly(ii) While ss still takes some time for

the toy to be produced


• ↑ dd in high tech toys market along price elastic supply curve with ↑ SS along price inelastic demand curve insignificant ↓ in price from Po to P1 and significant ↑ in equilibrium quantity from Qo to Q1 for market of high-tech toys

D1D0

S1

S0

0

P0P1

Q1Q0 Quantity of high tech toys

Price of high tech toys


Introduction

Body

Conclusion


Evaluationwherever

appropriate


Conclusion• although number of preschool children ↓ due to

lower fertility rate related product and service markets for preschool children likely to ↑ parents have greater need and better ability to afford for them

• The market that is affected most in Singapore is likely to be childcare services due to change in family structure

• Indeed, number of childcare centers in Singapore has ↑ tremendously in the recent years in order to meet the growing demand from about 1 in 5 children attending preschool 4 years ago as compared to 1 in 3 this year.

Lecture 4H2 Revision Package

2013Essay Q3

3. The National Health Survey conducted in 2010 indicated an alarming increase in the percentage of Singaporeans smoking cigarettes. While the number of adult smoker has increased, of greater concern is the prevalence of smoking amongst young Singaporeans aged 18 to 29.

(a) Analyse why the Singapore government should intervene in the cigarette market. [10]

3(a) Analyse why the Singapore government should intervene in the cigarette market. [10]

5Cs to ACommand Analyse why

Content Market FailureContext Cigarette market in SingaporeCondition N.ACompare N.A

Introduction

Body

Conclusion

What is happening in the question given?

Why is there a need for government to intervene?

Introduction

• Cigarettes are demerit goods socially undesirable generate negative externalities

• In free market overconsumption of cigarettes market failure

• government should intervene achieve socially desirable level

Question 3 (a)The National Health Survey conducted in 2010 indicated an alarming increase in the percentage of Singaporeans smoking cigarettes. While the number of adult smoker has increased, of greater concern is the prevalence of smoking amongst young Singaporeans aged 18 to 29.

Analyse why the Singapore government should intervene in the cigarette market. [10]

Introduction

Body

Conclusion

What is happening in the question given?

Why is there a need for government to intervene?

• Define and explain negative externality in the given context• smoker only considers MPB like the pleasure and stress

relief associated with smoking; and MPC such as costs of purchasing cigarettes

• Assuming no positive externality MPB = MSB

Body

Smoking results in negative externalities, which are third-party costs borne by individuals who are not consuming cigarettes ; people who are around smoker and subjected to second-hand smoke

Body

• free market equilibrium MPC=MPB, Qm • However, socially optimal level MSB=MSC at Qs

• Divergence due to negative externality = MEC

• Examples of MEC inflicted on people around smoker who are subjected to second-hand smoke includes higher medical costs , lower productivity level etc…

• Since Qm > Qs overconsumption of cigarettes resources not allocated efficiently

• overconsumption results in deadweight loss shaded triangle ABC

• society’s welfare can increased when Government intervene reallocate resources away to reduce the consumption of cigarettes till Qs

• to correct market failure caused by the negative externalities.

Body

• Imperfect info market failure smokers lack of info to consequences of smoking underestimate private cost overconsume

• Overestimated benefit of smoking think smoking is well-accepted, and “cool” overconsume

• These problems prominent in young smokers

• government intervention necessary to correct market failure caused by imperfect information

Body

• misallocation of resources presence of negative externalities & imperfect info market failure need government intervention in market for cigarettes

Conclusion

3. The National Health Survey conducted in 2010 indicated an alarming increase in the percentage of Singaporeans smoking cigarettes. While the number of adult smoker has increased, of greater concern is the prevalence of smoking amongst young Singaporeans aged 18 to 29.

(a) Analyse why the Singapore government should intervene in the cigarette market. [10]

(b) Discuss the policies adopted by the Singapore government in tackling the above problem. [15]

3(b) Discuss the policies adopted by the Singapore government in tackling the above problem. [15]

5Cs to ACommand Discuss

Content Policies / negative externalitiesContext Cigarette market in SingaporeCondition N.ACompare N.A

Introduction

Body

Conclusion

3 Body Paragraphs – 3 Policies

State and Explain each policyHow can it solve/reduce the problem?What are the limitations?

Introduction

• market failure occurs in the market for cigarettes

• justified for Singapore government to intervene

taxes, regulation and legislation, public education.

• to reduce smoking to a level that is socially optimal.

Question 3 (b)The National Health Survey conducted in 2010 indicated an alarming increase in the percentage of Singaporeans smoking cigarettes. While the number of adult smoker has increased, of greater concern is the prevalence of smoking amongst young Singaporeans aged 18 to 29. .

Discuss the policies adopted by the Singapore government in tackling the above problem. [15]

• tax on cigarettes ↑ price of cigarettes makes cigarettes MPC curve leftwards towards the MSC, to reach Qs

Body

Costs and Benefits

MPC

MSC = MPC + MEC

Qs Qm

0

C

BA

Tax

Quantity of Cigarettes

MPB = MSB

MPC’

• However, difficult to determine size of tax due to imperfect information

• Demand for cigarettes are price inelastic for habitual smokers price ↑ ineffective to reduce consumption

• But, tax may be more effective on the young as demand more price elastic since makes up a significant proportion of their allowance.

Body

• Secondly, regulation and legislation advertisements prohibited, banning of smoking in public areas

• For the younger Singaporeans banning of sale to individuals below 18 years old

• These regulation aid reduction of consumption of cigarettes to socially optimal level.

Body

• Difficult to monitor

• To ensure people abide high cost of monitoring involved incur high opportunity cost may involve higher tax rates to support these checks

Body

• Thirdly, public education e.g. anti-smoking campaigns in public and schools to target different groups, advertisements to inform consequences, warning labels on cigarette boxes

• addresses the market failure due to imperfect information• But, public education effective only in long run• Not easy to change mind-set and habit

Body

• All policies have limitations can use a mix of policies e.g. tax revenue from cigarettes industry to fund the monitoring system and public education

• This way, also “curbs” problem in short and long run

Conclusion

h2 revision lecture

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