Question on H2 Econs, DD & SS

Lord dejavu SG

Hi all. I got this essay question:

Using demand & supply analysis, explain how the

recession and the opening of more supermarket

outlets will affect the market for inferior goods such

as house brands. [10]

So in my intro, i defined market equilibrium and DD & SS as well as my direction of the essay which is to see how a change in DD & SS will affect the equilibrium price and quantity.

Then in my body, i talk about the price adjustment process for both DD & SS. Eg in a recession, purchasing power of consumers fall, the DD for inferior goods rises. DD curve shift to the left, upward pressure on price…..

So my question is, after talking about the increase in both DD & SS, how do i know which one increase more? I’m thinking DD increase more than SS as the recession affects all the citizens in the country. For SS, the increase in number of sellers of inferior goods is relatively lesser compared to the increase in DD. Can i argue it like that?

Thanks.

tut4nkh4m3n SG

it's entirely up to you how you want to argue as long as it makes sense. for me, i'd leave the argument about whether price increases/decreases for the later part under evaluation. cos that can go either way.

and (i think it's your typo) when DD for inferior goods increase, the curve shifts right. bring YED in too perhaps?

absol SG

ya ur dd for inferior gd increase, dd curve should shift right. anyway, the 2nd part of e qns is it abt elasticity? cuz 10 marks only and have to write about 2 points...my teacher said for this kind of qns u might want to talk about how the eqm price is determined(if there are not much stuff to talk about).

because if 2nd part of qns is on elasticity, then u can jus conclude that, to find out more accurately how the price will change, we need to consider the concepts of elasticity and link to ur 2nd part...

i dont think the main point of this kind of essay is whether dd or ss shifts more...its more about how P, Q and TR changes.

Z een SG

I thought in order to determine how P and Q changes, we have to justify whether the dd or ss shifts more?

Because if dd shifts more than ss, then price will increase (as compared to initial equilibrium price), then if ss shifts more than dd, price will decrease.

In this case, i think ss will increase more than dd. Because inferior gds are price inelastic, so a change in income (resulting from recession) will result in a small increase in qty for the inferior gd (YED concept). Its jus what i think, not sure if its correct.

I think it is also acceptable to say dd shifts more than ss, but i think u can say this is only applicable to developed countries. Bcos we use hand lotions than soap and we switch back to soap during recession? Whereas for developing countries, ss will increase more than dd, due to above reason in the previous paragraph. Then say that a change in income impacts different income groups differently? I also think have to see what part b is about then u choose the part that can link n justify ur part b essay. Hiya, i dunno la, hate econs!

Oh ya, i dun think u can say that dd increase more than ss becos it affects all citizens and bcos ss only affects a comparatively smaller population cos i used the same argument for my prelims and i got a big question mark on my script. I think u have to use economic analysis.

absol SG

hmm i dunno. ts put 2nd part of qns we see see? lol.

Lord dejavu SG

2nd part of the question:

Sheng Siong and NTUC Fairprice are opening more outlets and extending their range of house brands in the current recession. Both are offering weekly discounts. Sheng Siong, the smaller chain, is sponsoring TV shows as well as investing0 in a S$60 million warehouse facility.

1b) Discuss the relevance of income elasticity of demand and cross elasticity of demand in explaining Sheng Siong’s business strategies. [15]

Lord dejavu SG

ya ur dd for inferior gd increase, dd curve should shift right. anyway, the 2nd part of e qns is it abt elasticity? cuz 10 marks only and have to write about 2 points...my teacher said for this kind of qns u might want to talk about how the eqm price is determined(if there are not much stuff to talk about).

i dont think the main point of this kind of essay is whether dd or ss shifts more...its more about how P, Q and TR changes.

How IS eqm price determined? You mean to bring in mc = mr while mc is rising?

To find out how P & Q changes, we need to see how much DD & SS shift no? And why must talk about TR?

thanks (:

deepak.c SG

Advertising and promotions on elasticity of demand.

tut4nkh4m3n SG

extent of shifts in DD and SS determine price. use diagram to illustrate.

MC/MR is used for analysis of firms, so don't bring it in here. also no need to talk abt TR cos the question is on 'market of inferior gds'. unless you want to say due to firms being able to increase TR cos of... (shows why it's possible) ...then that's fine but it's a bit much for 10 marks imo.

Lin.thitlwin SG

Hi all

I wish to ask about a H1 A levels essay question 2009...the qns is as follows

thanks a lot for your response

tut4nkh4m3n SG

imo, the structure you mentioned is correct.

i wouldn't start by explaining how they work tho, i would go straight into saying why i support the view (your part 2) and then explain how it works there. but it doesn't really matter.

some evaluation (i think you might have missed out) on the CAUSE of the inflation. FP and MP are likely to be effective if inflation is DD-pull. but if it's cost-push inflation it needs a different policy, or imported cost-push inflation (for singapore) for example, exchange rate management is more effective.

next, anti-thesis, different situations call for different measurements (your part 3). i would mention more situations (e.g. financial crisis - aim for stable exchange rate, recession - higher economic growth and lower unemployment levels)

but what you did should be fine. how much is required is also dependent on the number of marks.

Lin.thitlwin SG

Oh..for my evaluation, I said that whether the policies should be used mainly to curb inflation depends on the stage of economic development of the nation concerned and the present situation. If the country's economic growth is too slow while inflation is not so pressing, the govenment may use the policies to acheive growth instead. Whereas, for nations which have acheived relatively high growth and are facing a pressing issue of high inflation may use the demand-management policies to contract the economy instead.

Anyway, may I know if you are an economics student or a teacher?

tut4nkh4m3n SG

i'm not a teacher.

for your 'EG too slow while inflation is not so pressing......' is basically saying whether the economy is near full employment or not. if it's near FE, then there's risk of DD-pull inflation, then you can say that using contractionary FP/MP is effective.

but as i've said earlier, CP inflation should be mentioned cos inflation is not always DD-pull. plus supply side policies should be suggested cos the question stated 'low and stable', suggesting a long-term thing, so bringing in outward AS shifts would be good.

but this question is not limited in scope, you can talk about a lot of things. suggestion of other policies not v impt.

Lin.thitlwin SG

I see. Thanks a lot for your answer, it really eased me at least.

Anyway, may I know which JC u r from?

Lin.thitlwin SG

sorry, one last question: For case-study, comparing trends by looking at the data, my teacher said that both differences and similarities must be brought up. However, in my A lvl case study, when they asked to compare the trend (2 marks), I could only spot the differences. Is it necessarily important for both differences and simliarities to be brought up?

Lin.thitlwin SG

Oh yah, and you said, this qns is not limited in scope..what other possible structures do you think can be adopted?...sry for asking too much

tut4nkh4m3n SG

Compare: similarity + difference

Describe: overall + refinement

Account: state trend then explain why it's such

basically that's it. if they asked you to compared, very likely there's sim and diff. but if you tried yr best and can only find sim (at least 2) then stating both is better than nothing...