HWA CHONG INSTITUTION

Year One H1 Economics 2017

Chapters #1-3: Introduction to Economics & Central Problem of Economics

Answers to BEE questions

1. Macro 3. Micro
2. Macro 4. Micro (property market)/ Macro
(if it’s linked to inflation)

1. Normative 3. Normative 5. Positive

2. Positive 4. Normative

Consider how the economic decision-making process can be used by consumers when
deciding whether to purchase a new car.

Considerations to make a decision

Consumer has limited budget to satisfy his / her unlimited material wants or needs. He or she
has to make a choice between spending the limited budget on a new car or a next best
alternative, for eg, down-payment for a new house.

Choice 1: Buying a new car

Benefits: Convenience brought about by driving of private car. Increase utility of consumers.

Monetary Cost: up-front cost of new car and COE. Future considerations include petrol cost,
ERP and maintenance cost.
Opportunity cost: Satisfaction and utility that a new HDB apartment would have brought if the
money was instead spend on paying the HDB down-payment.

Choice 2: Paying for the down-payment of a new HDB

Benefits: Satisfaction and utility brought about by a new HDB apartment.

Monetary Cost: Up-front cost of HDB down-payment. Future considerations may include
maintenance cost of HDB.

Opportunity cost: Satisfaction and utility that a new car would have brought if the money was
instead spend on paying for a new car.

Consumers need to gather information about the cost and benefit of the two choices, buying
either a new car or a new HDB (see above). These information may or may not be fully
available.
Government’s / social perspective: The government actively encourages house ownership
 HWA CHONG INSTITUTION
Year One H1 Economics 2017
Chapters #1-3: Introduction to Economics & Central Problem of Economics

through house grants, as it provides a social stake. On the other hand, ownership of private
cars is being discouraged through a series of policies such as ERP, COE and public
transports improvements. Consumers may or may not take government’s perspective into
consideration.

Outcomes from the decision

Buying a new car: increase transport convenience, leading to higher utility.

Building a new HDB apartment: increase utility from house ownership.

Anticipated unintended consequences:

Air pollution may increase if consumer choose to buy a new car.

Improved national sentiments if consumers choose to buy new HDB.

Unanticipated unintended consequences:

Any consideration that may have been left out due to imperfect information.

Go ahead with decision or review decision?

Labour: Singapore has a limited population size of 5.4 million people, of which only 3.5
million are part of the labour force. These workers are in great demand especially for highly
skilled jobs in the knowledge-based economy. This high demand is also addressed with
the influx of foreign talent. However, an increasing shortage of workers for low skilled jobs
has also led to a high dependence on foreign workers.

Capital: The stock of factories, machinery and equipment to support the production of
goods and services in Singapore was limited when it turned independent. However, with
rapid capital accumulation and foreign investment, Singapore has overtime become a
capital intensive economy.

Entrepreneurship: These are people who are willing risk-takers and possess the
knowledge to combine land, labour and capital to create new products and services. It is a
misnomer to say that there is a dearth of entrepreneurs in Spore. This is because the
Small and Medium Entreprise (aka SMEs) dominate the economic scene in Singapore in
sheer numbers. They make up about 90 percent of the establishments in the
manufacturing, commerce and service sectors employing 44 percent of the workers. It
would seem that there are many entrepreneurs in Singapore. The real issue regarding
SMEs is how to grow them to become large MNCs because in terms of value added and
direct exports, they are, however, much less significant as they account for only 24 percent
and 16 percent respectively when compared to the MNCs. Locally run SMEs that have
expanded to become MNCs include Sim Wong Hoo (founder of Creative Technology) and
Olivia Lum (founder of Hyflux Group).
 HWA CHONG INSTITUTION
Year One H1 Economics 2017
Chapters #1-3: Introduction to Economics & Central Problem of Economics

Option A: Going to the cinema is the next best alternative that is foregone. Hence
the opportunity would be the enjoyment she would have derived from a visit to the
cinema.

Draw and label an appropriate production possibility curve (PPC) for each of
the given scenarios below. Illustrate any changes in the curve.

Scenario 1: Singapore’s early economic development in the 1960’s

emphasised a great deal on investment. A large amount of funds was put to
use in increasing capital stock and investments especially in the
manufacturing sector. This allowed her to enjoy strong economic growth in
subsequent years.

In the 1960s, Singapore increased the level of investment i.e. quantity of capital
(refers to man-made aid for production such as machinery). The more capital
goods an economy can produce in one period, the more output these capital goods
can produce in the next period, thus increasing Singapore’s PPC in the next
period. This is shown through a shift of Singapore’s PPC from PPC1960 to PPC 1970.

Consumer
Goods

PPC 1970

PPC 1960

Capital
Goods
D
0

Draw and label an appropriate production possibility curve (PPC) for each of
the given scenarios below. Illustrate any changes in the curve.

Scenario 2: In 2004, the South Asian Tsunami destroyed nearly 60% of

fishing fleet and about 40% industrial infrastructure in Northern Sumatra.

South Asian Tsunami has destroyed capital goods (fishing fleet and industrial
infrastructure), which reduced the quantity of capital goods available in Singapore
in 2004.
This will decrease the amount of output produced in the next period, e.g. 2005,
illustrated by a leftward shift of PPC from PPC2004 to PPC2005.
 HWA CHONG INSTITUTION
Year One H1 Economics 2017
Chapters #1-3: Introduction to Economics & Central Problem of Economics

Consumer
Goods

PPC 2004

PPC 2005

Capital
Goods
0
D