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2009 ACJC Prelim Exam Econ H2 Essay Question 1

Recently, many industry experts have been signalling the death of print media, amid
the increasing availability of books, magazines, newspapers and other printed
publications on the Internet.
(a)

Explain how the rise of the Internet has affected the market for newspapers.
[10]

(b)

Assess the relevance of price elasticity of demand, income elasticity of demand


and cross elasticity of demand to a magazine publisher.
[15]

Part (a)
Explain how the rise of the Internet has affected the market for newspapers.

[10]

Rise of the Internet = increasing availability of books, magazines, newspapers and other
printed publications on the Internet
(a) Demand for newspapers
Definition: Willingness and ability of consumers to purchase newspapers at a given
price over a period of time
Online news : strong substitute for newspapers. There will be a higher demand for
online news than for newspapers.
Growing global affluence and the increasing Internet access to households (even in
developing countries) encourage people to read online news, hence reducing the
demand for newspapers.
Conclusion: The demand curve for newspapers will shift left.
(b) Supply of newspapers
Definition: Willingness and ability of producers to make a specific quantity of
newspapers available to consumers at a given price over a period of time
A wider selection of news from around the world to publish in their newspapers, costsavings for the newspaper companies. The supply curve for newspapers may shift
right.
Newspaper companies earn a significant portion of revenue through advertising
sales. The supply curve for newspapers will remain constant (not shift left/right)..
For simplicity, we assume that the supply curve for newspapers remains constant.
(c) Market equilibrium: Students to explain diagram
P
SS
P0

E1

P1

E2
DD
DD1

Q1

Q0

ACJC 2009 Prelim Exam H2 Econ/Essay Qn 1 / p 1 of 3

Q of newspapers

Mark Scheme

L3

L2
L1

Able to provide a clear explanation and application of both demand and


supply in context, with the correct use of a diagram.
Students claiming that supply remains constant must also explain this claim.

7-10

Able to provide an unbalanced explanation and/or application of both demand


and supply in context.

5-6

Able to identify some effects of the rise of the Internet on the market for
newspapers, without a diagram.

1-4

Part (b)
Assess the relevance of price elasticity of demand, income elasticity of demand and
cross elasticity of demand to a magazine publisher.
[15]
1. Explain the economics concepts involved
Price elasticity of demand (PED)
Income elasticity of demand (YED)
Cross elasticity of demand (XED)
2. thesis
(a) PED allows the magazine publisher to know his pricing policy (ie. whether he
should raise or reduce the price of his magazine to generate more sales
revenue)
When demand for the magazine is price elastic, reducing price will increase total
revenue. Magazine publisher will generate more sales revenue by increasing supply
and hence reducing price.
When demand for the magazine is price inelastic, increasing price will result in loss in
total revenue.Hence, the magazine publisher will generate more sales revenue by
reducing supply and hence raising price.
In order for the magazine publisher to identify the level of PED for the magazine, he
needs to refer to the key determinant of PED and XED the availability and
closeness of substitutes (presence of competition).
If the magazine has many close substitutes, then there is usually high competition
due to high readership. Thus, such magazines have high PED and XED. To generate
more sales revenue, he should increase supply to reduce price.
If the magazine is unique, then there is usually low competition due to an exclusive
readership. Hence, such magazines have low PED and XED. Hence, the magazine
publisher has to keep the price high to attract more readers to purchase the
magazine. To generate more sales revenue, he should reduce supply to raise price.
(b) XED allows the magazine publisher to know the relationship of his magazine with
other goods/services and the extent of how his sales revenue is affected by the
demand for the related goods/services
In order for the magazine publisher to identify the level of XED for the magazine, he
has needs to refer to the key determinant of XED the presence of substitutes and
complements.
The presence of substitutes will reduce the demand and sales revenue for printed
magazines.

ACJC 2009 Prelim Exam H2 Econ/Essay Qn 1 / p 2 of 3

To survive in this highly competitive market, the magazine publisher has to


identify complementary goods/services that can help promote his magazine
and hence generate more sales revenue. When the demand for the
complementary goods/services rise, the demand for his magazine will rise too.

(c) YED allows the magazine publisher to know the extent of how his sales revenue is
affected by his readers income level
In order for the magazine publisher to identify the level of YED for the magazine, he
has needs to refer to the key determinants of YED
In a recession, the magazine publisher can expect the overall demand for his
magazine to fall,
3. Present arguments for the antithesis
(a) PED, YED and XED are not so relevant to a magazine publisher
If the magazine has high PED, price-reducing policy will lead to price competition and
a price war where only the readers stand to benefit from lower prices of magazines.
People usually limit their time for reading magazines (eg. during leisure time), so we
may not necessary see an increase in demand for magazines when their income
rises.
Using XED analysis he needs to seek the partnership and approval of the suppliers
of the complementary goods/service to allow his magazine to be sold at their
premises.
To be able to accurately use these elasticity tools, the magazine publisher needs to
collect and depend on empirical data and evidence,
(b) Other tools of analysis are also required
The magazine publisher needs to consider ways to reduce costs. He will need to
monitor the cost structure to ensure that his publishing firm is cost-effective.
In addition to retail and subscription sales, the magazine publisher earns a significant
portion of revenue through advertising sales.
Mark Scheme

Able to discuss the effectiveness of PED, YED and XED as business


strategies in context.
Able to suggest at least one other tool of analysis, eg. cost-effectiveness,
advertising revenue model

9-11

Able to provide a sound but unbalanced discussion of the effectiveness of


PED, YED and XED as business strategies in context.

6-8

L1

Able to explain PED, YED and/or XED, not necessarily in context.


Unable to provide relevant examples of magazines to illustrate the degree of
PED.

1-5

E2

Judgment based on analysis.

3-4

E1

Mainly unexplained judgment.

1-2

L3

L2

ACJC 2009 Prelim Exam H2 Econ/Essay Qn 1 / p 3 of 3

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