Perhaps some tips on Economics essay?

I was chatting online with the a senior for some tips. He threw me this essay question:

"In 2007, the Singapore economy grew at 7.8%, goods and services tax went up from 5% to 7%, and there were active campaigns on healthy living.

Assess the likely effects of the above changes on consumers' expenditure on fast food."

Take 5 minutes to plan for an outline. In fact, I suggest MORE than 5 minutes... This was the killer question for last year's promos.

Ready to see the answer?

My initial response was:

talk about demand and supply factor

economic growth -> increased income

positive income elasticity -> increased demand

increased in service tax -> decreased supply

large extent as supply very price inelastic, tax incidence

active campaigns -> change in taste of preference

decrease demand

conclusion: demand shift less than supply, quantity demanded drops

_________________

Looks like a two page, chop chop essay. How wrong was I.

This senior took 1 hour and 15 minutes to write a 4 page essay on this question. He scored 20/25.

The key lies in the word EXPENDITURE. EXPENDITURE not QUANTITY DEMANDED or mere CHANGE IN PRICE.

Expenditure is price times quantity. You are supposed to look at the area under the graph. The emphasis is on the elasticity.

His other remarkable points:

Talk about different price elasticities for different income groups

Campaigns introduces substitutes such as organic food

Fast food restaurants also coming up with healthy packages

Ad Valorem tax leads to a PIVOTAL shift, hence making supply more price inelastic

etc etc...

Of course, unless you are as god-like as him, it is unwise to burn 1 hour and 15 minutes for an essay. Hope that I post this in time for you guys to warm up (err not fry) your brains.

Moral of the story: Open your eyes BIG BIG tomorrow

Cheers,

Khor Shi-Jie