Download FAST ANSWErS 2 Term1 TEST

FAST ANSWErS 2 Term1 TEST
1. From the passage above, calculate the PED of HDB flats
in Singapore. (2)
PED = %change in quantity demanded/%
change in price (1)
PED of HDB flat = 2/10= 0.2
This implies that HDB flats are
price inelastic in demand
2. Using demand and supply diagram(s), explain the
relationship between sand and HDB housing (5)
The demand for sand is derived from the increase in demand for HDB
housing. As such they have a derived demand relationship. (1)
P
Sand
P
S
HDB
S
(1 mark for each
diagram)
D1
D3
D2
DO
Q
Q
When there is an increase in demand for HDB flats, more sand will be
needed to meet the increase in demand for HDB flats? As such when there
is a shift in the demand for flats from D0 to D1 there will be a corresponding
shift of the demand curve for sand to the right thereby illustrating the
derived demand relation of sand to HDB flats.
3. With reference to your answer in question, explain how
quantity demanded would change if there was further
increase in price of HDB flats by another 5%
As calculated from Q1, it can be seen that the price elasticity
of demand for HDB flats is inelastic (1) as having a roof over
ones head is a basic need (a neccesity)(1). As such, the
government can increase the price of HDB flats by another
5% but because it is a necessity, the quantity demanded will
decrease by a lesser proportion that the price increase. As
such quantity demand will not change much given the
increase in price. (1)
4. Explain , using a demand and supply diagram, why rising prices
of HDB flats will be beneficial for the government as the ultimate
producer of flats in Singapore (5)
As the price elasticity of demand
for flat is inelastic, an increase in
the price of the flat is met by a
less than proportionate increase
in quantity demanded of flats.
(1)
P
Q
Diagram (2 marks)
From the diagram, with an
increase in price from P0 to P1, it
can be seen that the revenue lost
for the HDB before price increase
is less than the revenue gained
after the price increase (1).
As such, the HDB benefits on the
overall with greater revenues
when they increase the price of
flats. (1)
5 (additional question – optional). Using a demand and
supply diagram, explain how rising cost of sand has
cause prices of HDB flat prices to increase as well.(5)
Sand is a factor of production of HDB flats (1) . As such when the price of
sand increases, P will increase the cost of production (1). This means that
government cannot produce as much flats as they used to and will cause
the supply curve for HDB flats to shift leftward or upwards from S0 to S1.
From the diagram, it can be seen that the equilibrium price has shifted from
P0 to P1 ultimately resulting in higher prices. (2)