(2018) A Level H2 Econs Essay Q3 Suggested Answer by Mr Eugene Toh (A Level Economics Tutor)

(2018) A Level H2 Econs Paper 2 Essay Q3

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3. The planned Cross Island MRT line is expected to cut through part of the Central Catchment Nature Reserve (CCNR). Conversationists have suggested an alternative route which would preserve the CCNR and be available for a much larger number of residents. However, the alternative route would lead to longer journey times, an increase in costs and private land purchases as well as a possibly more difficult engineering task.

(The original source for this question cannot be published due to copyright restrictions.)

(a) Explain what needs to be considered when a government makes rational spending decisions about such projects. [10]

Introduction 

  1. The government should consider  

  2. Different perspectives 

  3. Costs & benefits 

  4. Trade-offs 

  5. Unintended consequences 

 

What does it cost? 

  1. What is the total monetary cost associated with such a project 

  2. What is the expected opportunity cost associated with such a project (trade-off) 

 

Who benefits and how do they benefit? 

  1. Do consumers, producers & the government benefit from the project?  

  2. Are the benefits equitably distributed? 

  3. How will different parties benefit from such a project? 

 

What are potential unintended consequences 

  1. Presence of externalities such as environmental impacts  

(b) Discuss whether the government should proceed with the proposed alternative route for the Cross Island MRT. [15]

What is the total cost associated with alternative route? 

  1. The alternative route involves a higher cost of construction, how much higher will the higher construction costs be? 

  2. The alternative route also involves more land acquisition, which means that more residents will be inconvenienced from having to move. At the same time, the government will have to incur a higher cost to compensate these residents from having to move. 

  3. There is also a time cost to the alternative route as travel times will be increased from having to take a more circular route 

 

Who benefits and how do they benefit from the alternative route? 

  1. Construction companies would benefit from the bigger contract. Workers also benefit as there will be more job creation. A more significant increase in Government expenditure also has a stimulus effect on the economy —> increase AD more —> increase real national income —> higher economic growth 

  2. More residents benefit as the longer route will be able to potentially increase the number of stations and therefore areas served 

  3. Less environmental degradation and increased nature preservation for future generations —> increases standard of living 

 

Is the net benefit to society greater if we go ahead with the alternative route as opposed to the original route? 

  1. Are the increased construction costs & land acqusition compensation worthwhile considering the reduced impact to environmental degradation?  

  2. The longer travelling time can be justified since a larger number of residents can be served. 

  3. The last question will really be, would the increased costs from the alternative route be a fiscal burden and would the economy benefit from a fiscal stimulus in the next few years (or is there a largely inflationary environment?) 

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