(2024) 8843 H1 Econs Paper CSQ 1 Suggested Answers by Mr Eugene Toh (A Level Economics Tutor)

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a. One normative statement would be “With some citizens claiming that governments should be responsible for ensuring the air we breathe is pollution free, Singapore and London are adopting innovative approaches to reducing the emissions caused by road traffic.”

b. Global new ICC sales are forecasted to decrease from 2020 to 2025 while global new BEC sales are forecasted to increase from 2020 to 2025.

There is an exception of 2021 to 2025 where global new ICC sales is increasing.

From 2020 to around 2039, Global new ICC sales are forecasted to be higher than global new BEC sales, while from 2039 to 2050, global new BEC sales are forecasted to be higher than global new ICC sales.

c. Economic recovery typically leads to higher incomes, increasing consumers’ purchasing power. This triggers a rise in the demand for goods and services. Given that shipping containers are used as an input in the provision of shipping services, their demand is derived from the increased demand for goods that require transportation. This derived demand results in a rightward shift in the demand curve for shipping containers, from DD0 to DD1.

The ongoing delays in the availability of shipping containers suggest that the supply of shipping containers is price inelastic in the short run. Price inelastic supply indicates that producers are unable to significantly increase the quantity supplied in response to rising prices. This could be due to factors such as limited inventories, the long production time required to manufacture additional containers, or logistical bottlenecks.

When supply is price inelastic, the extent to which quantity supplied can respond to changes in price is limited. As a result, any increase in demand will lead to a proportionately larger increase in price to restore market equilibrium. In this case, the rightward shift of the demand curve from DD0 to DD1​ will result in a steep rise in prices

d. Unintended consequence 1: Reduced fish populations

The first unintended consequence of burning fossil fuels is the release of greenhouse gases, which trap heat and increase sea surface temperatures. This disrupts marine ecosystems, leading to a reduction in marine microbes, a key component of the food chain for fish. With fewer microbes, fish populations decline, reducing the availability of seafood globally.

The decrease in fish supply leads to higher fish prices, making food more expensive. As a result, individuals face increased food costs, which may reduce their material standard of living. Higher expenditure on food leaves households with less disposable income for other goods and services, limiting their ability to enjoy non-essential items or save for future needs.

Furthermore, those whose livelihoods depend on the fishing industry face declining incomes as fish stocks dwindle. For these individuals, the fall in earnings directly lowers their material standard of living, affecting their ability to afford essential goods and services.

Unintended consequence 2: Climate change

The second unintended consequence of burning fossil fuels is the worsening of climate change. The release of greenhouse gases contributes to rising global temperatures, which in turn leads to rising sea levels and more frequent and severe adverse weather events, such as floods and hurricanes. These environmental changes directly threaten the stability of ecosystems and human settlements, particularly in low-lying coastal regions that are more vulnerable to rising sea levels and flooding.

The displacement of homes and communities due to these adverse weather events impacts the non-material standard of living, which refers to aspects of well-being not directly tied to financial or material wealth. For individuals forced to evacuate their homes, the loss of personal security, social connections, and access to familiar environments can lead to significant emotional distress and mental health challenges. Moreover, the disruption of education, healthcare access, and community networks further affect the quality of life for those affected.

e. Price elasticity of demand (PED) measures the degree of responsiveness of the quantity demanded of a good to a change in its price, ceteris paribus.

The PED of road usage can be calculated by analysing changes in the quantity of road trips taken in response to changes in the congestion charge. For instance, in London, the Congestion Charge was introduced in 2003 at £5 and subsequently increased multiple times, reaching £15 by 2020. If data from this period shows that an increase in the charge from £5 to £8 (a 60% increase) led to, say, a 10% reduction in road trips, the PED would be calculated as -0.167 (percentage change in quantity demanded divided by the percentage change in price). A relatively low PED value, as suggested by this hypothetical calculation, would indicate that the demand for road usage is inelastic, meaning that even substantial increases in congestion charges result in only modest reductions in traffic levels. Policymakers could use such PED estimates to predict the effect of future price increases. For example, an increase in the Congestion Charge to £20 could be expected to reduce road usage by a proportion consistent with previous elasticity estimates, assuming no significant changes in other influencing factors.

However, PED is not the only factor affecting traffic levels when congestion charges change. One significant consideration is the availability of substitutes for road travel, such as public transport or cycling infrastructure. For example, Singapore's Land Transport Authority (LTA) has complemented ERP with investments in public transport and initiatives to encourage walking and cycling. If substitutes are improved concurrently with price increases, the responsiveness of traffic levels to congestion charges may be higher than indicated by PED calculations alone, as motorists are more likely to switch to alternative modes of transport.

Additionally, external factors such as changes in vehicle population and economic growth can influence traffic levels independently of congestion charges. If, during a period of rising congestion charges, the vehicle population grows due to economic prosperity and increased car ownership, the overall demand for road usage might increase, offsetting the intended effect of higher charges.

Finally, behavioural factors and societal attitudes can also play a role. For instance, some drivers may view congestion charges as unavoidable costs of convenience, especially if road travel is perceived as essential for work or family commitments. In such cases, demand for road usage could remain relatively inelastic despite higher charges.

f. Public goods are defined by three key characteristics: non-excludability, non-rivalry in consumption, and non-rejectability. Non-excludability means that once the good is provided, no one can be excluded from using it. Non-rivalry means that one person’s consumption of the good does not reduce the amount available for others. Non-rejectability implies that individuals cannot opt out of the benefits or costs associated with the good. For a good to be classified as a public good, it must meet all three criteria. The roads in Singapore exhibit some, but not all, of these characteristics and they therefore may not always satisfy the conditions of being a public good.

The characteristic of non-excludability is partially present in Singapore’s roads. Most roads are open to the public and cannot easily exclude individuals from usage, making them generally non-excludable. For instance, anyone with a vehicle can access public roads in Singapore without being physically restricted. However, there are exceptions, such as roads within private residential estates or condominiums. Access to these roads is restricted by barriers, such as guardhouses, which make them excludable to non-residents or unauthorised individuals. Similarly, the imposition of Electronic Road Pricing (ERP) during peak hours makes access to certain roads costlier, thereby creating a form of exclusion. This undermines the argument that all roads in Singapore are strictly non-excludable.

In terms of non-rivalry, Singapore’s roads exhibit limited non-rivalry and are largely rivalrous in consumption. When traffic is light, one driver’s use of the road does not diminish the ability of others to use it effectively. However, during peak hours or in areas with high congestion, such as expressways during the morning commute, roads become rivalrous. Increased traffic slows down travel times for everyone, reducing the quality of consumption for all users. This congestion demonstrates that roads do not meet the criterion of non-rivalry during busy periods, as one driver’s usage directly impacts others' ability to enjoy smooth and efficient travel.

Singapore’s roads, however, generally fulfil the characteristic of non-rejectability. Non-rejectability means that individuals cannot avoid the benefits or consequences of the good’s provision. For example, roads are essential for economic activities and the movement of goods and people. Even individuals who do not own vehicles indirectly benefit from the road network as it facilitates public transport systems and the delivery of goods and services. 

In conclusion, the roads in Singapore exhibit some characteristics of public goods but fail to meet all three criteria fully. They are broadly non-excludable but have exceptions such as private roads and ERP charges that introduce elements of exclusion. They are also rivalrous in consumption, particularly during periods of high traffic congestion. However, they are generally non-rejectable, as their benefits and costs affect all individuals to some extent. Therefore, Singapore’s roads are better classified as quasi-public goods rather than pure public goods.

g. The widespread use of road vehicles generates significant carbon emissions, leading to negative externalities such as air pollution, health issues, and environmental degradation. These external costs are not reflected in the private cost of driving, resulting in overconsumption and an inefficient allocation of resources, which constitutes market failure. To address this issue, one proposed policy is to develop infrastructure that encourages walking and cycling to work. While this policy has merits in reducing vehicle emissions and improving resource allocation, its effectiveness is subject to various limitations and alternative strategies may need to be considered.

Developing infrastructure for walking and cycling directly addresses the issue by providing substitutes for driving motor vehicles. Infrastructure such as dedicated cycling lanes, pedestrian walkways, and bike-sharing facilities makes walking and cycling safer and more convenient. By improving the attractiveness of these alternatives, individuals may switch from driving to these more sustainable modes of transport. This reduces the demand for road usage, shifting the marginal private benefit (MPB) curve for driving to the left, from MPB₀ to MPB₁, and lowering the equilibrium output closer to the socially optimal level (Qₛ). The reduction in emissions would benefit society through improved air quality, reduced healthcare costs, and mitigated climate change impacts.

However, developing such infrastructure can be challenging, particularly in a land-constrained country like Singapore. Space for cycling lanes or wider pedestrian walkways may be difficult to allocate without significant opportunity costs, such as the displacement of existing roadways or other urban developments. Additionally, the high costs associated with infrastructure development could strain public finances, especially if the usage of such facilities remains low. Furthermore, environmental factors such as Singapore’s hot and humid climate may deter individuals from walking or cycling, even with improved infrastructure. These constraints highlight that while infrastructure development can play a role in addressing emissions, its effectiveness may be limited by practical and contextual factors.

Another challenge is that walking and cycling may not be viable substitutes for everyone. Families with young children, individuals with long commutes, or those for whom driving confers prestige or convenience may be unwilling to switch to walking or cycling. This limits the potential reduction in vehicle usage and emissions. For these groups, the policy may fail to sufficiently address the market failure caused by vehicle emissions.

An alternative or complementary policy could be the use of taxation to directly address the external costs of emissions. Placing taxes on vehicles with high emissions would force drivers to internalise the external costs of their actions, shifting the marginal private cost (MPC) curve upward to coincide with the marginal social cost (MSC) curve. This would reduce the quantity of road usage to the socially optimal level (Qₛ). The revenue generated from such taxes could also be used to subsidise the adoption of electric vehicles (EVs), which produce no emissions. By incentivising EVs, the government can promote a long-term shift toward cleaner transport options, further addressing the negative externalities associated with road vehicles.

In conclusion, while developing infrastructure to encourage walking and cycling can reduce emissions and improve resource allocation, its effectiveness is constrained by practical challenges such as land scarcity, weather conditions, and the limited applicability of walking and cycling to certain segments of the population. A more comprehensive approach may involve combining this policy with vehicle emission taxes and subsidies for EVs. 

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