Skill C - Application

This skill requires students’ ability to carefully identify relevant economic principles, which can be applied in a meaningful manner to provide a significant degree of understanding of an unfamiliar or novel economic issue. For example, the examiner may quiz students on the imperfect information issues associated with technically complex products such as electronic devices and simpler products such as canned drinks. The student should apply the concept of imperfect information about the detrimental effects of sugared drinks such as the negative effects on one’s own health, whereas asymmetric information can occur in electronic devices, whereby the seller may know more about the quality of the good than the buyer.

Some case study questions that test this skill are as follows:

Q1: Explain whether public housing fulfills the characteristics of a public good. (4m)

A1: A public good is a good which is both non-excludable and non-rivalrous, resulting in total market failure and non-provision of the good.

Non-excludable means it is impossible or highly prohibitive to exclude non-payers from enjoying the good once it’s produced, resulting in the free-rider problem. Public housing not a public good as it is excludable. An HDB flat-owner has to first purchase the flat before being given the key to his apartment. HDB can also evict those who fail to make payments for their apartments.

Non-rivalrous means consumption of the good by one individual does not diminish the quantity and quality enjoyed by others. Public housing is not a public good as it is rivalrous. When one HDB flat has been sold to a family, there is one less HDB flat available for other families. It is impossible to house the entire community in an HDB flat without creating intolerable overcrowding. Hence, public housing does not fulfil the characteristics of a public good.

Q2: With the aid of a diagram and extract, explain how the development of the integrated resort project will impact the market for food and beverages. (4m)

Extract (Development of Tourism in Singapore): The Singapore Tourism Board (STB) aims to triple tourism receipts to $30 billion and double visitor arrivals to 17 million visitors by 2015. It is working closely with international investors to develop new world-class attractions, and attract strategic business and leisure events to Singapore. Some of the exciting plans include the remaking of Orchard Road into one of the best shopping streets in the world, the development of Singapore Flyer (the world's largest observation wheel), the rejuvenation of Sentosa Island as a tropical island resort, the enhancement of major precincts like Singapore River, Chinatown and Little India, as well as the development of iconic Integrated Resorts. These attractions will widen our range of entertainment choices and enhance the vibrancy of the tourism industry.

A2: The development of Integrated Resorts (IR) will attract more F&B retailers to set up restaurants in Singapore to cater to the enlarging tourist market. Therefore the supply will rise. Further, successful publicity about the integrated resorts will attract more visitors to the IR. Both the rise in demand will reinforce the increase in the quantity from Q1 to Q2.

The effect on price is indeterminate and is dependent on the magnitude of demand and supply shifts. Given the limited retail retail space in Singapore and the efforts by Singapore Tourism Board to attract tourists, the increase in demand is likely to be greater than the increase in supply, resulting in a shortage at the initial price, P1, thereby leading to a rise in the price from P1 to P2.

For further questions on the requirements of the skill of Application for the A level examination, you may consult our Principal Economics Tutor, Mr Clive Foo during his economics tuition classes conducted @ Toa Payoh Branch.

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