2009 ACJC Prelim Exam Econ H2 and H1(in grey) Case Study Question 1: National Broadband Network and

Information, Communication Technology (ICT)

(a) (i) Compare the price of home broadband in US$ and in PPP$ for India and Switzerland. [2]

For India, price of home broadband in US$ is lower than in PPP$ whereas, for Switzerland price in US$ is higher than in PPP$. Price of home broadband for India in US$ and in PPP$ are both lower than that in Switzerland. (ii) With reference to the data, what can you conclude about the relationship between price of home broadband and its affordability for India and Switzerland?

[3]

In India, price of broadband is low at US$6.1 or PPP$16.4 but less affordable as it takes up 7.7% of monthly GNI per capita (7.1% Internet Penetration rate) but in Switzerland, the price of broadband is higher at US$32.2 or PPP$20.6 but more affordable as it takes up a smaller percentage of monthly income (0.6%) (76% Internet Penetration rate) (b) Explain the possible impact of the setting up of a new high speed broadband with open access arrangement on the price elasticity of demand for (i) (ii) (i) the home broadband market a home broadband provider With open access, broadband prices will cheaper for services to be delivered over the network. There will be more online games, online banking and shopping. There will be more uses for home broadband e.g. for learning, hence price elasticity of demand for home broadband will be more price inelastic. With open network arrangement, there will be more home broadband providers in the market as the barriers of entry for new firms to enter are much lower now. The price elasticity of demand for a home broadband provider is highly price elastic.

[4]

(ii)

H1 (b)

Using demand and supply analysis, explain the possible impact of the setting up of a new high speed broadband with open access arrangement on the price of computers.

[4]

Increase in Demand With open network, there will be more services provided via the network as it will be cheaper for online service providers OR price of broadband will be cheaper (from extract 1) and number of broadband subscribers will increase computer and broadband are complementary goods increase in the demand for online services / broadband will increase the demand for computers Supply Side condition: supply is very price elastic as it is a capital intensive manufactured good Conclusion: Price of computers will increase but the increase will be small. N.B. can accept any conclusion that follows from reasoned SS effects.
ACJC 2009 Prelim Exam H2 H1 Econ/Case Qn 1/ p1 of 4

(c)

Would you consider home broadband access to be a merit good? Explain your answer. For H1 (c) (i) Yes. It can be considered a merit good. External benefits generated from households with home broadband access: Employers benefits from higher productivity due to e.g. flexible work arrangements e.g. working from home some of the days, nontraditional working hours time saved when workers need less time for non-work obligations like paying of bills, banking activities, using online applications instead of traditional Form applications enables the setting up of more community and civic activities and also enables more participation in such activities that improves the quality of life of the larger community (d) Discuss whether there are microeconomic justifications to support the move by the Singapore government to fund part of the cost of building new cyber highways. For H1 (c) (ii) There are 2 microeconomic justifications for government intervention in the provision of cyber highways, a broadband network. (i) The positive externalities argument. The market without government intervention will lead to a market equilibrium where broadband subscription is priced too high and hence, broadband subscription will be below that of the social optimum subscriptions. (a diagram should be used for more effective explanation) When Singapore government funds part of the cost of building new cyber highways, subsidizing the cost of supplying broadband ,shifting the SS or MPC/MSC to the right, lowering market equilibrium price and increased broadband subscriptions. The imperfect market (duopoly) argument. Due to the high set-up cost of supply of cyber highways (broadband), price set will be higher than marginal cost of production and broadband subscriptions will be below the socially efficient level and societys welfare will not be maximized. The government by funding part of the cost of building new cyber highways will help to lower barriers for new entrants to this market as the set-up cost for the supply of broadband will be lower. With more providers of broadband mean lower market price and higher quality of service

[3]

[8]

(ii)

Points of evaluation: The justification for funding part of the cost of building new cyber highways should be based on relative opportunity cost of the funds used to increase societys welfare. OR Relative comparison of the justification for funding based on the argument of positive externalities and the justification based on imperfect market

ACJC 2009 Prelim Exam H2 H1 Econ/Case Qn 1/ p2 of 4

Mark scheme for H2 (d) Level Descriptors L3 L2 L1 2 microeconomic justifications and use of terms related to economic efficiency includes economic terms like P=MC, MSB, MSC, market and social equilibrium, allocative efficiency Only one well microeconomic justification or 2 undeveloped microeconomic justification Some related concepts without explanation and not relating to question Marks

5-6

3-4 1-2

E2 E1

Reasoned evaluative statement Statement without reasons

2 1

Mark scheme for H1 (c) (ii) Level L3 Descriptors complete economic argument using concepts of market failure caused by positive externality good reference to market and social equilibrium positive externality microeconomic justification use of economic terms may be absent contains general ideas of benefits and costs but not in precise economic terms Some related concepts without relating to question Marks 5-6

L2

3-4

L1 E2 E1 (e)

1-2 2 1

Reasoned evaluative statement Statement without reasons

In the light of the data provided, discuss whether providing cheaper high speed broadband is sufficient to achieve deeper and more economically effective use of broadband in Singapore. Interpretation of deeper and more economically effective use of broadband deeper use of broadband more extensive, in more areas economically effective maximize the use of broadband

[10]

For H1 (d)

The word of contention is sufficient. Students must make comments about sufficiency of providing cheaper high speed broadband to achieve Statement: Cheaper broadband is necessary but not sufficient in achieving deeper and more. Statement: Cheaper high speed broadband is necessary. those who were willing but not able to afford it can now subscribe to it and benefit from it
ACJC 2009 Prelim Exam H2 H1 Econ/Case Qn 1/ p3 of 4

can attract new users to try it out as cheaper price is now not prohibitive it is less costly to have broadband service for those with fewer reasons to use the service Conclusion: Without increasing subscription rates, Singapore cannot achieve deeper and more Statement: In Singapore, price of broadband was relatively low but internet users as a % of population was not as high as it should be. Supporting Evidence: Price of broadband can be regarded as competitive (in comparison to the countries given in Table 1) and affordable as it only takes up 0.8% of monthly GNI per capita but penetration rate is below that of Korea (76.1%) and Japan (73.8) which had a similar pricing but deemed less affordable. Conclusion: Cheaper high speed broadband is insufficient to Other measures to be taken: Complementary good computers needed to use broadband Refer to Chart 1, over the last 3 years (2006-2008), only about 75% of households staying in public housing have access to computer at home Get those who can afford broadband but do not use it Table 2 provides the more pertinent reasons those without interest or feel there is no need to use: measures to create demand for online services lack of knowledge / skills / confidence: subsidize basic course in use of computer Create more uses for broadband Government agencies to provide online platform as an alternative mode of delivering her services e.g. e-filing for income tax, online applications Provide incentives for more recreational and social online services to be set up in Singapore e.g. online gaming, niche TV programmes, online magazines, online clubs for interest groups

Evaluation: How can the various measures be implemented to ensure a deeper? Order of implementation? For a good answer, other measures discussed must be comprehensive so that the goal of achieving deeper and more effective use of broadband. Level L3 Descriptors Good use of data Measures provided are comprehensive explains how cheaper price will achieve brief explanation of other measures some use of data ideas may not be well directed to answer the question Some related concepts without explanation Stating some measures without relating to question largely not answering the question Marks 7-8

L2

4-6

L1

1-3

E2 E1

Reasoned evaluative statement Statement without reasons

2 1

ACJC 2009 Prelim Exam H2 H1 Econ/Case Qn 1/ p4 of 4