CJC Economics Department

Boot Camp for Price Mechanism and Its Applications 2023

Session Aims
1. Content Overview and Concept Reinforcement
2. Strategies to tackle common question types in this topic

In Theme 2, candidates examine how markets deal with the Central Economic Problem and how
decisions are made by economic agents in markets. Theme 2 aims to provide candidates with a
microeconomic analysis of how the price mechanism addresses the questions of what to produce, how
to produce and for whom to produce. In addition, candidates will examine the strategies of firms to
achieve their objectives and understand that while decisions made by consumers and producers are
necessary for the functioning of markets, these decisions may lead to inefficient and/or inequitable
outcomes. Candidates will be able to discuss how governments may intervene through public policy
measures to improve efficiency and equity, while recognising limitations, unintended consequences and
possible trade-offs of government intervention. This theme provides candidates with insights into real-
world microeconomic issues and opportunities to deepen economic reasoning, analysis and application
of microeconomic concepts to markets in Singapore and the global economy.
Price Mechanism and Its Applications (Recap Questions)
Students to do their own recap, you can answer these questions to track your learning.
1. Explain the rationing, signaling and incentive function of the price mechanism.
2. Define demand.
3. What are some differences between quantity demanded and demand?
4. What is derived demand? What is effective demand.
5. Explain how changes in various non-price determinants of demand affect demand
6. Define supply.
7. What are some differences between quantity supplied and supply?
8. Explain how changes in various non-price determinants of supply affect supply?
9. Explain how the market arrives at equilibrium.
10. There is an increase in demand, explain the price adjustment process.
11. There is an increase in supply, explain the price adjustment process.
12. Define consumer and producer surplus. (H2)
13. Explain how consumer surplus changes when supply increases. (H2)
14. Define PED, PES, YED (H2), XED (H2)
15. Write down the sign, formula and magnitude of all elasticity concepts in Question 14.
16. Explain what happens to TE/TR when:
a. Demand increases
b. Supply falls and PED<1
c. Supply falls and PED>1
17. Explain why price changes drastically when:
a. Demand increases and PES<1
b. Supply increases and PED<1
18. Explain when should a government tax a good with a price elastic demand and when
should a government tax a good with price inelastic demand?
19. Explain how a tax, subsidy, price ceiling, price floor and quota works to achieve its
objectives (with a diagram).
20. Explain at least 1 other strength and 2 limitations of each policy in Question 19.
21. Explain the effects of a minimum wage on the market.
22. Explain the reasons for wage differentials.
 Common Question Types (Suggested strategies)
Type 1: Price Adjustment Process Type 2: Impact on TE/TR (One/Mixed Markets)
[N2020] [N2016]

Explain why a shortage of water might still exist after a rise in
the price of water. [10]
[N2018]
Using demand and supply curves, explain why there is an
excess demand for tickets and why there is a high resale price.
[10]
Assess the likely effects of a rise in price of one brand of jeans
on the revenue earned by both retailers of that brand of jeans
and those who sell other related goods. [15]
[N2022]
With the aid of diagrams, explain why an increase in GST and a
fall in the incomes of many households are each expected to
cause a fall in expenditure of luxury goods. [15]
 Type 3: Price Fluctuations Type 4: CS/PS
[N2017] [N2017]

Using supply and demand analysis, explain why falling I/R and Discuss the policies that might be used by the Singapore
continued income growth may have led to a rapid rise in government to reduce residential property price inflation. [15]
residential property prices.
[N2020]

Discuss whether the government policy of increasing the price

of water is the only effective way to overcome future water
shortages. [15]
 Type 5: Government/Firms’ Strategies
N2017]

Discuss the policies that might be used by the Singapore government to reduce residential property price inflation. [15]

[N2020]

Discuss whether the government policy of increasing the price of water is the only effective way to overcome future water shortages.
[15]
 Type 6: Which are the most important factors?
[N2013 modified]

Discuss the different supply and demand factors and their likely importance in determining the changes in the property market in
Singapore [15]