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(a) Explain why Singapore's car population grew by almost 40% from 1997-2012. (Rephrased question...)


Singapore’s car population grew by almost 40% from 370,000 in 1997 to 515,000 today. - Adapted and amended from Singapore’s Ministry of Transport (MOT) report. 

(a) Explain the likely reasons for the above development described in the Singapore car market. [10]

Introduction - Demand and Supply Factors

The rising car population in Singapore could be due to an increased demand for cars, or an increased supply for cars, or both, a simultaneous shift in both the demand and supply of cars. This Economics essay discusses the likely factors affecting demand and supply in the context of the car market in Singapore. Some major factors affecting demand are tastes and preferences, income and wealth, price of related goods, population and demographic changes, and ease of acquiring credit. Some of the factors affecting supply are prices and quantities of inputs affecting the costs of production, productivity, government policies, and numbers and size of firms.

Advertising by Car Sellers

First, rising tastes and preferences in favour of driving can force demand to shift to the right. For example, more persuasive advertising by car sellers can persuade people to have a preference for cars. In Singapore, there are many car showrooms along Ubi Road that show colourful and attractive car advertisements. There has also been a great interest in buying higher-end luxury cars, such as Ferraris and Porsches. 

Rising Incomes and Wealth Raise Demand

Second, rising incomes and wealth levels can shift demand to the right also. This is because economic growth leads to higher income levels, which increases demand for normal goods. Normal goods are goods that face increased demand when income rises, ceteris paribus. In Singapore, the Singapore economy has experienced strong economic growth from 1997 to 2008, and this could have affected the demand for cars, which can be considered either normal necessity goods or normal luxury goods.

Substitutes - Public Transport 

Third, there are related goods that can affect the demand for cars. Public transport can be considered a substitute for cars. A substitute is defined as any good that can replace another good. For instance, recently Singapore public transport fares have increased, thus causing some commuters to switch to buying cars instead.

Increases in Population - Foreign Talent Policy

Fourth, if the population increases, demand shifts to the right also. This is because more people entering the labour force and increased immigration will lead to increase the demand for all goods and services, including cars. For example, in Singapore, there is a famous foreign talent policy, which increased the number of foreigners in Singapore. Most of these foreigners could have bought cars and thus demand shifts to the right as a result.

Ease of Acquiring Credit, Falling Interest Rates, and Increased Demand for Cars

Fifth, an increase in the ease of acquiring credit causes demand to shift to the right, because a fall in interest rates makes it cheaper for households to borrow to buy cars. With recent events in the banking industry in Singapore, with Malaysian banks CIMB and RHB entering the markets in the last ten years, credit has become more easily available, thus shifting demand for cars to the right.

Supply Factors: First, Costs of Production

On the other hand, an increase in the car supply also affects the car market by increasing the vehicle population in Singapore. First, the lower price of car material inputs shifts supply to the right; for instance, cheaper steel lowers the marginal cost of production of cars, thus increasing the supply of cars.

Productivity and Technological Improvements

Secondly, productivity increases also shifts supply to the right, because with technological improvements, the marginal cost of production also falls, shifting supply to the right. For instance, overseas car companies, such as Ford car company, could have technological improvements which could increase the number of cars produced, which are imported into Singapore.

Singapore Government Policies

Third, government policies such as the lowering of car taxes or an increase in the quota of cars allowed also increase supply. For instance, if car dealers in Singapore face lower taxes or if the number of Certificate of Entitlements (COEs) is increased, supply shifts to the right. COEs are certificates allowing Singaporeans to buy cars. However, while a complete economic analysis of the impact of COEs is a more complicated exercise compared to simple supply and demand analysis, COEs as a system of quotas do limit the number of cars on the roads. 

Number and Size of Car Firms

Fourth, as the number and size of firms increase, supply will also shift to the right. For example, there are more car dealers in Singapore selling a wider range of cars such as Honda and Toyota. This could have also led to an increase in the supply of cars in Singapore.

Interaction of Market Demand and Supply: Demand is the More Likely Factor

In conclusion, while both demand and supply factors are likely determinants, the demand factor most likely for the increase in Singapore’s car population is the increase in Singapore's population. This is because Singapore’s population increased rapidly and massively from 3 to 5.5 million in 10 years. On the other hand, the supply factor most likely to allow an increase in car population is likely to be government policies, in the form of increasing the number of COEs issued from 1997 to 2008, thus indirectly raising the supply of cars on the roads.

JC Economics Essays - Tutor's Commentary: This Economics essay was written under timed conditions and was written by a JC 1 (Junior College year one) student. He eventually excelled in his studies, even beyond economics, and accepted a bond-free university scholarship to Nanyang Technological University (NTU), reading Public Policy and Global Affairs (PPGA) programme. He was one of my excellent English students when I was teaching in Secondary School. 

How you can improve this essay response is of course by adding a Demand and Supply diagram, with proper explanation and analysis. Now this is the thing - this excellent "A" grade student of mine did have the diagram in his original paper, but do remember that I am a luddite and so there's no DD-SS diagram here. He did need to explain and analysis the diagram beyond just drawing the curves. Be sure always to draw diagrams and explain them in your examinations. Usual Economics tutor's question applies: how can I make this economics essay better, or how can I improve on my essay writing skills? Thank you for reading, and cheers! 

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