JC Economics Elasticity Concepts & Ageing Population Essay Model Answers
How many of you dread the test question on elasticity applications in the Market Mechanism topic question in your ‘A’ Levels H2 Economics? How many of you in JC1 can afford to skip this essay question? Not many actually, as most JC Promos exams do set one question, or it can be easily set in the CSQ as well. Worse, if it is set as a compulsory section on its own!
Furthermore, application of PED, PES, YED and XED (or CED) is also relevant to Macroeconomics for JC Econs, which means it can be combined with other topics such as Market Structures, price elasticity of demands for exports, etc. Hence, let’s master some content right now, as well as build your exam skills and techniques!
Critical analyse the likely effects of this demographic change on product markets in Singapore. 
JC Economics Essay – Applications of Elasticity of Demand Concepts
Step 1: identify issues/events
An ageing population can lead to various effects on the diverse product markets in Singapore. This question calls for the candidate to look at the issue from different perspectives.
Step 2: identify question types
Evaluate by effects:
Step 3: 2-sided arguments of Thesis & Anti-thesis
T: This demographic change may lead to positive effects in the product markets.
AT: The demographic change may lead negative effects in the product markets.
(Note: This is NOT the only possible balanced answer. What else is possible?)
Step 4: Judgement
Weighing the relative impacts (based on product types), with justification.
Conditional stand may change if certain assumptions are relaxed (government intervention).
Impact of future trends and developments on answer eg. possible reversal of trend.
Ageing population and impacts on product markets
1) Possible fall in average income due to fall in earning ability – impacts markets for normal goods (necessity and luxury goods) and inferior goods. As the senior citizens leave the workforce, they lose their regular streams of income. They now survive on withdrawals from their accumulated life savings. It is likely that they will now be more frugal, spending less on ‘wants’ and more on ‘needs’.
Hence, it is possible for the senior citizens to switch away from luxury goods and necessities to inferior goods. This would alter the demands for the 3 categories of goods. The assumption is that the monthly budget they now live on is less than the monthly incomes they drew prior to retirement. Since YED for luxury goods is >1, as Y falls, DD will fall more than proportionately compared to the fall in income. Illustrate this on a diagram for a representative product market such as continental cars. Since DD falls by a large magnitude, equilibrium P and Q fall in a more pronounced manner (assume SS remains the same). Note that their DD for these cars are likely to be price elastic (high proportion out of their income). Overall, Total Expenditure by consumers (Total revenue for car producers) will fall. Consider also the changes in consumer and producer surplus via DD-SS analysis.
YED for necessities is between 0 and 1. Hence, DD for necessities will fall by less than proportionate amount compared to the fall in income. Illustrate this on a diagram for a representative product market such as bread. Since DD falls by relatively small magnitude, equilibrium P and Q fall in a less pronounced manner (assume SS same). Note that their DD for bread is likely to be price-inelastic (high degree of necessity). Overall, TE/TR fall but a smaller change compared to the previous case.
YED for inferior goods is less than 0. Hence the DD for inferior goods will increase. Illustrate this on a diagram for a representative product market such as instant noodles. As DD rise, P and Q rise (assume SS same). The DD for instant noodles might be price inelastic if it is deemed to be a staple food now. Overall, TE/TR will rise since P and Q rise.
2) On the other hand, there might be a possible rise in DD for normal goods as the retirees dissave (i.e. spending out of their long-accumulated life savings). The assumption here is that the monthly budget they now live on is more than the monthly incomes they drew prior to retirement. This is possible as Singapore has and will continue to enjoy economic progress which brings about higher incomes for workers. This is realistic as the number of millionaires and people moving into the middle class increase over the past few years, supporting the above assumption. The respective changes in the markets for luxury, necessities and inferior goods market will be exactly opposite to that under point A since the change in their DD curves are now in opposite directions.
3) Some product markets grow more than others as a result of this demographic change. In particular, it is likely that the growth of those product markets whose primary target market are youths will be overtaken by the growth of product markets whose primary market are the senior citizens. Now, consider a change in tastes and preferences (rather than a change in income) towards certain categories of products. For instance, consider the market for hearing-aids:
DD for hearing aids is likely to increase (DD is also price-inelastic since it is an important device for the senior citizens to perform daily tasks normally)
→→P and Q rise →TE/TR rise
Now, consider the market for leisure such as movies:
DD for movies can also rise due to more leisure time for senior citizens. Movies are a good example of a product that the senior citizens and the rest of the population consume in common (unlike hearing aids). Hence its DD is likely to rise, but probably not as significant compared to the rise in the DD for hearing aids.
Analyse the subsequent changes in P, Q, TE/TR, CS and PS.
4) Possible fall in labour productivity that may increase costs of production, especially for those whose production processes involve older workers. Senior citizens may change their priorities in life and value family time more than compared to the time they were younger (in the prime of their career). This may explain how their productivity levels might fall. If their salaries remain the same, the unit labour costs may rise. For certain production processes where the employment of older workers is more prominent, the COP for the firm may rise, hence leading to a fall in SS of the product. Analyse the subsequent changes in P, Q, TE/TR, using a relevant example of a product market.
JC Economics Essay – Evaluation of Elasticity of Demand Concepts
Weighing the relative impacts, with justification.
Conditional stand may change if certain assumptions are relaxed. Eg. the possibility of Singapore government providing more financial aid to senior citizens which boosts their purchasing power and alter their consumption habits.
Impact of future trends and developments on answer eg. possible reversal of trend if the government can implement policies to encourage more birth-rates.
Econs tutor’s comments:
Is this an easy essay question of the application of elasticity concepts? NO, not at all!. Cos you have to do the following:
i) decide on the organisation of essay on yours structure. After all, essay answer structure is part of analysis.
ii) decide on which concepts of elasticity to use. in this context, it is quite vague, so you have to make a decision. If you cannot tell, do NOT attempt this question!
iii) decide on the product markets of your own choice. Fortunately, for the sake of application, the context targets the elderly in S’pore, so not too difficult.
iv) you also have to make sure your answer is NOT too short!
Alternate approaches and applications:
JC Econs students may choose to discuss effects on markets related to the younger generations; the aims are not cover all markets, rather on selected markets (usually not more than 3) based on the chosen analysis, OR
Choose markets that are essential to elderly only, etc.
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