ECO202: (Economic Ideas and Models for Business) Explain the effects on the price and quantity of online equation when these two incidents occur concurrently.

Module / Subject / School:

ECO202: Economic Ideas and Models for Business

Singapore University of Social Sciences

Requirements:

Question 1

Note: For all sub-questions of Question 1, your answer should not exceed 500 words excluding figures and tables.

(a) Consider the market for online education. Due to the improvement in education technology, it is easier and cost-effective for education institutions to offer courses online with interactive features and communication platforms. At the same time, due to Covid-19 which results in movement restrictions and safety concerns, people have greater preference to pursue education online. Explain the effects on the price and quantity of online equation when these two incidents occur concurrently. Support your answers with the help of market diagrams for online education. (30 marks)

(b) The government wishes to encourage more people in the country to pursue education and is considering implementing a price ceiling or providing a subsidy to the consumers. Compare and contrast the price of education, the quantity of education traded and the welfare effects of these two policies. An economist claimed that providing a subsidy to the consumers is more efficient than imposing a price ceiling. Appraise the validity of this claim and support your answers with suitable diagrams for the education market. (50 marks)

(c) Consider the university education market in Singapore. Based on the determinants of the price elasticity of demand, comment on the price elasticity of demand for the university education in Singapore and explain whether the demand for the university education in Singapore is likely to be elastic or inelastic. Justify your answers. (20 marks)

What we score:

78%

Our Writer’s Comment

This assignment is designed to assess students’ understanding of business practices.

To secure an A+ grade, adhere to these guidelines and make sure your work aligns with the grading criteria:

Question 1(a): Market for Online Education (30 Marks)

Here, you’re dealing with a shift in both supply and demand due to technology improvements and increased demand from COVID-19. Start by explaining the basic supply and demand framework.

Supply-side: Technology improvements make it cheaper to offer online education, so the supply increases (shift to the right).
Demand-side: COVID-19 restrictions make people prefer online education, so the demand increases (shift to the right).

Now, in your answer:

Use two market diagrams to show the shifts. One for the increase in supply and one for the increase in demand.
When both supply and demand increase, the price effect is ambiguous (depends on the relative magnitude of the shifts), but quantity increases. Be clear on this point—state that the quantity will definitely increase, but the price could rise, fall, or stay the same based on the extent of the shifts.
Discuss what happens if the supply shift is larger (price may fall) or if the demand shift is larger (price may rise).

In this section, clarity in your diagrams is key. Make sure the shifts are labeled clearly and use the diagrams to back up your explanation.

Question 1(b): Price Ceiling vs. Subsidy (50 Marks)

Here, you need to compare the effects of two government policies—price ceiling and subsidy. Start by explaining each policy.

Price Ceiling: A price ceiling is set below equilibrium price, creating a shortage. Show this with a diagram where the price is capped, and demand exceeds supply. Highlight the welfare effects: there’s a consumer surplus gain, but also a producer surplus loss, and overall a deadweight loss (inefficiency).
Subsidy: A subsidy shifts the demand curve upwards. Show this with a diagram where the demand curve shifts and the equilibrium price for consumers falls, but the price received by producers rises. Explain the welfare effects: consumer surplus and producer surplus both increase, but there’s a cost to the government (subsidy expense). Typically, subsidies create less deadweight loss compared to price ceilings.

To evaluate the economist’s claim that subsidies are more efficient, you need to compare the deadweight losses in both scenarios. Explain that:

Price ceilings create inefficiency by distorting the market price and causing shortages.
Subsidies, on the other hand, increase both demand and supply, leading to a higher quantity traded without the shortage. There’s a cost, but it’s generally seen as more efficient because there’s less distortion in the price mechanism.

Use clear diagrams for both the price ceiling and subsidy cases. Show the areas of deadweight loss in both cases to make your comparison strong.

Question 1(c): Price Elasticity of Demand for University Education (20 Marks)

For this part, focus on the determinants of price elasticity of demand:

Necessity vs. luxury: University education in Singapore is more of a necessity, making it inelastic.
Availability of substitutes: There are limited substitutes (especially within Singapore), which also points to inelastic demand.
Proportion of income: While university education is costly, the investment is seen as essential for career prospects, so the demand remains relatively inelastic.
Time frame: In the short term, the demand may be more inelastic since people have fewer alternatives, but it could become more elastic in the long run if online options or international universities become more accessible.

Explain that the demand for university education in Singapore is likely to be inelastic because of its necessity and the limited substitutes.

General Tips to Improve Your Score:

Use more diagrams: Your analysis should always be backed up with clear, well-labeled diagrams. Make sure each shift in supply, demand, or policy is clearly represented.
Explain the theory clearly: Make sure you explain the underlying economic concepts thoroughly—such as the impact of government intervention or the determinants of elasticity.
Compare and contrast in depth: When comparing the effects of price ceilings and subsidies, be very specific about the welfare impacts and efficiency losses in each case.
Provide real-world examples: While theoretical discussion is important, linking your analysis to real-world examples or situations, particularly in Singapore, can strengthen your argument.

By sharpening your diagrams, expanding your explanations, and diving deeper into comparisons and elasticity, you can raise your score in future assignments!

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