1. FAST ANSWErS 2 Term1 TEST

2. 1.From the passage above, calculate the PED of HDB flats in Singapore. (2) PED = %change in quantity demanded/% change in price (1) PED of HDB flat = 2/10= 0.2 This implies that HDB flats are price inelastic in demand

3. 2. Using demand and supply diagram(s), explain the relationship between sand and HDB housing (5) The demand for sand is derived from the increase in demand for HDB housing. As such they have a derived demand relationship. (1) P D1 S DO D2 D3 S Q Q P HDB Sand When there is an increase in demand for HDB flats, more sand will be needed to meet the increase in demand for HDB flats? As such when there is a shift in the demand for flats from D0 to D1 there will be a corresponding shift of the demand curve for sand to the right thereby illustrating the derived demand relation of sand to HDB flats. (1 mark for each diagram)

4. 3. With reference to your answer in question, explain how quantity demanded would change if there was further increase in price of HDB flats by another 5% As calculated from Q1, it can be seen that the price elasticity of demand for HDB flats is inelastic (1) as having a roof over ones head is a basic need (a neccesity)(1). As such, the government can increase the price of HDB flats by another 5% but because it is a necessity, the quantity demanded will decrease by a lesser proportion that the price increase. As such quantity demand will not change much given the increase in price. (1)

5. 4. Explain, using a demand and supply diagram, why rising prices of HDB flats will be beneficial for the government as the ultimate producer of flats in Singapore (5) P Q As the price elasticity of demand for flat is inelastic, an increase in the price of the flat is met by a less than proportionate increase in quantity demanded of flats. (1) From the diagram, with an increase in price from P0 to P1, it can be seen that the revenue lost for the HDB before price increase is less than the revenue gained after the price increase (1). As such, the HDB benefits on the overall with greater revenues when they increase the price of flats. (1) Diagram (2 marks)

6. 5 (additional question – optional). Using a demand and supply diagram, explain how rising cost of sand has cause prices of HDB flat prices to increase as well.(5) Sand is a factor of production of HDB flats (1). As such when the price of sand increases, P will increase the cost of production (1). This means that government cannot produce as much flats as they used to and will cause the supply curve for HDB flats to shift leftward or upwards from S0 to S1. From the diagram, it can be seen that the equilibrium price has shifted from P0 to P1 ultimately resulting in higher prices. (2)