2017 H2 Economics Paper 2 Essay 2: Suggested Answers
How to use these essay answers. The responses below, including the part (a) answer, are structured guides to the requirements of the question, the content, analysis and evaluation a strong answer must cover, rather than full essay prose with a written introduction and conclusion. Use them to see what to include and how to build the argument, then write it up in your own continuous prose, adding your own introduction and conclusion.
This essay uses supply and demand analysis to explain why falling interest rates and continued income growth raised residential property prices in Singapore, then asks which policies the government might use to reduce property price inflation.
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Use supply and demand analysis to explain why falling interest rates and continued income growth may have led to a rapid rise in residential property prices.
The rapid rise in residential property prices in Singapore from mid 2009 can be explained mainly by falling interest rates and continued income growth, working on the demand side against an inelastic supply.
Impact of falling interest rates. Lower interest rates make borrowing cheaper and reduce the cost of mortgage loans. As mortgages are complementary to residential property, cheaper mortgages make home purchase more affordable, raising the demand for housing. The demand curve shifts rightward, raising the equilibrium price.
Impact of continued income growth. Ongoing income growth raises disposable incomes and purchasing power, which raises demand for goods and services including housing. Demand for residential property shifts further rightward, pushing prices higher still.
Supply inelasticity of housing. The supply of housing in Singapore is relatively inelastic, because land is limited and development takes years to complete, so supply cannot adjust quickly to higher demand. Government control over land sales further limits the responsiveness of supply. Given this inelastic supply, even a moderate increase in demand produces a large rise in price; had supply been more elastic, the same increase in demand would have raised prices much less. A supply and demand diagram with successive rightward shifts in demand against a steep, inelastic supply curve would illustrate the rapid price escalation.
Use demand shifts from cheaper mortgages and higher incomes, and combine them with inelastic housing supply to explain the large price rise.
Discuss the policies that might be used by the Singapore government to reduce residential property price inflation.
- Frame the cooling measures as acting on either the demand side or the supply side of the housing market.
- Develop a demand side measure that restricts loan accessibility, with a diagram in words, then note an unintended consequence.
- Develop a supply side measure that releases more land, with a diagram in words, then note its constraints.
- Develop a further supply side measure that pressures developers to release units, then note its drawback.
- Weigh the demand side against the supply side measures on speed and side effects.
- Reach an evaluative judgment on the balance of policies needed to cool the market without stifling it.
This part is gated. The full model answer with the worked supply and demand diagrams and the evaluation, with the diagrams and the full evaluation, is in the ETG TYS Answers book from SAP and is worked live in the TYS Crashcourse. ETG students also get the AI TYS coach that guides them through this exact question. Message the team to find out more.
Tests: Government intervention in markets, Demand and supply analysis
Questions students ask
Where can I get the full worked answers to the 2017 H2 Economics paper 2 essay 2?
The full model answers, with the diagrams and the higher mark evaluation, are in the ETG TYS Answers book published by SAP and sold at Popular, and are worked live in the TYS Crashcourse. Every ETG student also gets the AI TYS coach on our learning management system, which guides you through how to tackle every essay and every case study question from the last ten years.
Are these the official 2017 A Level Economics answers?
No. SEAB sets and marks the A Level paper. These are suggested answers by Mr Eugene Toh, author of the H1 and H2 A Level Economics TYS answer keys, published by SAP and sold at Popular.
How should I use these suggested essay answers?
Treat them as a guide to the requirements of the question, the content, analysis and evaluation a strong answer must cover, not as full essay prose. Write the essay up in your own continuous prose, with your own introduction and conclusion.
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