2019 H2 Economics Paper 2 Essay 1: 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 examines how Grab's takeover of Uber in Singapore could make consumers better or worse off, then asks about the benefits and problems facing new competitors entering a market dominated by Grab.
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Explain one reason why consumers might be better off and one reason why consumers might be worse off from Grab's takeover of Uber. [10]
We can examine whether consumers are better off or worse off by looking at changes in consumer welfare stemming from changes in pricing, the variety of goods and services available, product quality and the availability of choice.
Why consumers might be better off: economies of scale. The merger of Grab and Uber can create a larger, more efficient entity capable of achieving significant economies of scale, the cost advantages a business obtains from expansion that lower the average cost per unit. These savings can arise from technical improvements, better utilisation of resources, or more efficient managerial strategies. If Grab passes these cost savings on to consumers, there could be a reduction in the price of rides, shown by a lower marginal cost curve MC1. The lower price P1 compared with P0 would make ride hailing more affordable, enhancing accessibility and convenience. A monopoly diagram with MC and AC shifting down from MC0 and AC0 to MC1 and AC1, lowering price from P0 to P1, would illustrate this.
Why consumers might be worse off: reduced competition and higher prices. The consolidation of Grab and Uber reduces competition in the ride hailing market. In a less competitive environment, Grab may not feel the pressure to engage in price wars or aggressive pricing to attract customers, as it did when Uber was a significant competitor. With fewer substitutes, demand for Grab's services becomes more price inelastic, shifting AR and MR from AR0 and MR0 to AR1 and MR1. Consumers have limited alternatives, giving Grab greater market power. Grab could raise prices, since lower consumer sensitivity to price means a rise need not cause a proportionate fall in quantity demanded. On a monopoly diagram, the price rises from P0 to a higher P1 as demand becomes more inelastic, which negatively affects consumers who rely on ride hailing for daily transport.
In conclusion, the takeover has dual implications for consumers. There is potential to benefit from lower prices through economies of scale, but also a significant risk of price increases through reduced competition and greater market power. The actual impact depends on how Grab exercises its market position and on whether regulators intervene to ensure fair pricing.
Develop one clear welfare gain via economies of scale and one clear welfare loss via reduced competition, each with the cost or revenue mechanism.
Tests: Monopoly, Economies of scale
Discuss the potential benefits and problems that are likely to be experienced by new competitors considering entering the ride-hailing market dominated by Grab. [15]
- Frame the question around entry into a market dominated by an incumbent and the barriers to entry that follow.
- Set out the potential benefits for new competitors, identifying the channels that lower the cost of entry.
- Set out the potential problems, including the cost based barrier the incumbent's scale creates.
- Weigh the benefits against the problems, noting the conditions for a new entrant to succeed.
- Reach an evaluative conclusion on the viability of entry.
This part is gated. The full model answer with the worked cost diagram 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: Barriers to entry, Monopoly
Questions students ask
Where can I get the full worked answers to the 2019 H2 Economics paper 2 essay 1?
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 2019 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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