Question 1
Note: For each sub-question of Question 1, your answer should not exceed 500 words excluding figures and tables.
(a) Conduct research into the private property market and the medical services market in Singapore. Analyse the relevant factors that affect the demand and the supply in these two markets. Assuming that both the demand and the supply increase in the two markets, predict the changes in the price and quantity in both markets and explain your answers with suitable market diagrams. Your market diagrams need to reflect the specific price elasticity of demand and supply in the private property market and the medical services market in Singapore.
(40 marks)
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(b) A retailer sells three products, A, B and C. The average income of consumers and the corresponding quantities demanded for each product before and after the income change are given in the table below.
| Product | A | B | C |
|---|---|---|---|
| Initial Average Income |
$2,800 | $2,800 | $2,800 |
| Initial Quantity Demanded |
25 | 50 | 100 |
| New Average Income |
$3,000 | $3,000 | $3,000 |
| New Quantity Demanded |
28 | 45 | 102 |
Calculate the income elasticity of demand for three products A, B and C by employing the mid-point formula and classify the three products based on the income elasticity of demand. Explain the impact on the revenue of the retailer from the 3 products if there is a decrease in the average income of people. Hence, discuss how the knowledge of the income elasticity of demand can be useful to producers.
(30 marks)
(c) Due to a rapid increase in diabetic patients, the government wishes to discourage the consumption of sugar with suitable policies. One policy is to impose a tax on the producers of sugar while the other policy is to implement a price floor on sugar. Compare and contrast the price and quantity effects on both policies and appraise the welfare effects of both policies on the sugar market, assuming that both policies resulted in the same quantity of sugar consumed. Support your answers with a suitable sugar market diagram.
(30 marks)
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