H2Economics 2010 JC Prelims

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Answer all questions

Question 1

Challenges Facing the Movie Industry

Extract 1: Revision of Ticket Prices in Singapore

Golden Village Multiplex announced that it will raise its ticket prices at all nine multiplexes. The
new rate will take effect on 27
th
March 2008. The ticket prices adjustment will be introduced
through a 50 cents increase in the basic tier of ticket prices. Earlier in J anuary, Cathay
Cineplexes also revised their ticket prices. For Cathay, the general ticket prices are upped by
50 cents while a new Blockbuster tier has been introduced where tickets to selected movie
titles will be increased by an additional 50 cents. Movie titles which fall under the Blockbuster
category will need to satisfy at least two criteria before they can thus be categorized. These
conditions include an A-List cast or director, be a part of a successful franchise, have a
production budget of more than US$100 million and opening date in Singapore coinciding with
same day and date release in the USA. Both firms cited that the price increase is an inevitable
consequence of current market situation.

Source: Cathay Organisation & Golden Village 2008

Extract 2: Movie Pirates Using Cellphones to record shows

High-end mobile phones have emerged as the recording device of choice for movie pirates in
the region, with more than 30 people nabbed in cinemas this year for recording the latest
blockbusters this way. Those nabbed were turned over to the police. Since Motion Picture
Association (MPA) began its crackdown in late 2004, the organization and police in the Asia-
Pacific region has conducted 7,400 raids, arrested more than 4,300 people and seized almost
30 million pirated discs.

According to a 2005 MPA study, piracy had cost movie studios more than US$6 billion in lost
revenue.

Mr Edward Neubronner, MPAs Asia-Pacific director for operations, said that the use of mobile
phones to record movies in cinemas is a relatively recent phenomenon. Pirates previously used
camcorders to record the shows. The video quality of the current generation of high-end mobile
phones had almost caught up with that of camcorders. And improved storage capacity, via
memory cards, allowed mobile phones to record for hours.

But compared with a theatrical release or a genuine DVD, the playback quality of movies
recorded by cellphones remains questionable, said Mr Neubonner. While it is hard to
differentiate between films recorded by cellphones and those by camcorders, industry sources
tell The Straits Times that some movies recorded using mobile phones had already appeared
in illegal file-sharing networks and on pirated discs.

Source: The Straits Times July 2007

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Extract 3: Hollywood Faces New Piracy Threat

Apart from stiff competition from other firms in the movie industry and other movie industries in
other countries, Hollywood is now facing a bigger threat from piracy. Movie fans downloading
free pirated films are no longer Hollywoods worst nightmare but thats only because of a newer
menace: cheap and equally illegal subscription services.

Foreign, often mob-run businesses compile illegally obtained movies into cyberlockers similar
to Internet storage sites used by individual consumers to squirrel away pirated video. But the
for-profit version of this phenomenon has spawned an array of sophisticated and seemingly
reputable sites selling unlimited digital movie files for as little as $5 a month.

Cyberlockers now represent the preferred method by which consumers are enjoying pirated
content, Paramount Pictures chief operating officer Fred Huntsberry said.

Huntsberry detailed the evolution of professional piracy methods. Commonly, Hollywood
movies are made available via illegal for-profit sites within days of theatrical release, while the
advent of global releasing now allows the proliferation of individual titles into an array of
language dubs within the first month of a theatrical debut. When movies are released on DVD
and Blu-ray Disc, the sites upgrade the quality of video offered from camcorded images to
pristine digital copies. Cyberlocker-based businesses operate from Russia, Ukraine, Colombia,
Germany, Switzerland and elsewhere.

On a grander scale, the motion picture industry is combating the situation with country-by-
country campaigns for tougher laws against video piracy.
Source: www.abcnews.go.com, June 2010

Extract 4: Combating Film Piracy

Danny Boyle, Slumdog Millionaire director suggested a fresh tactic in the war against film
piracy: cut the ticket prices.
Speaking at the launch of National Schools Film Week, Boyle conceded that many parents
found that a trip to the cinema costs "too much" and suggested that cinema operators adopted
"more aggressive marketing techniques to do with price". One way of combating internet
piracy, he added, was to encourage more young people to visit the cinema.
"There has always been this feeling of a special occasion when you go to the movies," said the
Slumdog Millionaire director. "I think there's something wonderful about sitting in the dark. It is
very built into the DNA of the cinema." Source: www.guardian.co.uk, 2009

Table 1: Cinema Capacity in Singapore

Year 2003 2004 2005 2006 2007 2008
Cinema Screens 147 147 146 167 175 174
Seating Capacity (000) 38 38 36 38 40 37
Attendance (000) 14,644 15,877 15,084 15,588 17,956 19,058
Source: Singapore Department of Statistics

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Figure 1: Golden Village Revised Ticket Price

*Seasonal sneaks applies to the eve of/and public holidays, seasonal May, June, July, November and
December Holidays.
*Gold class cinemas are equipped with plush recliner seats with call buttons for faster and more discreet
service. Seating capacity is 24-28.
Source: Golden Village

Questions

(a) (i) With reference to Table 1, describe the trend of cinema attendance in Singapore from
2003 to 2008. [1]

(ii) To what extent does the data in Table 1 indicate that the price increase of movie
tickets is an inevitable consequence of current market situation? [3]

(b) Using economic analysis, explain why the price increase of blockbuster movie tickets
was twice the price increase for general movie tickets? [4]

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(c) To what extent does Figure 1 exhibit the practice of price discrimination of movie
tickets? [4]

(d) (i) Explain the economic relationship between pirated movies and movies screened in
cinemas. [2]

(ii) Discuss the threats posed by film piracy to the movie industry. [6]

(e) Assess whether reducing prices of movie ticket is the best strategy to tackle film
piracy. [10]

[Total: 30 marks]

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Question 2

Economic Imbalances
In the global balance of payments, actions in any one place must be accompanied by
equivalent reactions elsewhere. Chinas rising savings rate in the past decade, offered the
great counterpart to the United States declining savings rate, just as its rising trade surplus
corresponded to Americas equally unprecedented trade deficit. As the world works through the
consequences of the global crisis, two seemingly unstoppable forces are working in opposite
directions and it isnt obvious what the outcome will be.

Extract 5: The United States Economy

US savings has finally risen for the first time in a while. For twenty years, growth in US savings
has lagged growth in the US economy, and one consequence has been a widening trade
deficit, which Americans have increasingly financed with debt. When the annual US current
account deficit reached 3 percent of GDP in 1999, economists warned that the trend was
worrisome. In 2006, the annual deficit reached 6.5 percent of GDP a record $857 billion
thus compounding economists concerns. To fund its chronic deficit, the United States
absorbed a majority of net capital outflows from other regions of the world. The total US net
foreign debt has swollen to $2.7 trillion.

Extract 6: The Chinese Economy
Chinas response to the global crisis has been an extraordinary expansion of credit new
lending in the first six months of 2009 was equal to 25 per cent of Chinas GDP along with a
surge in municipal, provincial and central government deficits. However, Chinas policymakers
face a unique challenge in trying to boost private consumption spending. Although private
consumption totalled $890 billion in 2007, making the country the worlds fifth-largest consumer
market, behind the United States, J apan, the United Kingdom, and Germany (which China
recently surpassed as the worlds third-largest economy), Chinas consumption-to-GDP ratio
36 percentis only half that of the United States and about two-thirds those of Europe and
J apan (Figure 4).

The sources of Chinas low consumption rate are both behavioural and structural. The average
Chinese family saves 25 percent of its discretionary income, about six times the savings rate
for US households and three times the rate for J apans. Indeed, Chinas savings rate is 15
percentage points above the GDP-weighted average for Asia as a region. Frugalitys impact is
compoundedand in many ways producedby structural features that restrict consumptions
share of the national income, which is only 56 percent of it compared with more than 60
percent in Europe and more than 70 percent in the United States.

Extract 7: The Results?
As American debt levels have begun to fall, US households are reducing their consumption to
repair their tattered balance sheets. The result has been a decline in the US trade deficit, a
process that most experts believe will continue for several more years. Most of the fiscal and
monetary expansion in China however is being channelled by the banking system into

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investment, with much of it ending up in increasing Chinas productive capacity faster than it
increases consumption.
The result is that the measure of how much Chinese production exceeds Chinese
consumption, its trade surplus, has not contracted at nearly the rate at which the Americas
excess of consumption over production, its trade deficit, has contracted.
Extracts 5, 6 & 7 are adapted from these sources:
1. A Consumer Paradigm for China, McKinsey Global Institute, Aug 2009
2. http://www.telegraph.co.uk 24 Aug 2009

Figure 2: US Private Consumption Expenditure

Figure 3: US Balance on Current Account

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Figure 4: Private Domestic Consumption as % of GDP, 2008

Table 2: Chinas Current Account Balance

Year US$ billion
2008 $426.11
2007 $371.80
2006 $249.90
2005 $160.80
Source: World Development Indicators, The World Bank Group

Table 3: Singapores Exports & Imports

Source: Annual Economic Survey of Singapore 2009

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Questions:

a. Explain the meaning of the balance of payments of an economy. [2]

b. (i) With reference to the data, analyse the relationship between private consumption
expenditure and the balance on current account in the United States from 1999 to
2009. [3]

(ii) Why is the trend of widening trade deficit worrisome, according to economists?
[3]

c. Examine the effects of Chinas current account balance from 2005 to 2008 on her
economy. [4]

d. Consider the impact of the reduction in consumption in the United States on the Singapore
economy. [8]

e. Assess whether, on balance, the net capital outflows from other regions of the world into
the United States has benefited her economy. [10]

[Total: 30 marks]

End of Paper
2
Answer three questions in total.

Section A

One or two of your three chosen questions must be from this section.

1 Resources are used to produce bottles for the water industry. Around the world,
campaigns to ban bottled water are under way as consumers become aware of the
environmental and economic costs involved.
The Straits Times, Tuesday, July 14 2009

Discuss if a ban on bottled water is the best way to reduce the environmental and
economic costs involved.

[25]

2

According to the United Nations (UN) Food and Agricultural Organization (FAO),
wheat has doubled in price; maize is nearly 50% and rice is 20% more expensive
than a year ago. Record world prices for most staple foods have not only led to
food price inflation in many countries but have had major impact on the market for
fertilizers and meat products.
Adapted from The Guardian, 3 November 2007

(a) Explain the likely reasons for the record rise in staple food prices in recent
years.

[10]
(b) Assess how the markets for fertilizers and meat products might be affected
by these price increases.

[15]

3

The growth of emerging economies such as China and India has seen their
companies growing into global corporate giants by acquiring big established
companies of Western economies.

(a) Explain why companies from emerging economies might want to acquire
those of Western economies.

[10]
(b) Discuss how such acquisitions might affect the consumers and producers in
the industries of the Western economies where these occur.

[15]

Section B


4 Singapores Ministry of Trade and Industry (MTI) announced on 14 J uly 2010 that it
expected the economy to expand by 13.0 to 15.0 per cent in 2010. The economys
real economic growth rate in 2009 was -1.3%.

Discuss whether small and open economies such as Singapore should adopt
different economic policies from those of large economies in order to sustain
healthy economic growth.

[25]

3

5

The US unemployment rate hit a record high of 10.1% in Oct 2009 and the US
trade deficit soars to US$36.4 billion for the month of Nov 2009. Some Americans
have advocated the imposition of harsh tariff measures on imports from China if
she fails to allow the Yuan to appreciate.

(a) Is unemployment always caused by competition from cheaper imports?
[10]
(b) Discuss the effectiveness of the use of harsh tariff measures to prevent
unemployment.

[15]

6 (a) Explain the economic basis for specialization and free trade.
[10]
(b) Discuss whether Singapore is among the economies that have most to gain
from freer movement of labour and capital between countries.

[15]

End of Paper

READ THESE INSTRUCTIONS FIRST

Write your name, PDG and index number on all the work you hand in.
Write in dark blue or black pen on both sides of the paper.
You may use a soft pencil for any diagrams, graphs or rough working.
Do not use staples, paper clips, highlighters, glue or correction fluid.

Answer all questions. Begin your answer to each question on a fresh sheet of writing paper.

At the end of the examination, fasten your answers to each question (Questions 1 and 2) separately.

Fasten this cover page in front of your answers to Question 1.

The number of marks is given in brackets [ ] at the end of each question or part question.

Name ___________________________ ( )

PDG ______/09

This document consists of 9 printed pages and 1 blank page.
[Turn over

Case Study Question No. Marks
1 / 30
2 / 30
Sub-total / 60
ANDERSON JUNIOR COLLEGE
JC2 PRELIMINARY EXAMINATION 2010
Higher 2
9732/01 ECONOMICS

Paper 1
16 September 2010

2 hours 15 minutes
Additional Materials: Answer paper
2

BLANK PAGE

3

Answer all questions.

Question 1 Land transport in Singapore

Figure 1: Daily Trips Generated (1997, 2004, 2008)
4,800 4,800
5,600
2,700
3,400
4,300
0
2,000
4,000
6,000
8,000
10,000
12,000
1997 2004 2008
N
o
.

o
f

d
a
i
l
y

t
r
i
p
s

(
'
0
0
0
)
Private Transport
Public Transport

Note: Numbers are rounded off

Table 1: Singapore Population, GDP per Capita, Economic Activities and Daily Trips Made

Year Population
(mil)
GDP per
Capita ($000
at 2000
prices)
1

Resident
Unemployment
Rate
2

Daily Trips
per Capita
1997 3.8 36.2 3.5%
3
1.98
2004 4.2 44.2 4.4% 1.97
2008 4.8 48.3 3.2% 2.18

Note: Numbers are rounded off
1
From Singapore Department of Statistics website
2
From Ministry of Manpowers website
3
This is 1998s unemployment rate as the 1997 figure is not available.
Source: Land Transport Authority, Journeys, May 2010

Extract 1: Public transport in Singapore

In Singapore, the provision of public transport was premised on the concept of a triumvirate partnership.
The government provided the transport infrastructure, commuters paid for the service, while the operators
extracted efficiency dividend within the regulated service standards and fares. As a result, public
transport was operated on a commercial basis without direct operating subsidy from the government.
Fares for trains (or rapid transit systems) and buses were regulated by the Public Transport Council
(PTC). Service provision was regulated by the PTC and the Land Transport Authority (LTA).

Source: Striking A Fare Deal, World Conference on Transport Research, J une 2007
Total
trips:
7,500
Total
trips:
8,200
Total
trips:
9,900
[Turn over
4

Figure 2: Bus Operators Market Share (Financial Year 08/09), number of bus services

Note:
1. Trunk services are long-distance services that connect new towns with industrial estates and the city
2. Feeder services are short-distance services that serve the residential neighbourhoods within major new towns by bringing commuters to the
town center and nearby bus interchanges/train stations.
Source: Public Transport Council Annual Report, 2008-2009

Extract 2: Public transport services

Public transport services are provided by two private operators, SBS Transit and SMRT Corporation.
Both operators provide rail as well as bus services. However, they are assigned specific areas or
territories of responsibility, such as running different MRT lines and a network of bus routes in different
regions within which, each company is responsible to plan and deliver a comprehensive network of
transport services to meet the service standards set by the regulator. For example, SMRT Corporation
runs the North-South, East-West and Circle train lines and bus routes serving selected housing estates in
the northern and north-western parts of Singapore. SBS Transit runs the North-East line and bus routes
serving almost the entire island. Thus, there is only a limited amount of cross-territorial competition.
However, the two operators would be benchmarked against each other as a kind of proxy competition,
whereby the regulator would assess and compare how efficient their operations were. Such benchmark
competition could help to reduce the information asymmetry between the operators and regulator.

A service company, Transit Link Pte Ltd, was jointly set up in an effort to integrate trains and buses to
function together as one single, comprehensive public transport network. Transit Link facilitates fare
integration, information integration and network integration.

Currently, the two companies run these routes at affordable fares because they have the ability to
balance the profitable routes with the unprofitable ones, within the regulated framework of limited
competition.

Nevertheless, in response to clamour for more competition, the PTC called a competitive tender in year
2000 for provision of bus services to a small industrial island (J urong Island) connected to the mainland.
It also opened up short feeder services in new towns in 2002 for free competition. Would-be-operators
were given the leeway to decide on the type of buses that they deploy subject to meeting minimum
vehicle standards.

In J anuary 2008, the Government moved towards introducing competition for the market, instead of
relying primarily on benchmark competition. Unlike competition in the market where different operators
compete on the same routes simultaneously, competition for the market would allow operators to bid to
operate an MRT line or packages of bus routes for a fixed period of time. Operators could be selected
based on the cost and/or quality of the services they offer. The chosen operator would be the sole
provider for the package of routes. Operators who do not perform up to the mark risk losing their licenses
at the end of the fixed term. This threat of losing their licenses to other operators provides a stronger
incentive to be efficient and cost-effective in operations. More recently, the tenure of operating licenses
was halved from 30 years to about 15 years to compel operators to improve efficiency, cost
5

competitiveness and service levels'. This provided an effective threat of contestability to the incumbent
operator.

Adapted from Lessons from Bus Operators, Land Transport Authority, March 2006 and Economics in
Public Policies: A Singapore Story, J uly 2009

Extract 3: Ensuring Singapore is not a city in a carpark

A good public transport system in itself will not ensure that our roads are free-flowing. Without an
effective traffic management system, our roads will still be congested. This is why, in addition to the
various measures that we pursue, such as road building and a better public transport system, we also
need Electronic Road Pricing (ERP) or congestion charging. Of all the different measures to deal with
congestion, ERP is the only one that deals directly with the problem by requiring individuals to take into
account the costs of congestion caused by their driving to others.

Furthermore, with the introduction of ERP in 1998, the Government has been able to rely more on car
usage charges and less on car ownership taxes to manage traffic demand. Vehicle ownership taxes have
been reduced and, as a result, annual vehicle ownership revenue fell from $3.4 billion in 1997 to $1.7
billion in 2006 compared to about $90 million in annual ERP revenue collected during that period. ERP
has thus proven to be a more effective approach to managing traffic demand, and it costs motorists much
less overall. Indeed, ERP is meant to be a congestion and not a revenue measure, so if motorists drive
less and the roads are smooth-flowing, the Government will be happy to collect less. In effect, ERP rates
can be adjusted down, as much as up, depending on the traffic speed on the roads.

Adapted from Minister for Transport Mr Raymond Lims speech, 25 August 2007

Extract 4: The new COE system

It is easy to forget the core purpose of the Certificate of Entitlement (COE) system, with feelings boiling
over following last week's unprecedented increases in premiums.

The system, implemented in 1990, has one purpose and one purpose only: to control vehicle population
growth so Singapore does not become a giant carpark.

The system has been fine-tuned over the years, with the latest tweak announced two weeks ago. In the
past 10 years, the supply of COE was based on forecasting the number of vehicles taken off the road in a
particular year. With the change, the supply of COEs will be determined every six months, with each
allotment determined largely by the number of vehicles actually taken off the road in the preceding six-
month period.

The Government also took the opportunity to correct an oversupply of certificates that persisted in the
previous system, which was based on forecast deregistration numbers. The previous system resulted in
an almost 25% increase in the vehicle population to more than 930,000 in the past five years.

With the new supply formula, as well as the adjustment for oversupply, the new COE quota kicking in
next month will be nearly 30% smaller. The impact is the worst for the category of cars up to 1,600cc.
This mainstay of car buyers will see a 40% shrinkage.

Adapted from The Straits Times, 30 March 2010
[Turn over
6

Questions

(a) (i) With reference to Figure 1, describe the main features in the generation of trips
between 1997 and 2008.

[2]

(ii) Using Table 1, suggest possible reasons for the features observed. [4]

(b)

How far does the data show that SBS Transit and SMRT Corporation are
operating as monopolies?

[6]

(c) Discuss whether competition in public transport always benefits the consumers. [8]

(d) Evaluate the relative effectiveness of the Certificate of Entitlement system and
Electronic Road Pricing in managing traffic congestion in Singapore.

[10]

[Total: 30]

7

Question 2 In sickness and in health? A look at Germany and Greece

Extract 5: Global financial crisis
The global financial crisis really started to show its effects in the middle of 2007 and into 2008. Around
the world stock markets have fallen, large financial institutions have collapsed or been bought out, and
governments in even the wealthiest nations have had to come up with rescue packages to bail out their
financial systems.
Source: www.globalissues.org

Table 2: Selected Economic Indicators for Germany

2006 2007 2008 2009
Annual rate of growth in real GDP

Household final consumption expenditure
(% of GDP)

Inflation rate
(%)

Unemployment rate
(%)

3.3

58.4

1.6

10.8

2.5

56.6

2.3

8.4

1.2

56.4

2.6

7.3

-5.0

52.9 (est.)

0.3

7.5

Source: Eurostat & OECD

Table 3: Selected Economic Indicators for Greece

2006 2007 2008 2009
Annual rate of growth in real GDP

Household final consumption expenditure
( % of GDP)

Inflation rate
(%)

Unemployment rate
(%)
4.5

72.6

3.5

8.9
4.5

71.9

3.3

8.3
2.0

72.5

2.9

7.7
-2.4

71.3 (est)

4.1

9.5


Table 4: Average Rates of US$ / Euro

2006 2007 2008 2009
1.26 1.37 1.47 1.39

Source: European Central Bank
[Turn over
8

Table 5: Total Trade Statistics (year-on-year figures) for Selected European Union Countries*

EU countries
Growth in Trade Balance
(bn Euro)
Exports (%) Imports (%) J an-May 09 J an-May 10
Germany 15 12 46.3 60.2
Greece 1 -6 -11.7 -10.7

* include countries such as France, Belgium, Italy and Spain

Extract 6: Record German growth
Germany, the European Unions (EU) largest economy by far, accounted for the strongest pace of growth
in the EU economy in three years. Not only has unified Germany never recorded as rapid a rate of
growth, its economy is bigger than previously thought, as earlier Gross Domestic Product (GDP) figures
were revised upwards for the first quarter and for 2009. All sectors of the economy expanded, including
consumer spending, which has been unusually weak.
The loosening of purse strings by 90 million Germans has led to more purchases of goods and services
from other countries. According to Minister for Finance Brian Lenihan, export market growth boded well
for our emerging recovery.
While foreign trade was one of the key drivers of growth, household and government consumption also
contributed to the rise in GDP. An improving global economy has fed demand for German exports, while
industrial orders and business confidence have been rising. Exports accounted for 41% of Germanys
GDP in 2009, compared with 13% in J apan and 11% in the US.
Foreign sales are forecast to grow 8% in 2011 after expanding 11% this year. The trade surplus is
expected to widen, to 160bn from 159bn in 2010.
According to Carsten Brzeski, an economist at ING in Brussels, the economy benefited from "a catching
up in the construction sector after the harsh winter and strong foreign demand for German goods." He
cautioned that "German growth will return to more ordinary growth numbers" looking forward. Despite an
inevitable slowdown, all ingredients are there for the German economy to take the next step toward a
self-sustained recovery.
Adapted from The Irish Times, Aug 2010 & www.finfacts.ie
Extract 7: Zero growth if not recession in Europe
The US economist Nouriel Roubini said that there was a risk of renewed recession in Europe. Growth
will fall towards zero. Even if that is perhaps not a real recession, it will feel like one. Greece was just the
tip of the iceberg.
According to Roubini (known as Dr. Doom and best known for predicting the U.S. housing crisis), there
was a risk of a second financial crisis, with countries becoming insolvent and being forced out of the
European Union (EU), and banks collapsing. Countries such as Spain and Greece are now under
pressure to cut spending and raise taxes to retain access to the capital markets, even though they had
no growth to speak of. If governments implement austerity measures too soon they risk snuffing out
demand and recovery, but delays could provoke a catastrophe with high interest burdens and inflation.
9

It was "possible to square this circle" if governments committed to a credible medium-term plan to restore
their budgets. But such policies, which carry the risk of a deflationary recession, must be compensated
for with a loose pan-European monetary policy to stimulate demand.
Any resulting further decline in the Euro would make European exports more competitive and allow
Germany to raise wages and purchasing power at home to stimulate exports from other EU countries.
Roubini said that a J apanese-style period of deflation, stagnation and high unemployment was a much
greater risk to Europe for the next two or three years than inflation.
Adapted from Reuters, 5 J un 2010

Extract 8: Greek recession deepens

When the 12 European nations raced to embrace the single currency, the Euro, it was supposed to be a
forward step in the process of European Integration, towards the United States of Europe. In retrospect,
the Euro has not contributed to deeper integration and is certainly close to undermining its foundations.

France, Italy, Belgium and Spain are among the 11 largest export partners of Germany with each of
these countries having a net deficit with it. It is the government or private deficit in these countries that is
financing Germanys exports.
Greece is in a deep economic crisis. In May 2010, Greece agreed to tough, three-year austerity and
deficit-slashing programmes along with politically difficult structural reforms in exchange for a 110 billion
bailout from the International Monetary Fund (IMF) and the European Union (EU).
Economic activity in Greece has been slowing since the beginning of 2008. For 2009 as a whole, the
Greek economy shrank 2%, worse than the government's forecast of a 1.5% contraction. However, the
austerity and cutback policies have aggravated the recession.
Recent indirect tax increase and cuts to public-sector wages and pensions, as well as a sharp reduction
in public consumption are acting as a drag on growth prospects. Persistently high inflation is further
eroding consumers spending appetite and power.
"This is a deep recession and sharp economic contraction in Greece because of higher taxes, spending
cuts, rising unemployment and contracting credit conditions, so consumptionthe main driver of GDP
is stalling," said Diego Iscaro, senior international economist at IHS Global Insight.
The contraction is expected to fuel a jump in unemployment especially after the summer months when
the tourist season ends. Greece's unemployment jumped 12% in May from 8.5% at the same time last
year, before crisis swept the country, official figures indicated.
"Unemployment is a lagging indicator, so it is going to get worse in the third and fourth quarter because in
the public firms' margins are shrinking, business confidence is very low and there is also joblessness
sector," said Mr. Iscaro.
The government is forced to cut the budget deficit by 5.5% points to 8.1% by year-end and this is
naturally creating a serious economic contraction.
Adapted from Wall Street J ournal, 12 August 2010 and Wall Street Pit, Global Market Insight, 19 March
2010
[Turn over
10

Questions

(a) (i) With reference to Tables 2 and 3, compare the trend in real GDP growth for
Germany and Greece over the period 2006 to 2009.

[2]
(ii) How far can we conclude that Germany has a higher material standard of living
than Greece?

[4]
(b) (i) Using AD-AS analysis, explain how austerity and cutback policies have
aggravated the recession as stated in Extract 8.

[4]
(ii) Explain what is meant by unemployment is a lagging indicator.

[2]
(c) In light of the data provided, assess the relative success of Germany and
Greece in recovering from a global financial crisis.

[8]
(d) Discuss and compare the likely impact of the change in the exchange rate of the
Euro on the German and Greek economies.

[10]

[Total: 30]


Write your name, PDG and index number on all the work you hand in.

Answer three questions in total, of which one must be from Section A, one from Section B and one from
either Section A or Section B. Begin your answer to each question on a fresh sheet of writing
paper.

At the end of the examination, fasten all your work securely together.

Attach this cover page in front of your answers.

Indicate in the table below the question numbers of the three questions you have attempted.


Name _________________________ ( )

PDG ______/09

[Turn over
Question No. Marks
/ 25
/ 25
/ 25
Sub-total / 75
ANDERSON JUNIOR COLLEGE
Higher 2
9732/02

ECONOMICS

Paper 2: Essay Questions
14 September 2010

2 hours 15 minutes
Additional Materials: Answer paper
2

BLANK PAGE

3


Section A


Section B


1 The growth of the Asia Pacific tourism market, fuelled by the growing middle class in China,
India and ASEAN as well as the emergence of low cost airlines, presents significant
opportunities. Singapore has to capture her fair share of the growing tourism pie because
many countries in the region are moving quickly to develop major tourist attractions and new
tourism products.
Source: Ministry of Trade and Industry website

(a) Using relevant elasticity concepts, account for Singapores decision to open the
Integrated Resorts.

[10]

(b) Assess how related markets might be affected by the opening of the Integrated
Resorts.

[15]

2 The behaviour of firms in reality is determined primarily by the need to maintain
profits. Discuss.

[25]

3 (a) Explain why income inequality is a cause for government intervention, and how price
controls can aid in reducing the inequality.

[10]

(b) Assess the various policy measures that the Singapore government currently adopts to
reduce inequality in income distribution and consider whether new policies will be
required.

[15]
4 (a) Explain the possible relationships between interest rate and exchange rate. [8]

(b) Assess whether Singapore has more to lose than the USA from a rise in interest rates. [17]

5 The price of oil jumped and hit a new high of US$135 a barrel on 26 May 2008 and it is likely
that global food and oil prices would remain high in 2008. In addition, the jobless rate in the
USA was at a 26-year high on 5 Dec 2008.

Sources: Asiaonenews, 26 May 2008 and The Straits Times, 5 Dec 2008

(a) Explain the causes of stagflation in the USA. [8]

(b) In light of stagflation in the USA, discuss the relative importance of fiscal and monetary
policies for Singapore.

[17]

6 (a) Explain whether globalisation could solve the economic problem of scarcity. [10]

(b) Discuss the extent to which correcting a balance of payments deficit is the major
reason for protectionism in the real world.

[15]
Catholic J unior College 9732/01/Prelims/10
[Turn Over]

CATHOLIC JUNIOR COLLEGE
JC2 PRELIMINARY EXAMINATION
In preparation for
General Certificate of Education Advanced Level
Higher 2

ECONOMICS 9732/01
Paper 1 3 September 2010
1400-1615
Additional Materials : Writing Papers 2 hours 15 minutes

Write your name and class on all the work you hand in.
Write the question number on all the work you hand in.
Do not use highlighters, glue or correction fluid.
Begin each question on a new sheet of paper.

Answer ALL questions.

At the end of the examination, fasten and hand in every question separately.

This document consists of 7 printed pages.

2
Catholic J unior College 9732/01/Prelims/10 [Turn over

Answer ALL questions.

Question 1

Car population and pollution

Extract 1: Road pricing makes good economic sense. But voters hate it

Britains sclerotic roads learned that the recent global financial catastrophe had slightly improved their
lives: traffic volume has fallen by about 3% since the start of the recession. But the Confederation of
British Industry (CBI), warned drivers that it would not last: traffic has risen remorselessly and a return
to growth seems inevitable as the economy recovers. Congestion does more than irritate drivers. It
makes employees and deliveries late, it snarls up modern just-in-time supply chains and it clogs up
labour markets by making commuting difficult. The cost of all this is almost impossible to measure.
But a big review of transport put the cost between 7 billion and 8 billion a year.

To fix the problem, the CBI offers a couple of ideas. First, it wants to see more flexible working, with
employees staying at home or staggering their hours, spreading the traffic load over more hours in the
day. Second, it wants to see more money spent on building new roads and widening existing ones.
Third, it wants to encourage better use of existing roads. All these will help, but at best they merely
chip at the edges of the problem. The CBIs big idea is to match supply with demand using a system
of nationwide road tolling. To economists the case for road charging is simple. The problem is not a
lack of capacity, but a failure to allocate it properly. A system of charges would be fairer than the
current means of paying for roads from a mixture of fuel duties and general tax revenue. For the
politicians, though, road charging is lethal. The publics first suspicion is that pricing would be just
another tax, an interpretation that would seem plausible with todays eye-watering budget deficits.

Source: The Economist, 15 March 2010

Source: Land Transport Authority, Singapore

3

Extract 2: Panic over likely quota cut sends COE prices north

Premium for commercial vehicles hits 10-year high. Making a dash before a foreseeable and sizeable
cut in quota size next month, bidders sent certificate of entitlement (COE) premiums higher across the
board again yesterday.

Motor traders said the anticipation of a reduction in COE supply from next month was the main cause
of yesterday's price spikes. The number of bids submitted rose by only 6.5 per cent to 4,753, a sign
that sales in hand had not risen by much since two weeks ago. Motor traders said the premium
increase in COE for cars up to 1,600cc remained modest because bidders in this segment typically
have thinner margins. Rising demand from businesses on the back of an improving economy drove
the commercial vehicle premium to its highest level in a decade.

Source: The Straits Times, 11 March 2010

Extract 3: COE, ERP and the question in between

It is not often that Singaporeans hear of differences in opinion within the highest ranks of Government,
but there was a hint last week. Senior Minister Goh Chok Tong was at a dialogue with Marine Parade
residents when he revealed an interesting divide over transport policy. He said Minister Mentor Lee
Kuan Yew was in favour of making car ownership very expensive so that fewer people would own
cars hence, leading to less congestion on the roads. Prime Minister Lee Hsien Loong, on the other
hand, wanted more people to be able to own cars and to control congestion by applying more
stringent usage measures like Electronic Road Pricing (ERP).

The PM believes its fairer if you can spread car ownership. Philosophically, the PM is right. In a
practical sense, the MM is right, he said. But then the problem is, the middle class cant own cars,
only the rich can. So the PM is right philosophically, and I think its the fairer approach. But then, more
road congestion, and so ERP.

It has always been a tricky balance, getting the right mix of ownership and usage measures to work,
to ensure not just free-flowing traffic but also meet the growing aspiration of people to have their own
set of wheels. Which is the more effective method for Singapore? Which is the fairer? Is it possible to
be both effective and fair? This is not just a matter of transport policy. It is also highly political nature,
especially when questions of fairness are raised. Or to put it bluntly, as SM Goh did, should only the
rich be able to own cars? You cannot get more political than that.

Source: The Straits Times, 5 September 2008

4

Extract 4: Centre mulls over pollution permits

In what could be the first step towards a market-based system of pollution permits, the government
plans to roll out a Rs.500-crore online pollution monitoring system across 6,000 industrial sites across
the country. The Central Pollution Control Board (CPCB) has been asked to prepare a national action
plan for online pollution monitoring based on the model being implemented in Tamil Nadu, according
to Union Minister of State for Environment and Forests J airam Ramesh.

The Tamil Nadu Pollution Control Board launched its Care Air Centre last month to assess real time
emissions from factories in the Manali industrial area. Censors have been put in place in the
smokestacks, as well as to measure the ambient air around nine plants at Manali, to measure the
levels of sulphur dioxide and nitrogen dioxide. The data is transmitted every ten seconds to the Care
Air Centre. Mr. Ramesh said that while the system would cover 202 sites in Tamil Nadu by the end of
the year, it will be expanded across the country to cover the entire organised industrial sector. It is still
being debated who will pay the Rs. 500 crore cost of setting up the system.

However, this system could then be used to power a system of pollution permits, the Minister said.
An inspection-based system is simply not sustainable, said Mr. Ramesh. If we think we're going to
create more and more laws, and put in more and more inspectors on the field and expect companies
to comply, it's just not going to happen. In my view, a market-based system is the only solution in the
long run.

Michael Greenstone, an Economics professor at the Massachusetts Institute of Technology,
suggested that giving companies permits for allowable amounts of pollution and allowing them to
trade it would result in much larger reductions at much lower costs. Since some industries face much
higher costs of reducing pollution, they can buy pollution permits in the market from other industries
that have a lower cost, he said.

Source: The Hindu, New Delhi, 24 J uly 2010

Questions

(a) (i) Using Figure 1, compare the trend of COE prices for Category A and Category B
between J une 2009 and April 2010.

[2]
(ii) With the help of a diagram, explain the impact of the imposition of COE on the
price of cars.

[4]
(b) With reference to Extract 1, using economic analysis, comment on how traffic
congestion affects the allocation of resources within Singapore.

[6]
(c) With reference to the data where appropriate, assess the effectiveness of the
different policies implemented to solve the problem of traffic congestion and the
possibility of government failure in implementing these policies.

[10]
(d) With reference to Extract 4, discuss whether Singapore should adopt Michael
Greenstones suggestion to address pollution.

[8]
[Total 30m]

5

Question 2

Chinas Trade Surpluses and its Exchange Rate
Extract 5: Obama urged to confront China over yuan valuation

A wide coalition of US trade unions and members of Congress is stepping up pressure on President
Barack Obama to confront China over alleged illegal currency manipulation that could have cost
millions of American jobs.

The push comes ahead of a visit by the US treasury secretary, Tim Geithner, to Beijing next month to
discuss trade issues. Against a background of rising job losses in the US, union leaders and members
of Congress are backing a bill that threatens Beijing with punitive duties on its goods unless it
changes its currency practices.

The low value of China's currency, the yuan, has been a point of friction between the US and China
for more than a decade. Some economists, including Geithner, accuse China of deliberately keeping
the value of the yuan low to make its export goods cheaper, undercutting US manufacturing and
leading to US job losses. The Chinese yuan was estimated to be undervalued by about 40%, which
gave Chinese a huge export advantage, undercutting US products and jobs.

Source: The Guardian, 20 May 2009

Extract 6: The export juggernaut: good for China, but good for its neighbours too

When China joined the World Trade Organisation (WTO) in 2001, many developing neighbours felt
more than a twinge of discomfort. With China already an export juggernaut, they feared that the
dismantling of tariff and other barriers that went with WTO membership would make the country
irresistible to manufacturers, diverting foreign direct investment (FDI) that might otherwise have gone
to them.

This appears not to have happened. Certainly, foreign investment in China has increased, as have
China's already heady exports, which since 2003 have been growing at their fastest pace since the
early 1990s. In 2004 China overtook J apan to become the world's third-largest exporter, behind
America and Germany.

But foreign investment has grown elsewhere too. The ten ASEAN countries saw a record $37 billion
of investment in 2005. For some manufacturers, South-East Asia (or India) serves as a hedge against
something going wrong in their China operations be it social unrest, economic problems or a
business climate that turns against foreign investment.

But much investment outside China is in fact contingent on the China boom. So supercharged has the
Chinese export machine become that it has sucked in vast quantities of parts and components for
final assembly from other parts of Asia Thailand, Malaysia, Singapore, the Philippines and
Indonesia, as well as richer Taiwan and South Korea. The effect of WTO membership, in other words,
has been to bind China more tightly into existing and highly sophisticated pan-Asian production
networks, a task greatly facilitated by the internet. Everybody has benefited, even rich J apan, which in
2002-03 was pulled out of a decade and a half's slump by Chinese demand for top-notch components
and capital goods. South-East Asia has got a further boost: rich in resources, including rubber, crude
oil, palm oil and natural gas, it looks likely to profit from China's appetite for raw materials for a long
time to come.

6

For South Korea, Taiwan, Hong Kong and Singapore, trade has also turned from the rich world
towards China. For Hong Kong, Taiwan and this year probably even J apan, China is the biggest
trading partner.

In China, the processing and assembly of imported parts and components now accounts for more
than half of all exports. China's growing trade surplus, it argues, is explained entirely by this kind of
assembly.

China has recently recorded phenomenal growth in exports of high-tech products too, principally
notebook and desktop computers, DVD players, mobile phones and the like. Between 1998 and 2004
American imports of Chinese laptops jumped from $5m to $7.7 billion and display units from $860,000
to $4.9 billion. Some now ask whether China is vaulting up the technology ladder or even threatening
American national security.

China's exports have to be put in context. Though very open to trade, China's economy, like
America's, is essentially driven by its own huge domestic demand. This demand is now growing at a
clip of 9% a year and starting to act as a regional engine of growth, sucking in imports. The World
Bank forecasts that this will be the first year in which China's imports will be growing by more than
America's, becoming the biggest source of import growth in the world. Goldman Sachs, an investment
bank, reckons that China's imports for domestic use are now roughly the same as those used in
assembling exports, whereas five years ago they were only half as big. Much of what is imported is in
the form of raw materials oil, copper, gas, timber to feed the China boom.

Source: The Economist, 29 Mar 2007

Figure 2: Chinas Exports, % of Total

Table 1: Singapore-China Bilateral Trade (S$ Thousands)

2008 2009
Imports from China 47,594,565 37,585,345
Exports to China 43,817,922 38,125,119
Total Trade 91,412,487 75,710,463
Source: IE Singapore

7

Figure 3:

Table 2: Exchange Rate of Singapore Dollar (SGD) vs Chinese Yuan (CNY)

Year 2005 2006 2007 2008 2009
SGD/100CNY 20.63 19.64 19.73 21.09 20.55

Source: Monetary Authority of Singapore

Questions

(a) (i) Using Figure 3, describe the trend of US trade balance with China.

[2]
(ii) Using a demand and supply diagram, explain how China manipulates its
exchange rate.

[4]
(iii) Assess the effects of a change in the value of Chinese yuan on US trade
balance with China.

[8]
(b) Explain two possible effects of FDIs have on Chinas balance of payments.

[4]
(c) Using Table 2, identify the trend of exchange rate between Singapore dollar and
Chinese yuan between 2005 and 2009.

[2]
(d) Assess whether Chinas growth is a threat or benefit to the Singapore economy.

[10]
[Total 30m]

[END OF PAPER]
Figure 1
Figure 2
US trade balance with China ($bn per month)
The fixed exchange rate ended in J uly 2005
China US $ exchange rate, Yuan per $1
Source: Reuters EcoWin
Chi nese Yuan / US Dollar exchange rate and balance of trade i n goods
Catholic J unior College 9732/02/Prelims/10 [Turn Over

CATHOLIC JUNIOR COLLEGE
JC2 PRELIMINARY EXAMINATION
In preparation for
Higher 2

ECONOMICS 9732/02
Paper 2: Essay Questions 14 September 2010
1300-1515
Additional Materials : Writing Papers 2 hours 15 minutes

Write the question number on all the work you hand in.
Do not use highlighters, glue or correction fluid.
Begin each question on a new sheet of paper.

Answer three questions in total, of which one must be from Section A, one from Section
B and one from either Section A or Section B.

At the end of the examination, fasten and hand in every question separately.


2


Section A


1 In November 2008, political turmoil caused the closure of the Bangkoks Suvarnabhumi International Airport.

(a) Using demand and supply analysis, explain how the above closure may affect the tourism related
industries in Bangkok.

[12]
(b) Discuss how the tourism related industries in Bangkok could reduce the impacts of or increase the
gains from the turmoil.

[13]

2 Food service management company Kopitiam Group is branching into the fast food business. It is bringing the
franchise of American fast food chain Wendy's back to Singapore after more than 10 years.
Source: Channel NewsAsia, December 2009

(a) Explain how a firm like Wendys is likely to determine its output and pricing decisions.

[10]
(b) Discuss if product differentiation is the best way for firms in an industry like the fast food industry to
compete.

[15]

3 Discuss the view that direct provision by the government is the most effective policy to adopt in tackling
the sources of market failure in the health care industry in Singapore.

[25]

Section B


4 The 0.8% contraction in the UK economy during the three months to J une came as a big - and very much
unwelcome - shock to the City. Industrial production output was down by 0.7%, construction output was down
by 2.2% and the dominant service sector shrank by 0.6%... Businesses are struggling to find banks willing to
provide them with working capital and have mothballed investment plans.
Source: The Guardian, J uly 2009

In light of the above statement, evaluate the impacts on the UK economy and its implications on
government policy decisions.

[25]

5 (a) Explain why a country may experience a persistent rise in its general price level.

[10]
(b) To what extent is reducing inflation often the most important macroeconomic goal for a
government?

[15]

6 (a) Explain the possible impacts that Free Trade Agreements have on Singapores economy. [10]
(b) Discuss the effectiveness of using protectionism to address a balance of trade deficit. [15]

[END OF PAPER]
This document consists of 9 printed pages, including 1 cover sheet.

DUNMAN HIGH SCHOOL
DHS 2010 Humanities Department (Senior High) [Turn Over
DUNMAN HIGH SCHOOL
Preliminary Examination for General Certificate of
Education Advanced Level
Higher 2

ECONOMICS 9732/1
Paper 1 Case Study 24 September 2010
2 hour 15 minutes

Additional Materials: Writing Paper


Write your name and class in the spaces provided on the answer paper.


Write your answers on the separate answer paper provided.

If you use more than one sheet of paper, fasten the sheets together.


DHS 2010 2

Question 1:
The Electricity Industry in the UK

Extract 1: Multiple Stages of Production

The electricity industry has several stages of production, namely power generation,
transmission, distribution and retailing. The power generation companies compete to
generate and dispatch electricity for sale in the wholesale and retail market. The
power transmission companies, which own the transmission and distribution
networks, deliver electricity from the generation companies to both the industrial and
household consumers.

Chart 1: Electricity Industry Structure

Extract 2: Energy prices in the UK

On J anuary 4
th
, Npower, a British electricity and gas firm owned by Germany's RWE,
announced big increases in its household-energy tariffs. Electricity prices for its
customers rose by an average of 12.7%; natural-gas prices by 17.2%.

Npower (and other energy firms) offer a simple explanation: rising natural gas prices.
About 40% of Britain's electricity generation plants are gas-fired (see Table 2). Add in
the rising cost of meeting energy-efficiency targets, and the increasing proportion of
energy that must by law come from expensive renewable sources, and price rises
are inevitable.

ELECTRICITY WHOLESALE
/ RETAIL MARKET
Power Generation Companies
Household
consumers
Industrial
consumers
transmitted through
Power Transmission
(Grid) Companies
DHS 2010 3
But gas prices may not be the whole story. Allan Asher, the head of Energywatch, a
consumer watchdog, argues that the real problem is the malfunctioning of Britain's
liberalised energy markets. He points out that the number of suppliers has dwindled
from more than 20 a decade ago to just six now.

A second problem is that today's firms are vertically integrated to a great degree. The
power generation companies also own the networks that distribute electricity. Critics
argue that this gives them a huge advantage over independent producers, which
may struggle to gain access to the networks fairly or, if they do, gain as much
information on supply and demand across the grid. The European Commission has
long criticised this vertical integration but it has had little success in getting its
members to agree to force firms to unbundle generation and transmission. The big
energy groups, such as E.ON and RWE in Germany and EDF and GDF in France,
argue that big, integrated companies are neededto bargain with Russian and
Algerian gas suppliers to secure gas for electricity generation, for example.

Opaque markets and jealous incumbents make entering the domestic electricity
business difficult, and continental Europe's fondness for long-term contracts makes it
hard for suppliers there to respond to price signals elsewhere. The result is volatility:
even when British prices reach eye-watering levels (as happened in each of the
previous two winters), gas imports do not increase to match, leading to factory
closures and, in 2006, fears that household customers might be cut off too.

For many years ministers have argued that price is not the only measure of
competitive performance. They assured the public that Britain's markets are working
well, pointing to high levels of switching by customers. Before 1999, people used
their local electricity retailers but since then customers have been able to switch
suppliers.

However, other government policies mean that energy prices are likely to remain
high. The government is keen on expanding renewable energy and on building a new
generation of nuclear-power plants to cut carbon emissions. Another goal is to
increase the security of supply of energy by reducing its dependence on imported
fossil fuels. But windmills and atomic reactors are expensive, and the only way they
can compete with fossil fuels is through subsidies or higher energy prices that reflect
the full cost of emitting carbon. Either way, consumers will foot the bills.

Source: The Economist, Jan 10th 2008

DHS 2010 4
Table 1: Average annual domestic electricity bills
*
by home and non-home
supplier (in pounds)

Home
suppliers
Non-home
suppliers
UK
Cash terms
1990 - - 245
1991 - - 269
1992 - - 288
1993 - - 287
1994 - - 288
1995 - - 299
1996 - - 297
1997 - - 285
1998 - - 268
1999 266 245 264
2000 260 241 257
2001 255 237 250
2002 256 233 249
2003 258 237 250
2004 265 243 257
2005 295 272 285
2006 343 332 338
2007 391 372 383

Source: Energy Trends and Quarterly Energy Prices, June 2008

* All bills are calculated assuming an annual consumption of 3,300 kWh. Figures are inclusive of VAT.
Home supplier denotes the former public electricity suppliers within their own distribution areas. Non-
home suppliers are new entrant suppliers and the former electricity suppliers outside of their
distribution areas.

Table 2: Electricity generation by fuel source for selected companies in the UK

Selected
Suppliers
Coal
%
Natural
Gas
%
Nuclear
%
Renewable
%
Other
%
CO2
emissions
per
kg/kWh
Radioactive
Waste per
g/kWh
Npower 42 42 8 5 3 0.543 0.001
British
Gas 15.3 61.8 14.3 6.6 2 0.374 0.00143
EDF
Energy 51.3 28.1 12 6.5 2.1 0.567 0.0012
Scottish
Power 43.5 49.3 0 6.9 0.3 0.57 0
Southern
Electric 22.3 55 10.5 9.7 2.5 0.413 0.00105
UK
Average 32.9 43.3 15.3 5.9 2.6 0.463 0.00153

Source: electricity-guide.org.uk website, 19 August 2010
DHS 2010 5
Questions

(a) (i) Compare the changes in price charged by home and non-home suppliers
for each kWh of electricity consumed in the UK from 1999 to 2007. [2]

(ii) How far does the data support the view that market liberalisation since
1999 has benefited consumers? [8]

(b) (i) State and explain the market structure that electricity generation firms in
the UK are likely to fit in. [4]

(ii) Explain how the electricity generation firms in the UK might change their
price and output decision if the prices of inputs such as coal and gas were
to fall. [6]

(c) Discuss whether the UK government should continue their policies to expand
renewable energy and build nuclear-power plants in the face of rising electricity
prices. [10]

[30 marks]

DHS 2010 6
Question 2:
Trade and Economic Growth

Extract 3: China, US Warn Against Trade Protectionism

China and the United States agree on the benefits of trade and see protectionism as
counterproductive Chen Deming, Chinese Commerce Minister, told reporters at the
4
th
round of the Sino-US Strategic Economic Dialogue (SED).

Quoting a study by the US-China Business Council, an organisation comprising US
firms doing business in China, the Minister said US-China trade has helped reduce
inflation in the US and increased the household disposable income of Americans.
The Chinese side understands US concerns about the quality and safety of imported
Chinese goods, but warns against abusing and manipulating the issue as a pretext
for trade protectionism. While China is willing to expand its investments in the US, he
hopes that the US government would relax hi-tech export restrictions, settle trade
disputes through negotiation and push forward multilateral trade talks jointly with
China.
Source: Xinhua News, 19 June 2008

Chart 2: US trade with China

Source: US Census Bureau, http://www.census.gov/

2000 2001 2002 2003 2004 2005 2006 2007 2008
Export 16.2 19.2 22.1 23.7 34.4 41.2 53.7 62.9 69.7
Import 100.0 102.2 125.2 152.4 196.6 243.4 287.7 321.4 337.7
0
50
100
150
200
250
300
350
400
U
S
$

b
i
l
Import from China
Export to China
DHS 2010 7
Chart 3: China Inflation Rate

Source: Trading Economics, http:/ /www.tradingeconomics.com

Chart 4: China Economic Growth Rate

Source: Trading Economics, http://www.tradingeconomics.com

Extract 4: The Chinese Economy in 2008

Inflation in the Chinese economy has become more evident since the middle of 2007.
Consensus has been reached that inflation is a serious threat to stability and fighting
inflation should be the top priority of government policy. However, there are still
serious differences in diagnosing the nature of Chinas current inflation among
Chinese economists. One school of thought holds that the inflation witnessed is
caused by factors such as increase in labour costs and higher environmental
standards. The other holds that the worsening of inflation is caused by excess money
supply.

Unfortunately, just as China launched its anti-inflation campaign, the subprime crisis
broke out in the US and spread across the worlds major economies. Given that more
than 24 million new working-age citizens will be added to its labour market each
year, maintaining a relative high growth rate is a must. Therefore, the Chinese
government must strike a fine balance between growth and inflation.

Source: Asia EconoMonitor, July 16, 2008
DHS 2010 8

Extract 5: Is Export-Led Growth Obsolete?

For five decades, developing countries that managed to develop competitive export
industries have been rewarded with astonishing growth rates: Taiwan and South
Korea in the 1960s, Southeast Asian countries like Malaysia, Thailand, and
Singapore in the 1970s, China in the 1980s, and India in the 1990s.

However, there seems to be a transition to a new regime which works against export-
led strategies. The most immediate threat is the slowdown in the advanced
economies with Europe and America are both entering recession. On top of this are
the global current-account imbalances. America alone ran a current-account deficit of
$739 billion 5.3% of its GDP. According to a December 2007 NBC/Wall Street
J ournal poll, almost 60% of Americans think globalisation is bad because it has
subjected American firms and employees to unfair competition.

So exporting will become an even tougher business. Unlike large economies like
China that can rely much more on domestic demand to fuel their economies, small
economies like Singapore will have to struggle from now on given the less hospitable
conditions.

Source: DANI RODRIK, Project Syndicate, September 15, 2008

Questions

(a) (i) Compare the changes in inflation rate and the changes in growth rate of
China over the period between J an 2006 and J an 2008. [2]

(ii) Explain an appropriate policy measure that the Chinese government can
adopt to fight inflation in 2007. [2]

(b) Analyse the implications of the subprime crisis and the addition of 24 million
workers on the Chinese economy in 2008. [6]

(c) (i) Describe what happened to the US balance of trade account with China
over the period from 2000 2008. [2]

(ii) How far does the data support the view that US-China trade has benefited
the US economy? [8]

(d) Assess whether the view that Export-Led Growth is Obsolete is well-founded,
using both the case study and your own relevant knowledge. [10]

[30m]

DHS 2010 9

DUNMAN HIGH SCHOOL
Preliminary Examination 2010

COVER SHEET 9732/1 (CASE STUDY)

ECONOMICS Higher 2

INSTRUCTIONS TO CANDIDATES:
1. Please ensure that you have submitted all your answers and attach this cover page as
the first page of your submission.
2. Do not use staples, paper clips, highlighters, glue or correction fluid.

Marks
Qn. 1

Qn. 2

Total
60

Name Class Year 6C___


DUNMAN HIGH SCHOOL
2010 Humanities Department (Senior High) [Turn Over
DUNMAN HIGH SCHOOL
Preliminary Examination for General Certificate of
Education Advanced Level
Higher 2

ECONOMICS 9732/2
Paper 2 Essay Questions 14 September 2010
2 hour 15 minutes



Write your name and Civics Class in the spaces provided on the answer paper.

Answer three questions in total, of which one must be from Section A, one from Section B
and one from either Section A or Section B.
Write your answers on the separate writing paper provided.
Write the question numbers of the questions you have attempted on the cover sheet.

At the end of the examination, fasten all your work securely into two separate bundles for
Section A and Section B.
Check the boxes of the questions attempted below:
Section A Section B
Q1 Q2 Q3 Q4 Q5 Q6

Year 6 H2 Economics (9732/2)
2010 2
Section A

One or two of your three chosen questions must be from this section

1. The strong Asian economic recovery and low interest rates fuelled the property
market in Singapore. At the same time, the government is releasing more new
HDB units and more land for sale to private developers.

(a) With the use of a relevant demand elasticity concept, explain the
relationship between public and private housing. [8]

(b) Assess the impact of the above events on the private and public property
markets in Singapore. [17]

2. Many business buyers buy Dell personal computers through its website. A
standard Dell Latitude E6400 would sell for $1,197 if the buyer clicks to the
webpage for small & medium business or for $1,339 if the buyer clicks to the
webpage for Large Business.
Luke M. Froeb (2009), Managerial Economics: A Problem Solving Approach

(a) Explain, whether this pricing strategy could be considered to be an
example of price discrimination. [10]

(b) Discuss whether the rapid expansion of e-commerce using the internet is
making it easier for firms to practise price discrimination. [15]

3. (a) Explain, with supporting examples, how public and merit goods might lead
to market failure. [10]

(b) Assess the view that public goods and merit goods should be the major
causes of government intervention within Singapore. [15]

Year 6 H2 Economics (9732/2)
2010 3
Section B

One or two of your three chosen questions must be from this section

4. To what extent is a countrys macroeconomic priority dependent on the
openness of its economy? [25]

5. The sheer magnitude of the economic crisis that the world faced in 2008 had
led to its equally large policy responses. The deterioration in fiscal positions in
major economies will be difficult to reverse.

(a) Explain the factors that determine the magnitude of fall in GDP when
aggregate demand declines. [10]

(b) In view of the above statement, discuss whether governments should
have avoided the use of Keynesian fiscal stimulus and adopted alternative
policies to smooth out cyclical fluctuations instead. [15]

6. Governments have imposed minimum wage laws and price ceilings on basic
necessities to help their citizens cope with the consequences of globalisation.

In view of the trend towards globalisation, discuss whether government
intervention through price controls could ever be justified. [25]

ECONOMICS 9732/01

PAPER 1 Case Study 13 September 2010

Additional Materials: Answer Paper 2 hours 15 minutes


Write your name and CT on all the work you hand in.
Do not use staples, paper clips, highlighters, glue or correction fluid and tape.

Answer ALL the questions.

At the end of the examination, fasten the answer scripts to Questions 1 and 2 separately with the
cover pages provided.
You are advised to spend several minutes per question reading through the data before you begin
writing your answers.


[Turn over
HWA CHONG INSTITUTION
College 2 Preliminary Examination 2010
Higher 2


HCI Preliminary Exam 2010 9732/01/S/10

2


Question 1
Platinum and Palladium
Extract 1 Uses of platinum and palladium
Platinum and palladium are essential components in the production of electrical circuits and
computers. They are also used for making jewellery and catalytic converters for car exhausts. The
amount of platinum or palladium used in each product is small implying that the firms that
manufacture them and the consumers that buy them are relatively insensitive to significant
increases in the price of platinum or palladium. Catalytic converter legislation recently spread to
Latin America and East Asia such that platinum and palladium consumption for the converters in
such emerging market economies will surpass the total now consumed in North America, J apan and
Europe. Meanwhile, the peak of 50% of all platinum demand dedicated to jewellery dropped to 40%
in 2005 and is projected to account for only 20% of demand. Platinum's loss of demand in jewelry is
palladium's, a poor cousin to platinum, gain.
Sources: www.azom.com and www1.energy.gov, 2006
Chart 1: Prices of platinum and palladium from 1992 to 2007

Source: www.agmetalminer.com, 2008


3

Table 1: Platinum supply and demand 2003-2007
Platinum supply and demand (000oz)
Calendar year *2007 2006 2005 2004 2003
Demand
Automotive 4,245 4,035 3,570 3,260 2,995
J ewellery 1,635 1,685 1,960 2,160 2,505
Industrial (including investment) 2,010 1,860 1,730 1,630 1,465
Total 7,890 7,580 7,260 7,050 6,965
Suppl y
Total 7,685 7,670 7,270 7,065 6,830
Surplus/(shortage) (205) 90 10 15 (135)
* Estimate Source: www.implats.com.za/market/supply_demand.asp, 2008
Table 2: Palladium supply and demand 2003-2007
Palladium supply and demand (000oz)
Calendar year *2007 2006 2005 2004 2003
Demand
Automotive 5,300 4,990 4,605 4,515 4,465
J ewellery 1,090 995 1,430 930 260
Electronics 990 960 890 875 850
Other 1,540 1,440 1,715 1,450 1,230
Total 8,920 8,385 8,640 7,770 6,805
Suppl y
Total 9,040 9,925 8,975 9,255 7,415
Surplus 120 1,540 335 1,485 610
* Estimate Source: www.implats.com.za/market/supply_demand.asp, 2008
Table 3: Market share of platinum companies in 2004
Company Platinum Supply (million ounces) Implied Worldwide market share (%)
Anglo Platinum 2.45 37.69
Impala Platinum 1.09 16.77
Lonmin Platinum 0.94 14.46
Aquarius Platinum

0.21 3.23
Northam Platinum

0.20 3.08
Southern Platinum 0.09 1.38
Source: www.comptrib.co.za, 2005


4

Extract 2 Merger approved in the platinum industry
In 2002 the Competition Tribunal of South Africa unconditionally approved the merger between
Rustenburg Platinum Mines (RPM) and Eastern Platinum Mines Ltd (EPL).The transaction will
facilitate the establishment of a large mine (Pandora Mine) to mine the entire area of the UG2 Reef
more efficiently than having to mine each area separately. The companies stated that it was not
feasible for Rusternberg Mines (which owned the mineral rights to two of the mines and which had
secured mining rights of the third farm from the state) to mine the entire area on its own, as it would
require much infrastructure investment. It is more economical to upgrade existing Eastern Mines
infrastructure than erecting an entirely new plant, and also, Eastern Mines has the experience to
manage this project. Generally, the acquisition would permit better utilisation of Rusternberg Mines'
mineral assets -- leading to lower costs in extraction and in management.
However, the merging companies said that planned retrenchments after the merger would be
justified as it could be attributed to the transition to a safer productive mining method, changed
working timetables and the reduction of high operating costs (labour costs constitute more than 60%
of the pre-merger total cost of Rusternberg Mines).
Source: www.saflii.org, 2003
Extract 3 Platinum producers
While demand for platinum is continuously increasing, supply is extremely limited. Sources of
platinum production are quite scarce. In fact, more than 90% of world platinum production is
concentrated in just two areas in South Africa and Russia. Additionally, there are not more than ten
significant platinum mining companies in the world.
The Bushveld Complex in South Africa is the main producer area, with the company AMPLATS as
the industry leader. The other significant area is the Norilsk region in Russia. Platinum is also mined
in smaller deposits in United States, Canada and Zimbabwe. According to some estimates, if
platinum mining were to stop today, existing above ground reserves would last about one year.
However, in order to respond to increasing demand, most mining companies are developing
expansion plans; for example, mining companies in South Africa and North America are developing
expansion plans which will lead to future increases in platinum production.
Platinum mining industry is capital intensive. Companies need large amounts of money to build
production facilities and long-term survival requires heavy expenditures in order to finance
exploration and production. Main producers in the platinum industry are big corporations with a
large degree of vertical concentration. Since platinum is both a precious metal and an industrial
metal, these companies have different divisions which deal with refining, assaying, fabricating,
trading, researching in new applications or even with investment activities.
New platinum mine developments and exploration outside the Russian Federation, particularly in
North America, are taking place as a result of the platinum market boom. Moreover, at the current
prices it is highly profitable to find and mine platinum.
Source: www.unctad.org,2007


5
Questions

a (i) Compare the trends of the prices of platinum and palladium between 2000 and
2007.
[1]

(ii) With the aid of Tables 1 and 2, and the use of diagrams, account for the above
trends observed between 2003 and 2007.
[6]
(iii) Discuss how the buyers and sellers will respond to the trend of platinum prices. [6]
b Account for the market structure of the world platinum market with given data. [5]
c To what extent is the merger of the two platinum mines in Extract 2 beneficial to
society?
[12]

[Total: 30]

[Turn over


6
Question 2

Singapore and U.S. economies

Extract 4 The Specter of Stagflation Looms over U.S. economy
Lately, many people are hearing an echo - faintly perhaps but distinctly audible - of the stagflation of
the 1970s. Even as economic growth sags, oil and gasoline prices are surging to new heights. Gold
prices are on the rise, along with the prices of basic commodities like wheat and steel. And there
are signs that overall inflation, after years of only modest increases, may be breaking out of its box.
For central bankers, especially the Federal Reserve chairman, Ben Bernanke, all this could not
come at a worse time. With the credit markets in disarray from the collapse of the housing bubble,
Bernanke is cutting rates in a headlong rush to blunt the risks of recession.
Analysts say that by tolerating such price rises, and maybe even allowing them to escalate, the
Federal Reserve is risking its hard-won credibility as an inflation fighter, which will ultimately require
it to push interest rates higher than they would have had to in order to contain the damage.
On one hand, officials are cutting interest rates to keep the economy growing. On the other hand,
the fear of rising inflation makes it more difficult for the Fed to jolt the U.S. economy with another
wave of cheap money.
Like the Fed, economists generally remain more concerned about the immediate threat of recession
than the more distant fear of higher inflation. The consensus view of economists is that the
expected slowdown is likely to create enough spare capacity to suck inflationary pressures out of
the economy. Once the interest rate cuts have nursed the economy through the next few difficult
quarters, they say, the Fed can easily raise rates again to respond to any pickup in inflation. "They
are going to fix the wound now," said David Durst, chief investment strategist of the Global Wealth
Management Group of Morgan Stanley. "They are going to take care of the growth situation and
then fight inflation when the economy gets stronger."
Source: Adapted from The New York Times, Dec 1, 2008
Extract 5 Singapore not facing stagflation, but inflation will remain high
The Singapore economy is not facing stagflation, according to the Senior Minister of State for Trade
and Industry, S Iswaran. Prices have been rising in Singapore - with inflation hitting a 26-year high
of 7.5 per cent in April and May.
And according Mr Iswaran, prices will continue to go up, with inflation remaining at a rate that
Singaporeans have not experienced until recently. However, he said that stagflation where rising
inflation meets falling industrial production and high unemployment - is unlikely. Mr Iswaran said,
"Singapore is not facing stagflation. Singapore's economy grew by 4.3 per cent in the first half of
this year. Our job market remained healthy in the first quarter of the year. More than 73,000 jobs
were created, and unemployment remains low."
Worldwide growth is expected to remain soft in the second half of this year, following months of
cooling due to high oil prices and weakening consumer confidence. And this slowing growth is
compounded by steps to contain accelerating inflation - a situation not unique to Singapore.
However, the Singapore government remains upbeat.
Mr Iswaran said, "In Singapore, the strong pipeline of foreign investments and tourism projects that
we have secured will also provide a certain level of support to the economy for the rest of the year
and beyond. These projects will give rise to new activities and help to create jobs."


7
He said that we also have to take care that wage growth does not exceed growth in productivity so
as not to set off a domestic wage-price inflation spiral. During this period of economic volatility, it is
important that companies continue to upgrade business capabilities and enhance competitive edge.
Monetary policy has been tightened further. Following a slight increase in the slope of its policy
band for the nominal effective exchange rate of the Singapore dollar last October, in April 2008 the
Monetary Authority of Singapore shifted the band up by an estimated 2 percent in response to
inflation concerns and upward pressures on the exchange rate.
Source: Adapted from Channel NewsAsia, 21 July 2008 and International Monetary Fund Public
Information Notice, 13 Aug 2008
Extract 6 Spectre of the double-dip
1
A crippled housing market. Stubbornly high levels of unemployment. Falling consumer confidence.
Slower growth in industrial production. No wonder
haunts uneasy US
Ben Bernanke, the world's most powerful central
banker, appeared a worried man in his testimony to Congress about the state of the US economy
last week.
Cheap money, tax breaks, higher public spending and bank bailouts acted like a massive shot of
adrenaline and appeared to do the trick. The US economy has traditionally had good self-healing
properties, and after plunging into recession in late 2008 and early 2009 it returned to growth in the
middle of last year. In the final quarter of 2009, it grew by 1.4%. But growth since the start of 2010
has dropped back, and leading indicators point to even weaker activity in the second half of the
year.
Stubbornly high unemployment and the bombed-out state of the housing market help to explain why
consumer confidence has nose-dived recently. Those who fear a double dip warn that companies,
even if awash with cash, are not going to invest unless they can expect strong demand for their
products.
Americans can expect the Fed to leave interest rates at current emergency levels for some time to
come. But Stephen Lewis at Monument Securities says cheap money alone is unlikely to turn the
economy around soon. "On the balance of probabilities it seems that, in at least one quarter in the
next three, US GDP will record a quarter-on-quarter decline. Such a development would excite talk
of a 'double-dip' recession. But it should, more accurately, be interpreted as evidence of an
economy in depression."
Adapted from: http://www.guardian.co.uk, 25 July, 2010

1
A double-dip recession refers to a recession followed by a short-lived recovery, followed by another recession. Gross domestic product
(GDP) growth slides back to negative after a quarter or two of positive growth.


8

Source: MAS Survey of Professional Forecasters: March 2010

Fig 2: US unemployment rate (%)

Fig 3: US Consumer Price Index

Source: Bureau of Labour Statistics
Fig 1: Singapores Quarterly GDP Growth


9
Questions:
a (i) Explain what is meant by GDP at constant prices? [2]
(ii) Describe the trend in GDP in Singapore from 2007 (Q3) to 2009 (Q3). [3]

b

With the aid of a diagram, explain why the Minister of State remains upbeat
about future economic situation in Singapore despite the high inflation rate.

[4]

c (i) Explain how the data suggest that the US is heading towards stagflation? [3]
(ii) economists generally remain more concerned about the immediate threat
of recession than the more distant fear of higher inflation. To what extent is
the above view of the economists justified?

[6]

d Examine the relative success of the rescue packages adopted by the US and
the Singapore governments to help the economies.
[12]

Total: [30m]


10

Bl ank Page

Copyright Acknowledgements:

Question 1 Extract 1 Based on: www.azom.com and www1.energy.gov, 2006
Question 1 Extract 2 Based on: www.saflii.org, 2003
Question 1 Extract 3 Based on: www.unctad.org,2007
Question 1 Chart 1 www.agmetalminer.com, 2008
Question 1 Tables 1 and 2 www.implats.com.za/market/supply_demand.asp, 2008
Question 1 Table 3 www.comptrib.co.za, 2005
Question 2 Extract 4 Based on: The New York Times, Dec 1, 2008
Question 2 Extract 5 Based on: Channel NewsAsia, 21 J uly 2008 and International Monetary Fund Public Information Notice, 13
Aug 2008
Question 2 Extract 6 Based on: http://www.guardian.co.uk, 25 J uly, 2010
Question 2 Figure 1 MAS Survey of Professional Forecasters: March 2010
Question 2 Figures 2 and 3 Bureau of Labour Statistics

Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where
possible. Every reasonable effort has been made to the publisher to trace copyright holders, but if any items requiring clearance have
unwittingly been included, the publisher will be pleased to make amends at the earliest possible opportunity.


11

Suggested answer Q1
a (i) Compare the trends of the prices of platinum and palladium between
2000 and 2007.
[1]

Suggested Answer:
Palladium falling trend while platinum rising trend

(ii) With the aid of Tables 1 and 2, and the use of diagrams, account for the
above trends observed between 2003 and 2007.
[6]
Suggested Answer:
Platinum DD>SS in some years rise in DD (13.3%) may exceed rise in
SS (12.5%) insignificant surplus from 2004 to 2006 and there is shortage
in some years exert upward pressure on price.
Palladium overall, rise in DD (31%) is faster than the rise in SS (22%)
upward pressure on price however surplus causes a less than significant
rise in price

Price of platinum rises due to the smaller surplus and
prevailing shortages in some years
Q0 Q1

Price of platinum

P1

P0

S0
S1
Quantity of platinum
D0
D1


12

Platinum (max 3 m)
1m Correct diagram
1 m Rise in DD > Rise in
SS
1 m low surplus and
shortages
upward pressure on P

Palladium (max 3 m)
1m Correct diagram
1 m Rise in DD > Rise in SS
1 m always surplus, bigger than platinum
upward pressure on P to a smaller extent

Version 1
Price movement wrong (i.e. price fall)
Reason: Rise in SS> rise in DD
diagram consistent with reason above
(does not matter if st mentions surplus or
not) Cap at 1 m

Version 2
Price movement wrong (i.e. stable price)
Reason: Rise in DD=rise in SS (or in
tandem)
diagram consistent with reason above
(does not matter if st mentions surplus or
not) Cap at 1 m

Version 3
Price movement correct (i.e. price rises)
Wrong reason: rise in SS> rise in DD or
rise in DD = rise in SS
Will get ZERO m. Wrong logic.
Mention of Surplus in this instance will not
be given credit.

Common mistakes:
Error Possible cause
Rise in DD without any change in
SS or
Rise in SS without any change in
DD
Failure to read the Tables 1 and 2
Q0 Q1

P1
P0

S0 S1
Price of palladium rises less significantly due to the
larger surpluses
Quantity of palladium
D0
D1


13
Static analysis e.g. Qd>Qs or
Qs>Qd shortage or surplus
Failure to distinguish change in
DD/SS from movement along
DD/SS
Failure to use dynamic analysis
which shows changes of DD/SS
over time shown in Tables 1 and 2
Shortage of supply or surplus of
supply
Wrong expression/ inability to
understand the concept of shortage
and surplus both are relative
concepts
Shortage is Qd>Qs
Surplus is Qd<Qs
Shortage means SS shifts left
Surplus means SS shifts right

Inability to understand the concept
of shortage/surplus

Price of palladium remains stable or
falls
Failure to refer the Chart which
shows Price of palladium rising
Rise in SS > Rise in DD hence,
P rises
Illogical conclusion because rise in
SS>rise in DD should cause P to
fall


14

a (iii) Discuss how the buyers and sellers will respond to the above trend of platinum prices. [6]

The platinum prices are rising. Both SS and DD rise. When SS shifts, the degree of
responsiveness in Qd by buyers depends on the PED. When DD shifts, the degree of
responsiveness in Qs by sellers depends on PES. Given that platinum and palladium are
substitutes, the XED is also relevant.
Price-inelastic DD of platinum: evidence is from Extract 1: "The amount of platinum or
palladium used in each product is small implying that the firms that manufacture them
and the consumers that buy them are relatively insensitive to significant increases in the
price of platinum." The consumers will not reduce Qd by a great extent even though
price has risen.
Buyers will be forced to look for cheaper substitute, palladium which has a price one-third
that of the platinum (See Table 1). The XED of both is positive and may be greater than
one, as palladium can be used in the same products that platinum is part of. DD for
palladium will shift to the right.
In the short-run, sellers of platinum will increase quantity supplied but PES is likely to be
less than one as its not possible to physically increase the number of mines overnight.
In the long-run, however, this will encourage for example, mining companies in South
Africa and North America to embark on expansion plans which will lead to future
increases in platinum production. New platinum mine developments and exploration
outside the Russian Federation, particularly in North America, are taking place as a
result of the platinum market boom. Moreover, at the current prices it is highly
profitable to find and mine platinum. SS is more price-elastic in the LR. See Extract 3.
Buyers (max 3 m) Sellers (max 3 m)
1m PED
1m XED
1m evidence of either PED or XED
1m PES < 1 or/and higher PES over time
1m SR vs LR
1m evidence of corresponding concepts
identified

Note: Evidence of Ltd SS and expansion
plans are both cited but no link to
elasticity in SR and LR cap at 1 m in
total
Case-study skil ls
Mere lifting of evidence without any link to economic concepts (0 m)
Evidence gi ven with some economi c anal ysi s but Not explicitl y linked to
elasticity concepts (cap at 1 m for buyer and 1 m for sel ler)

No case-study skills (0 m)
Sell ers rai se price as PED < 1 to increase TR no evidence
Sell ers withhold SS to increase stockpile to take advt of future rise in
price no evidence
Buyers buy more platinum now to avoid paying hi gher pri ce in future
no evidence
Merger i s suggested to lower cost of production to compensate for the
rising price of pl atinum not acceptable no evidence that it is a
response to rising P.

b Account for the market structure of the world platinum market with given data. [5]


15

Suggested Answer:
Market structure is likely to be oligopoly with high BTE See Extract 3 "not more
than 10 significant platinum mining companies in the world" and see Table 3 market
concentration ratio of top 3 firms = 69%. (1m)
Sources of BTE ( 2m for any of 2 types of BTE)
i) "capital-intensive" see Extract 3 "large investment" and "heavy expenditures"
ii) substantial economies of scale: see Extract 3 :"Since platinum is both a precious
metal and an industrial metal, these companies have different divisions which
deal with refining, assaying, fabricating, trading, researching in new applications
or even with investment activities."
iii) access to essential input (i.e. mines) "state-owned trading monopoly in
Russia" and Extract 2 "mineral right to two mines in South Africa."
iv) mergers and acquisitions of mines in Extract 2

c. To what extent is the merger of the two platinum mines in Extract 2 beneficial to
society?
[12]

Suggested Answer:
Agree with merger/joint-venture
Cost advantages
Substantial EOS lower prices consumers will benefit if lower costs
passed on to them. See Extract 2" It is more economical to upgrade
existing Eastern Mines infrastructure than erecting an entirely new plant,
and also, Eastern Mines has the experience to mange this project.
Generally, the acquisition would permit better utilisation of Rusternberg
Mines' mineral assets -- leading to lower costs in extraction and in
management."
Another example of technical EOS:: see Extract 3 :"Since platinum is
both a precious metal and an industrial metal, these companies have
different divisions which deal with refining, assaying, fabricating, trading,
researching in new applications or even with investment activities."
Infrastructure investment is too substantial for one company to bear See
Extract 3 "Platinum mining industry is capital intensive. Companies need
large amounts of money to build production facilities and long-term
survival requires heavy expenditures in order to finance exploration and
production."
External EOS -- other firms will benefit
Revenue advantages
Ability of firms to engage in R and D and hence Increase export revenue
for South Africa and Russia contribute to GDP growth and BOP surplus


16
of both countries
Other advantages
Dynamic efficiency R and D lower costs to consumers
Disagree with merger
Reduce competition and increase monopoly power of firms allocative
inefficiency worsens
Leads to rationalization -- > retrenchment of workers see Extract 2
"planned retrenchments" after merger
Possible diseconomies of scale may set in.
Platinum is a non-renewable resource which will be rapidly depleted due to
excessive mining
Effect on other firms predatory pricing may drive them out

Descriptors
Level 3 8 - 10 Convincing 2-sided argument with theoretical framework and thorough citation of
evidence from case
Level 2 5 -7
Two-sided argument with theoretical framework and some applications

Note: Max of 7 m framework very strong but with limited evidence
Level 1 1 - 4 One-sided or two-sided argument with no application or no theoretical framework

E2 Good conclusion with justification
E1 Conclusion with minimal justification


17
Suggested Answer Q2
Part (a)
(i) GDP refers to the money value of all final goods and services newly produced within the
geographical boundaries of a country in a given period of time. [1m] GDP at constant prices
means that the effects of inflation have been eliminated from the GDP figures, where price
level is based on a given base year. [1m]
Note: Students must define GDP accurately i.e. value of all final goods and services in
order to get 1m for defining the term.
(ii) GDP increased at a decreasing rate for the period 2007Q3 to 2008Q3 (2m) before it started
to decrease until Q2 2009 (1m).
Note: Students can also get 2m if they describe the rate of change for the decreasing trend.
(GDP decrease at increasing rate than decreasing rate for the period 2008Q3 to 2009Q3)
Part (b)
The Minister remains upbeat about the Singapore economy as Singapore is expecting a strong
pipeline of foreign investments and tourism projects that will provide support to the Singapore
economy. The expected rise in FDI and X will bring about a rightward shift of AD curve and hence
increase the real national income of the country hence creating employment for the locals.
Inflationary pressure arising from the rise in AD is not a concern for the country as the rise in I will
also bring about a rightward shift of the LRAS curve. Hence, cushioning the rise in GPL, bring
about a sustained economic growth for Singapore. Diagram showing rightward shift of AD and AS
is a must.
Max 2m if students only show shifts in either AD or AS with diagram
Max 3m if students show shifts of both AD and AS without touching on the effect on general price
level
Students must show both AD and AS shifts and the effect on GPL and output to get max 4m.
Part (c)
(i) Stagflation is the economic phenomenon of rising inflation rate and falling output level in the
economy.


18
The data indicates that US is likely to head towards stagflation. With reference to Fig 2,
USA is facing a rising unemployment rate. Her unemployment rate has been rising from 4% to
about 10% in 2010. This suggests a sharp contraction of her national output over the same period
of time. [1m]
Extract 1 states that there might be cost-push inflation due to surging oil and gasoline prices [1m].
This is supported by Figure 3 where US CPI has risen by about (660-608/608X100=8.8%) from
2007 to 2010. [1m]
1m for each evidence identified. Max 2m if students did not attempt to link unemployment to
output level even though they covered 3 pieces of evidences.
(ii)
Introduction: Conflicts may arise when the US government tries to attain the goal of low
unemployment and inflation. Whether the US government should be concerned with the problem of
unemployment or inflation will depend on the situation of the US economy currently.
Thesis: US government should view recession as a more immediate threat than inflation
J ustification:
According to Extract 1, spare capacity currently => room for AD to grow through
expansionary policies to solve demand deficient unemployment. No pressures for demand
pull inflation to set in as yet.
Students can explain the costs of slow economic growth or high unemployment on the
economy
Anti-Thesis: US government should view inflation as a more immediate threat than unemployment
Even though AD is weak, SRAS is shifting left due to cost-push inflation resulting from global
rising food and oil prices (extract 1).
Inflation would be exacerbated if AD shifts right as a result of expansionary policy.
Students can explain the costs of high inflation on the economy


19
Conclusion: According to Fig 2 and 3, unemployment rate has doubled (from below 5%
in 2008 to a high of about 10% in 2009) while GPL has only risen by 2.4% during the same period.
Although inflation GPL increased rapidly in mid 2008, it eased by 3Q of 2008.
L1:1-2 One sided answer
L2: 3-4 Two sided answer
L3: 5-6 Conclusion with a justified stand
Max 3m if students focus on just explaining the negative effects of unemployment and inflation on
the economy.
Max 4m if students attempt to explain the conflicts of attaining low inflation and unemployment
through the use of expansionary policies.
Max 5m if students attempt to explain the conflicts of attaining low inflation and unemployment
through the use of expansionary policies +use of evidences found in the extracts
Max 6m if students come to a justified stand using numerical data to support the conclusion
Part (d)
Approach
Students to evaluate the policies in terms of whether the Singapore and US economies have
responded well to these policies. (students need to support their answers with reference to
predicted data i.e. Fig 1,2 and 3 for both Singapore & US)
Outline:
USA: Cheap money, tax rebates, public spending, bank bailout (extract 3)
Successful:
Unemployment rate showed a slight fall from end 2009 onwards, so suggest that the polices
may be working.
Para 2 of Ext 3 said that the US economy achieved 1.4% growth in 2009 due the policies doing
the trick.
Not Successful:
Consumer confidence nosed dived., companies.are not going to invest. (extract3) =>
poor business sentiments, poor consumer confidence => monetary policy has not been
successful in inducing C and I in the US economy.
Unemployment rate still a high of about 10%
Fear of double dip recession as mention in extract 3
Singapore: Exchange rate policy (extract 2), SS side policies: enhance productivity (extract 2)
Successful:
Positive economic growth rate since 2009 Q3
Forecasted figures in 2010 showed positive growth also.


20
J ob creation as Singapore is expecting a strong pipeline of foreign investments and
tourism projects since 2008. With the completion of all these major projects, employment
opportunities will increase.
Not Successful due to various possible limitations of policies:
Growth rate remained negative for a year
Upgrade business capabilities and enhance competitive edge: takes time to develop business
capabilities
Exchange rate appreciation will reduce export competitiveness even though it helps to lower our
domestic cost of production due to cheaper imported raw materials. =>reduce AD further.
Conclusion
US economy is facing the threat of double dip recession while Singapores forecasted growth in
2010 is positive. Hence, Singapore economy seems to be able to recover while the US economy
remains weak despite the various interventions by the government. Not enough data given for
Singapore to assess the health of her economy in 2010.
L3
(7-9m)
For an answer that analyses the effectiveness of policies between US and
Singapore with the use of evidences from the extracts. Answer also includes
explanation of the limitations of the policies chosen.

L2
(4-6m)
For an answer that explains the effectiveness of policies between the US and
Singapore little reference from the extract.

Max 4m for pure theoretical answer including limitations.

L1
(1-3m)
Sketchy answer that just lists or briefly explains the policies of both countries
briefly without comparison.

E2
(2-3m)
For substantiated evaluation on the type of policies the 2 governments employ.

E1
(1m)
For relevant judgments on the type of policies the 2 governments employ, but
without explanation.

ECONOMICS 9732/02

PAPER 2 Essay Questions 13 September 2010

Additional Materials: Answer Paper 2 hours 15 minutes


Write your name and CT on all the work you hand in.
Do not use staples, paper clips, highlighters, glue or correction fluid and tape.

either Section A or Section B.

Begin your answer to each question on a fresh sheet of paper.

At the end of the examination, fasten answers to Section A to Cover Page A, and fasten answers to
Section B to Cover Page B.


This document consists of 2 printed pages

[Turn over

College 2 Preliminary Examination 2010
Higher 2



2


Section A


1 With economic growth and the Singapore governments move away from direct taxes towards indirect
taxes, examine the impact on business sales and revenue of various types of goods and services. [25]

2 (a) Explain why the Mass Rapid Transit (MRT) network can be considered a natural monopoly and
explain how, according to economic analysis, profit maximizing price is set. [10]

(b) Discuss to what extent the behaviour of the operator of MRT disproves that economic analysis. [15]

3 Singapore government allocates the largest amount of the fiscal budget to the Ministry of Defence and
the Ministry of Education.

Discuss whether the expenditure in defence and education by the Singapore government contributes to
the economic goals of efficiency and economic growth. [25]

Section B


4 Assess whether the Singapore government currently adopts appropriate policies to achieve high
standard of living (SOL). [25]

5 China has always been accused of keeping the yuan undervalued to gain an unfair advantage in the
international market-place

(a) Explain how China keeps the yuan undervalued. [8]

(b) The undervaluation of the yuan is expected to worsen Singapores balance of payments. To what
extent would you agree with this assertion? [17]

6 The globalization of trade puts pressure on natural resources around the world, helping to drive the
rapid depletion of tropical forests and the collapse of many ocean fisheries. On the other hand, some
countries has benefited from the flow of labour into their countries.

(a) Explain how the pattern of trade will change as a result of the changes in factor endowments stated
above. [10]

(b) Discuss the role of government in the age of globalization. [15]

Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible.
Every reasonable effort has been made to the publisher to trace copyright holders, but if any items requiring clearance have unwittingly been
included, the publisher will be pleased to make amends at the earliest possible opportunity.


3
Question 1
1. With economic growth and the Singapore governments move from direct taxation towards
indirect taxes, examine the impact on business sales and revenue of various types of goods and
services. [25]

Identify the need to use PED & YED concepts in the analysis for this question.
Explain PED & YED
Move towards greater dependency on indirect taxes reducing income tax and raising indirect
taxes.

With economic growth the income increases and demand for goods and services increases
assuming that the YED is positive. For goods that have negative YED, demand will fall. Impact
of reduction of income tax is on the disposable income hence affecting demand especially on
goods where the demand is income elastic.

Impact of raising indirect tax is on the SS, producers may shift burden of tax to consumers if the
price elasticity of demand is inelastic or when the supply is price elastic. However, with tax, the
after-tax revenue of firms will definitely fall.

Case 1:
Luxury good
Demand is price elastic
Increase in demand more than proportionate, YED>1
Supply is relatively price elastic as luxury goods are usually manufactured and easily stored.

Should have increase in business sales and revenue as demand increase more than the fall in
supply.

Case 2:
Necessities/addictive goods
Demand is price inelastic
Increase in demand is less than proportionate
Supply may be price elastic / inelastic depending on eg. rice (price inelastic long production
period) cigarettes (manufactured, easily stored)

May have increase/decrease in sales and revenue depending on the relative shift in demand and
supply.

Case 3:
Inferior goods
Demand will fall with increase in disposable income, YED <0

Sales and revenue will definitely fall

Level 1
Lower
Answer is mostly irrelevant eg. misinterpretation of
question as a macroeconomic problem
1-5
Level 1
upper
Answer has some relevance but analysis is highly
inaccurate/incomplete eg. only able to identify either PED
or YED
6-9


4
Level 2
lower
Answer is relevant but analysis has
inaccuracies/incomplete eg. is able to identify both PED
and YED
Or
Answer has some relevance but analysis is
inaccurate/incomplete
10-11
Level 2
upper
Answer is relevant but analysis has some
inaccuracies/incomplete eg. is able to identify both PED
and YED
12-14
Level 3 -
lower
Answer is mostly relevant and analysis is sufficiently
accurate and complete.
15-17
Level 3 -
upper
Answer is relevant with excellent analysis 18-21
E1 J udgement with no supporting arguments 1-2
E2 J udgement made with supporting arguments 3-4

Question 2

2 (a) Explain why the Mass Rapid Transit (MRT) network can be considered a natural monopoly
and explain how, according to economic analysis, profit maximizing price is set.
[10]

Answer outline

a) Define a natural monopol y: Industry with such substantial EOS that one firm can supply the
whole market; AC is declining over the entire demand curve.

Justification appl ying to the train system: High fixed cost in the railway line and station
building.

With a diagram of natural monopoly, students have to show MC=MR and explain, why that is the
price that will maximize profits, using the marginalist principle.

At an output on the left of Qe, increasing the output will increase total revenue by more than the
increase in total cost. At an output on the right of Qe, decreasing the output will decrease total
cost by more than the decrease in total revenue. For both cases, the profits will increase by
adjusting the price..

MC

AR=Dd MR
Q
E

AC
Costs/Rev/Price
P
E


5

Level Descriptors
L1

1-4
Answers are mostly irrelevant
Only a few valid points are made incidentally in an irrelevant context

L2

5-6
Answer shows an ability to identify facts, some ability at graphs, fair ability
to apply known laws to new situation (e.g. able to draw the natural monopoly
graph correct instead of the normal monopoly, without much details)

Accurate though undeveloped explanation of the facts relating to the
question together with an explanation. (e.g. stating MC=MR without
explaining using the marginalist principle, without choosing an output on the
left and right of the profit maximizing output.)

L3

Lower
7-8
Answer shows a good knowledge of the marginalist principle, clear
evidence of the ability to use theory with accurate reference to the question

Clear reasoned structure to the whole answer

(e.g. able to explain that profits can be increased at output levels to the left
and the right of the output given by profit maximizing price but did not
explain to all cases or analysis is not thorough enough)

Upper
9-10
Thorough knowledge of facts and theory with an excellent ability to describe
& explain this in a precise, logical, reasoned manner

New illustrations & examples appropriate to the material discussed should
be introduced as further evidence of the ability to recognize the principles of
the question & their application to relevant current situation.

(E.g. Able to explain very well how SMRT fits the scenario of a natural
monopoly. Diagrams are fully integrated with the analysis of the marginalist
principle.)

(b) Discuss to what extent the behaviour of the operator of MRT disproves that economic
analysis. [15]

b) Thesis: SMRT only cares about profits

SMRT has shareholders and needs to be accountable to them in generating an
acceptable rate of return

SMRT needs to earn supernormal profits to constantly innovate for dynamic efficiency
(distance fare, ezlink card). Also, they need to replace the old trains every 7 years.

SMRT price discriminates among students, adults and elderly passengers, increasing their
profits.


6
Anti Thesis 1: SMRT cannot onl y care about profits as its fare level is regulated by Public
Transport Council to ensure efficiency/affordability/equity.

We can give credit if students either mention equity or efficiency reasons or even both. Students
can show the deadweight loss and explain, again using the marginalist principle. It will be a good
test whether students truly understand how to use it in a NATURAL monopoly setting since they
have never done it before.

Since public transport is an important method for many workers in Singapore to get to work, the
government needs to regulate the system to ensure affordability of fares, especially for the
lower income group since taxis and cars may be priced out of their reach.

Thus, SMRT may have to end up using AC pricing/MC pricing due to regulation and not just be
concerned about maximizing profits.

Anti Thesis 2: SMRT may have other objecti ves in mind other than profit maximization

Students can explain the following (only a guide, accept any reasonable point students can
make)

Profit Satisficing: SMRT may have only a vague idea of revenue and cost functions and aim for
an acceptable level of profits, earning say 5% return to total assets (ROTA). Factors causing
vagueness might be, for example, population policy in Singapore for the next few years, given
that our government uses immigration policy as a buffer.

Revenue Maximization: SMRT may have to operate stations that are not profitable due to
Universal Service Obligation set by PTC to ensure that they do not just cater for the profitable
downtown routes and ignore unprofitable stations like Buangkok.

Market Share: SMRT is given the exclusive right to operate the North-South line as well as the
East-West line so this is not really an objective that SMRT should be worried about since market
share will not change for the duration of the rail licence

Principal Agent model (Separation of ownership and control): SMRT bosses and employees
may not necessarily want to maximize shareholders return. Employees may not provide the
best service to passengers to minimize their own personal cost, for example.

Note: Students do not have to mention every single point listed here for full credit but I expect to
see some attempt in applying the alternative theories into SMRTs behavior. No need to be fully
accurate as I do not expect students to have contextual information on how SMRT is regulated.

Synthesis

SMRT will be aware that the government may regulate to ensure market remains contestable by
the granting of rail licenses. Thus, pricing and quality of service must be at levels that ensure
their rail license will be renewed.


7
Conclusion

SMRT certainly needs to generate profits to answer to shareholders and to ensure sufficient
funds for replacing old trains. However, market dominance and the inefficiency of Natural
monopoly will mean SMRT certainly can expect heavy government regulation on its pricing. This
implies profit maximization is certainly not the main goal of SMRT

L1
1-5
Largely descriptive answer that shows some knowledge on how SMRT behaves.
L2
6-8
For an answer that shows some examples of profit maximizing behavior by firms and
recognizes that government intervention is inevitable due to the inefficiencies of
natural monopoly. Expect to see some mention of alternative theories of firm
behavior but answer is largely generic with very little attempt to apply those
alternative theories to SMRTs actual behavior.
L3
9-11
For an excellent explanation and detailed analysis of SMRTs behavior with respect
to government intervention. Analysis of alternative theories is done with a clear
attempt to apply them in SMRTs context. Balanced view between the profit
maximizing behavior with the alternative motivations.
E1
1-2
For an unexplained assessment.
E2
3-4
For a judgment or evaluative assessment based on sound economic analysis.

Question 3

3. Singapore government allocates the largest amount of the fiscal budget to the Ministry of
Defence and the Ministry of Education.

Discuss whether the expenditure in defence and education by the Singapore government
contributes to the economic goals of efficiency and economic growth. [25]

Suggested answers

a) Introduction: Defence and Education service markets are both markets where the market fails to
allocate resources efficiently. Therefore, there is a need for government intervention for efficient
allocation of resources. Government expenditure is a component of aggregate demand and
hence, an increase will lead to higher actual economic growth. In addition, education will also
increase potential economic growth.

Body

Explain the reasons for government intervening in the markets for efficiency reasons

Explain complete market failure in the provision of defence as defence is a public good.
Government will have to provide defence services as the market will not provide any due to the
free-ridership.
Explain allocative inefficiency in education due to positive externalities using SMB and SMC
model.

Discuss where government intervention leads to an efficient allocation of resources.


8

Yes.

Explain how the government intervenes in the market to achieve efficient allocation of resources.

Defence goods - provision by government.
Education show how subsidies by the government can lead to allocative efficiency
No.
Discuss how government intervention may create inefficiencies
But may still not achieve efficiency due to political objectives, administrative costs and lack of
information.

Discuss how government intervention affects actual and potential economic growth

Increase in Government expenditure will lead to an increase in actual economic growth

Explain how government expenditure is part of AD and hence, if there is an increase in
expenditure in defence and education, ceteris paribus, there will be an increase in the national
income of the country. Use either AD/AS model or PPC to illustrate positive actual economic
growth.

Expenditure in defence and education will contribute to potential growth

The government also has to spend on education as it will increase the AS of the country and push
the PPC outwards as the quality/ productivity of our FOPs increase. This leads to an increase in
potential growth.
Defence expenditure will ensure that other countries from invading us and destroying our factors
of production. The destruction of our infrastructure or death of our labour will lead a fall in our
production possibility curve leading to a negative in potential economic growth.

Conclusion: Expenditure in these 2 areas will definitely contribute to the actual and potential growth of
Singapore.

Depending on the extent to which government can accurately assess the SMB and SMC of defence
goods and education, the government is able to contribute to the efficiency goal.


9

Level Descriptors
L1

Lower
1-5

Upper
6-9
Answers shows some knowledge but does not indicate that the meaning of
questions has been properly grasped (e.g. able to state that defence is a public
good but does not link to efficiency and economic growth)
Basic errors of theory or an inadequate development of analysis may be evident
(many errors in the SMC/SMB model and poor or half-done analysis)

L2

Lower
10-11

Answer shows an ability to identify facts, some ability at graphs(e.g. draw the
SMB-SMC model, the AS/AD model or the PPC model with some mistakes), fair
ability to apply known laws to new situation (e.g. able to identify SMC/SMB model
to analyse the efficiency issues with defence and education & either the AD/AS
model or the PPC model to explain the economic growth issue)
Accurate though undeveloped explanation of the facts relating to the question
together with an explanation. (student did not apply model well or analysis has
inaccuracies and explanations of public good is brief with no/ inaccurate
elaboration)

Upper
12-14
Where the answer has a more thorough relevance to the question but the theory
is incompletely explained.

L3 Lower
15-17
Answer shows a good knowledge of the facts and the theory of the question,
clear evidence of the ability to use facts and theory with accurate reference to
the question
Evidence of the ability to examine the implications of the questions & an attempt
to distinguish between facts and value judgments.
Clear statements, supported by reasoned arguments should be given & there
should be some attempt at a conclusion to the question
Lack of critical comment (e.g. ability to recognize that the government may not
be accurate in the right amount of subsidy for education when they do give one.)

(e.g. the answer has captured most of the arguments put forth in the answer plan
above but does not have critical comment or has a little less scope of discussion
compared to the essay plan)

Upper
18-21
Thorough knowledge of facts and theory with an excellent ability to describe &
explain this in a precise, logical, reasoned manner
Ability to query some of the assumptions
New illustrations & examples appropriate to the material discussed should be
introduced as further evidence of the ability to recognize the principles of the
question & their application to relevant current situation.

(Thorough in both depth and scope of discussion with coherent writing)


10
Question 4
4. Assess whether the Singapore government currently adopts appropriate policies to achieve
high SOL. [25]

Intro:
Define SOL
State the policies Singapore government currently used to achieve high SOL.

Body:
Identify and explain what makes high SOL material and non-material well-being
High material well-being is measured by high Real GDP per capita as high real GDP per
capita means more goods and services are available for consumption. To achieve high
real per capita GDP, policies would need to target inflation, raise GDP and population
control.
Equitable income distribution ensures that the high level of real GDP per capita is evenly
distributed ie. all citizens can afford to consume.
No negative externalities, public goods, etc ensures quality of life for the people.

Explain policies for each
Real EG policies targeting inflation and stimulates growth

Exchange rate policy to target cost push inflation as Singapore is dependent on imported
materials, any increase in prices of imported goods will raise the COP leading to higher general
price level making goods & services more expensive for people.

Tripartite relationship between National Wage Council, Government and the unions to ensure
wages grow in line with productive. This prevents wage push inflation which would compromise
Singapores competitiveness in the global market.

To stimulate growth, SS-side policies to bring in I and trade policies to help stimulate X since
Singapores domestic market is small, need external sector for growth.

In the beginning years of development, Singapore adopted policy to control population growth.
Per capita GDP rose quickly allowing Singapore to achieve high GDP per capita

Are the policies appropriate?
Given Singapores small domestic market, we depend very much on the external market and
hence growth policies targeting the expansion of the external market are appropriate. Raw
materials are also imported since we have very little resources hence inflation is mainly import
price push.

Equitable income distribution policies targeting the low income

Progressive income tax and GST rebates redistribution of income to reduce income inequality.

Training and re-skilling scheme to help low wage workers upgrade. These policies work hand-in-
hand as cannot rely on Progressive income tax and rebates for lower income. Too progressive a
tax system reduces incentive for increased work effort and too high rebates or income transfers
encourage the low-wage earners to be complacent/over reliant on the government.
Training and re-skilling schemes helps the low-wage workers to upgrade hence being able to
earn higher wages however, these policies take a long time to see effects.


11
Hence when both policies are executed together, it provides immediate relief for the
low income and an avenue for them to earn higher wages in the longer term.

Are the policies appropriate?

Reducing negative externalities, provision of public goods, etc policies targeting traffic
congestion, pollution, public provision of goods, etc.

Policies targeting negative externalities reduces the impact of external cost on the people. Eg.
Regulating the areas for smokers to light up minimizes the external cost on 3
rd
parties. Imposing
fines on littering ensures a quality environment.

Public provision of public goods eg. defence, street lighting ensures national security and safety.

Level 1
Lower
Explaining policies in a general manner with no relevance
to the question and with many inaccuracies
1-5
Level 1 -
upper
Explaining policies in a general manner with no relevance
to the question
6-9
Level 2
lower
Explaining policies used by Singapore with little reference
to improving SOL or no use of tools of economic analysis
10-11
Level 2 -
upper
Explaining policies used by Singapore with some
reference to improving SOL and with some attempt to use
tools of economic analysis
12-14
Level 3 -
lower
Explaining policies used by Singapore with good reference
to how these polices can help improve SOL and with good
use of economic analysis
15-17
Level 3 -
upper
Explaining policies used by Singapore with excellent
reference to how these polices can help improve SOL and
with good use of economic analysis
18-21
E1 J udgement with no supporting arguments 1-2
E2 J udgement made with supporting arguments 3-4


12
Question 5

5 China has always been accused of keeping the yuan undervalued to gain an unfair
advantage in the international market-place

(a) Explain how China keeps the yuan undervalued. [8]

(b) The undervaluati on of the yuan is expected to worsen Singapores balance of
payments. To what extent would you agree with this assertion. [17]

Answer outline

a) Undevalued currency implies fixed exchange rate regime. Explain how the intervention
is done.

The Yuan have a tendency to appreciate because of the current account surplus that China runs
with various countries, especially the US. This increases the demand for the Yuan in the
FOREX.

To stop the Yuan from appreciating, the Chinese Central Bank intervenes by selling the Yuan.
This increases the supply for the Yuan, preventing the appreciation of the Yuan and thus keeping
the Yuan value fixed.

This means China gains foreign reserves and the Yuan is always fixed at a level below the
equilibrium exchange rate, this is the meaning of undervalued.

Diagram should be drawn and carefully labeled and explained.

Knowledge, Application, Understanding and Anal ysis
Level 1
(1-3)
Largely descriptive explanation of how exchange rate is determined
Level 2
(4-6)
Application of demand and supply framework to determining exchange rates but answer largely
inaccurate or contain errors in analysis.
Level 3
(7-8)
Analytical answer that recognizes how China sells Yuan and gain foreign reserves as she keeps the
Yuan undervalued. Answer shows clear confidence and ability to use the demand and supply
framework in answering the question. Graph drawn is fully integrated in the explanation.

(b) The undervaluation of the yuan is expected to worsen Singapores balance of
payments. To what extent would you agree with this assertion?
[17]

With the undervalued Yuan, Singapore will face both improvement as well as worsening impact
to our BOP. Students should talk about both aspects and come up with a stand on the overall
impact.


13
Introduction

Define BOP: The Balance of Payments (BOP) for a country is a summary statement of the
money value of all economic transactions between the residents of the country with the rest of
the world during a specified period of time, usually one year.

State that whether the overall impact on Singapores BOP is favorable or unfavorable depends
very much on elasticity factors:

Singapores comparative advantage vs Chinas comparative advantage: The value and
the sign of our cross price elasticity of our exports to Chinas exports.

The income elasticities of our exports

Thesis: The undervalued Yuan worsens Singapore BOP

Possible reasons (All of them are linked by our exports being close substitutes to Chinas
exports. However, feel free to accept any reasonable reason backed by economic analysis)

Worsens Current Account

Yuan undervalued against US dollar, ceteris paribus, also means if Singapore is exporting goods
to the US that are close substitutes to Chinas exports to US, our US exports will now lose
competitiveness vis a vis China, worsening our current account

US having a current account deficit with China due to the undervalued currency, especially
during this time of recession, will mean a rise in US unemployment and a fall in US national
income. This could translate to a fall in their demand for Singapores exports, since our exports
are mainly income elastic, worsening our current account

Worsens financial account

Chinas undervalued Yuan, with the resulting gain in export competitiveness, might also make it
more attractive for low skilled FDI, since MNCs know that their goods produced are cheaper in
price, it also lower the cost of investing in China. This might be at Singapores expense as the
FDI could have originally been invested in Singapore, and hence our Financial account will go
into deficit.

Anti -thesis: The undervalued Yuan improves our BOP

Possible reasons (All of them are linked to our exports either not close substitutes or even
complements)

Improve Current Account

Since we are attempting to move our comparative advantage into higher skilled FDI, which China
may still not have a comparative advantage in, Chinas export boom due to the undervalued
currency could lead to a higher national income for the Chinese, leading to a higher demand for
goods made in Singapore, since our exports are largely income elastic, improving our current
account.


14
Improve Financial Account

With the trend towards outsourcing, as MNCs find it cost effective to outsource the low skilled
section of their operations to China due to the undervalued currency, the middle skilled part of
their operations could then go to Singapore. Hence our financial account need not go into deficit.

Conclusion

The extent to which the undervalued currency affects Singapores BOP ultimately boils down to
whether our CA is on goods similar to China or different, whether our exports and Chinas
exports are substitutes or complements. Students can take either stand and try to justify it.

Note: If students interpret the Yuan as undervaluing against the Singapore dollar and then
answer this entire section as if the Singapore dollar has appreciated, we can still give them full
credit, provided they link it to both current account and financial account.

I still expect the entire essay to have a clear structure of analysis, not just spamming of ML
condition and Singapores exports having high import content, to be able to hit L3 mark range.

L1
1-5
An answer that shows some knowledge on the how the undervaluation of Yuan affects our BOP
L2
6-9
For an answer that shows an application of economic theory on Singapores BOP. Able to use
elasticity concepts to underpin the answer. Cap at 6 if students only talk about current account with no
mention of impact on financial account or lopsided view (i.e only improves or worsen impact)
L3
10-13
For an excellent explanation and detailed analysis of how the current account and financial account of
Singapores BOP will be affected. The entire answer clearly demonstrates a confident grasp of the
concepts of CA and elasticities and applies these consistently in the whole essay. Balanced view
between the positive and negative impacts on Singapores BOP
E1
1-2
For an unexplained assessment.
E2
3-4
For a judgment or evaluative assessment based on sound economic analysis.


15
Question 6
Q6 The globalization of trade puts pressure on natural resources around the world, helping to
drive the rapid depletion of tropical forests and the collapse of many ocean fisheries. On the
other hand, some countries has benefited from the flow of labour into their countries.

(c) Explain how pattern of trade will change as a result of the changes in factor endowments
stated above. [10]
(d) Discuss the role of government in the age of globalization. [15]

Suggested answer

a. Explain how pattern of trade will change as a result of the changes in factor endowments
stated above. [10]

Introduction
Pattern of international trade is based on the theory of CA. Based on the theory of CA, countries should
specialize in the production of goods that they have comparative advantage in and export it for goods it
does not have CA in producing. The amount of factor endowments a country has affects the comparative
advantage a country has.

Body
Explain theory of CA and how pattern of trade is determined based on a countrys comparative advantage
in producing a good.

Use examples such as China, being labour abundant, has comparative advantage in the manufacturing of
labour-intensive goods such as toys and textiles. Singapore, after years of strategic human and capital
investment, has a comparative advantage in the production of electronic goods and pharmaceutical
products.

Application to context:
Lets assume a country A, with tropical forests that a rapidly depleted. It would imply that the country
would face a decrease in the exports possible and would have to look for another product, which it has
comparative advantage in to export. In other words, country A cannot rely on exporting of wood to
generate export income for the country. If country A consumes a lot of wood, she may end up being a net
importer of wood.

Lets assume a country B, with abundant fish and timber could have been exporting timber or fish due to
her having abundance of it and CA in producing these products.

With the depletion of such resources, another country, C, which breeds fish in fish farms but had a higher
opportunity cost previous, could now have a lower opportunity cost compared to country B and should
now be exporting the fish instead of Country B, based on the theory.

If there is country D, which previous lack skilled labour and now has open immigration policies that allows
and attracts skilled labour from into the country, the country could now have a comparative advantage on
the production of high end electronics and hence should specialize and export that.

Conclusion
Pattern of trade will change when the factor endowments change.


16
Level Descriptors
L1

1-4

L2

5-6
Answer shows an ability to identify facts, some ability at graphs, fair ability to apply
known laws to new situation (e.g. able to use theory of CA to explain the changing
patterns of trade to the new situation of depletion of natural resources and inflow of
labour without much details)

together with an explanation. (e.g. Theory of CA not explained in sufficient detail
with some links to the contexxt)

L3

Lower
7-8
Answer shows a good knowledge of CA theory, clear evidence of the ability to use
theory with accurate reference to the question

(e.g. able to use theory of CA to explain the changing patterns of trade to the new
situation of depletion of natural resources and inflow of labour but did not explain to
all cases or application is not thorough enough)

Upper
9-10
(E.g. Able to apply theory to the context given and explain the implications using the
theory of CA with good examples)


17
(b) Discuss the role of government in the age of globalization. [15]

Introduction
Define globalization: Globalization is often used to refer to economic globalization, that is,
integration of national economies into the international economy through trade, foreign direct
investment, capital flows, migration, and the spread of technology.
The age of globlisation brings about many challenges as well as opportunities for countries. As a
result, there is a need for the government to step in to reap the benefits and minimize the costs.

Body
(There are many possible points. As long as the students brings out the problem/ benefit brought about
by globalization and the evaluate the role the government has to play, marks should be awarded.)

What comes with globalization?
Increase in international trade at a much faster rate
Increase in international flow of capital including foreign direct investment
An increase in movement of labour across boundaries
An increase in international outsourcing and offshoring by multinational corporations (MNCs)

Riding above the wave of globalization to reap its benefits:

Sustained economic growth via maintaining export competitiveness
The government can remove trade barriers to allow for greater specialization based on CA and
reap the benefits of increased consumption.
Trade policies signing of FTAs, lower tariffs higher export sales growth of X-oriented
industries meet the higher increase in AD by increasing production and create employment.
Supply side policies subsidise R&D to improve the non-price competitiveness of our exports

Attract more FDI
Government can have policies that will attract FDI such as low corporate taxes or good
infrastructure. increase I higher AD in SR and increase AS in LR.
Flexible wage system to keep labour costs low

Attract more foreign talent
Lower income tax
Immigration law less stringent grant PR-ship to diploma holders and not just graduates.

Illustrate with AD-AS AD and LRAS increase lead to higher actual and potential growth and
also price stability.

Limitations of all policies or any negative implications:
To compensate for the loss in government revenue due to lower direct taxes, the government has
to increase indirect taxes such as GST or VAT. This may lead to tax-push inflation. Government
will then need to off GST-offset packages to help the poor to tide over the rise in cost of living.

Policies to curb the ill-effects of globalization:

Contagion Effect susceptible to cyclical unemployment
Countries that are open to free trade will be more prone to contagion effects of other countries
economic crisis. These shocks can be transmitted from one country to another through various
channels - trade, financial and mechanical spillovers.
Governments will have to have sufficient policy tools and leeway to adjust to the rise and fall due
to the contagion effects.

Expansionary demand management policies to increase AD in the SR: the effectiveness of
such policy is limited since recession is externally induced and especially when the
affected country is highly dependent on trade.


18
Diversification of export products and more countries to spread the risks. At the same
time, make demand for exports more price-inelastic via R&D. Once again the effectiveness
is questionable as the world is interconnected and trading partners of one are usually of
others. Through FTAs with many countries, it at best slows down the contagion effect but
it cant prevent it from happening. Also, when income falls, even if exports are price
inelastic wont help. As long as its normal goods, demand will fall with income. A country
also cant just diversify into any kind of exports as it should be producing goods it has CA
in.

Structural Unemployment and growing income gap
If the globalization leads to rapid economic changes, this can result in various negative outcomes/
cost such as high unemployment in the sunset industries that have lost CA.
This leads to growing income gap: Wages of lowly skilled labor will generally grow slower than
that of highly skilled labor.
Thus rapid growth might not necessarily improve the standard of living for the majority. In fact,
people in countries in US might even face problems of unemployment due to outsourcing e.g. of
call centres to India and the textile manufacturing to China.
Government may want to protect the industry in the short run but concurrently retrain the workers
in these industries to equip them with skills to work in industries that the country has CA in. This
is because protection is a SR policy and cannot solve the root of the problem. The country
needs to go through structural change and equip the people with the correct skills in the
new industries. So there is a need to use supply-side policy retraining of workers
allow for better match of skills and jobs available while speeding up its restructuring of the
economy
Infant industries will also not be able to realize their potential. Government should protect these
industries till they are competitive. But it may be difficult for the government to remove the
BOE later.

Susceptible to import-price push inflation
For Singapore, it can maintain a strong S$ to reduce the imported inflation a gradual
appreciation to prevent cost escalation of imported raw materials as well as final goods and
services.
Prices and income policies - cushion the impact of rising import prices but they are only
temporary.
Supply-side policy to improve productivity to reduce unit costs in the SR to offset the higher
import prices and increase productivity in the LR

Conclusion
Globalisation results in cost and benefits. Governments have a key role to play to maximize the benefits
and minimize the cost of globlisation.
OR
Conclusion/Evaluation
There is a need to constantly review current policies to ride on waves of globalisation
Coping with globalisation is about coping with change. To sum up, markets open to trade and
investment and which instill competitive pressures among businesses ultimately increase our material
well-being. At the same time, highly dynamic markets represent a source of insecurity for workers and
the costs of adjustment can fall on a number of people.
The appropriate response is not protectionism. Rather, it calls for more open, well-governed markets
coupled with policies that facilitate adjustment, while addressing the needs of vulnerable workers and
spreading the benefits of globalisation. This way, countries like Singapore will benefit fully from the
spoils that stem from market openness while the adjustment costs are minimised.
General Comment
Differences in grades should be determined by the ability of the candidate to demonstrate the
various objectives of the examination listed in the syllabus & not purely by the ability to itemize
further facts from the content of the analysis.

An overall guide to the marks for individual questions is given below; these form a total of 21


19
marks as the other 4 marks are reserved for evaluation.

Level s expl ai ned:
L1 Knowl edge/ Recogni se (Descri pt i on)
Identify the key theory without explanation
Outline gives a list of relevant factors

L2 Consol i dat e (Add some det ai l appl i cat i on)
Explain what happens descriptive
Clarify give examples without explanation

L3 El abor at e (Ext end t o i ncl ude anal ysi s)
Analyse use relevant theory to aid explanation
Apply place explanation in context

Eval uat i on marks:
E2 J udgement based on analysis
E1 Mainly unexplained judgement


20

Level Descriptors
L1
(U
grade)
1-5
Answers shows some knowledge but does not indicate that the meaning of
questions has been properly grasped
Basic errors of theory or an inadequate development of analysis may be evident

(e.g. able to explain globalization but the points on role of government are randomly
scattered and not answering the question at all)
L2

6-8

together with an explanation.

e.g. Explanation of challenges of globalization and government intervention but not
thoroughly explained)

(An answer in the mark range has captured most of the arguments put forth in the
answer plan above but does not have critical comment or has a little less scope of
discussion compared to the essay plan. Answers which examine only costs or benefits
of globalization should be kept within this mark range. Globalisation brings about both
opportunities and challenges and hence, a well-discussed essay on role of government
should include both sides)
L3 Lower
9
Answer shows a good knowledge of the facts and the theory of the question, clear
evidence of the ability to use facts and theory with accurate reference to the
question
Evidence of the ability to examine the implications of the questions & an attempt to
distinguish between facts and value judgments. (e.g. globalization could bring about
unemployment (fact) but this doesnt justify protectionism by the government. (value
judgement). Instead, government should skill the workers in the areas of
comparative advantage)
Clear statements, supported by reasoned arguments should be given & there
should be some attempt at a conclusion to the question
Lack of critical comment (e.g. removal of tariffs for infant industries might be
difficult.)
Upper
10-11
Ability to query some of the assumptions

(Thorough in both depth and scope of discussion with coherent writing)
Level Descriptors
E2 3-4 J udgment based on analysis
E1 1-2 Mainly unexplained judgment

Note: Students in L1 or L2 (Lower) grades will not be awarded as they are likely to be making
baseless judgment which is different from unexplained judgment.

INNOVA J UNIOR COLLEGE
J C 2 PRELIMINARY EXAMINATION 2
in preparation for General Certificate of Education Advanced Level
Higher 2

ECONOMICS
Paper 1

9732/01
14 September 2010

2 hours 15 minutes


Do not use staples, paper clips, highlighters, glue or correction fluid/tape.




Innova J unior College [Turn over

9732/01/IJ C/Sep 2010

2
Question 1 Medical Tourism

Extract 1: Emergence of medical tourism
Medical tourism has emerged as the fastest growing segment of the Asian tourism
industry despite the global economic downturn. High cost of treatments in developed
countries, particularly in the United States (US) and United Kingdom (UK), have
been attracting patients from these regions to alternative cost-effective destinations.
The main reason behind the low prices of medical treatments abroad is the low cost
of labour in the popular medical tourism destinations. Two other factors are also now
at work. One is that the quality at the best hospitals in Asia and Latin America is now
at least as good as it is at many hospitals in developed countries. The second, more
worrying, factor is that Americas already imperfect insurance safety net is fraying.
Health care in the United States is provided by many separate legal entities. Health
care facilities are largely owned and operated by the private sector. Health insurance
is primarily provided by the private sector, with the exception of programs such as
Medicare, Medicaid, the Children's Health Insurance Program and the Veterans
Health Administration. Over 45 millions of Americans are uninsured, and many
millions more are severely underinsured. Such people may find it cheaper to fly
abroad and pay for an operation out of their own pockets than to find the money for
deductibles or co-payments charged for the same procedure at home.
At present, medical tourism in the region is in its infancy, but has an enormous
potential for future growth and development. The Asian medical tourism industry is
currently growing at double-digit growth rate. Thailand, India and Singapore have
dominated the regions medical tourism industry, with a combined market share of
around 90% in 2009. While other countries have benefitted from this, the US health
care providers stand to lose billions of dollars in revenue should this trend continue.
Adapted from Asian Medical Tourism Analysis and The Economist, 14 Aug 2008

Figure 1: Medical tourists from the US by country

Source: Reuters, 2009
Five of the countries visited most often for medical treatment Estimated annual number of medical tourists fromthe US (in 000s)
Approximate cost relative to the US (in %)
Mexico Thailand Costa Rica India Singapore

9732/01/IJ C/Sep 2010

3
Extract 2: Challenge for healthcares giants
Healthcare has long been a cosy industry dominated by oligopolies in the provision
of service and lumbering giants in the pharmaceutical sector. Profit margins have
historically been fat, growth prospects rosy and disruptive innovations rare
1
Extract 3: Brain drain or net gain?
indeed.
Big Pharma such as Americas Pfizer and Britains GlaxoSmithKline will feel the
force of generic competition in earnest in 2009. Billions of dollars of branded
blockbuster drugs are due to go off-patent in 2009 and 2010. Aggressive pricing by
generic-drugs manufacturers is sure to drive the prices of those drugs down by 80%
or more, battering the profitability of branded firms. On a positive note, this enables
an increase in the production of cheaper alternatives that makes it financially more
feasible for poor countries to stockpile anti-viral drugs which lowers the probability of
infecting other people. These generic drugs are cheaper simply because the
manufacturers do not have to incur a fixed cost of production of research and
development. However, this results in worry about the sustainability of these big
Pharma and their ability to continue to develop new and better drugs. Afterall,
generic drugs will only be produced after these Big Pharma have produced them.
The ongoing consolidation of the generics sector will reach full strength in 2009,
producing several giant firms with the global reach, marketing savvy and research
capability to threaten established global drugs firms.
Meanwhile, another concern is the coming boom in American medical travel to
faraway places such as Thailand and India.
Those thus challenged must also brace themselves for the coming boom in medical
tourism. Traditionally, that meant only the elites in poor countries who travelled to
Paris, for example, or to Americas Mayo Clinic for medical care they could not get at
home. In recent years some Europeans have been travelling to developing countries
to get round lengthy queues in their state-funded health systems. The number of
Americans travelling abroad for treatment is expected to soar from 750,000 last year
to 6 million by 2010.
Adapted from The Economist, 19 Nov 2008
The prospect of an American-led boom in global medical travel raises questions on
the effect on the developed and developing countries.
Overall the effects of medical tourism are mixed. On the one hand, the industry can
boost a developing country's gross domestic product and investment in health
facilities. Upgrades in a country's hospitals also tend to decrease external brain
drain, as top physicians find local jobs instead of leaving for employment in
developed nations. Nonetheless, external brain drain is often replaced by internal
brain drain, as doctors leave public health care centers to work in private hospitals
where there is higher pay.

1
Disruptive innovation is a term used in business and technology literature to describe innovations that improve a product or
service in ways that the market does not expect, typically by lowering price or designing for a different set of consumers.

9732/01/IJ C/Sep 2010

4
In many cases, however, medical tourism threatens to exacerbate unequal access to
quality health care in developing countries. Although relatively cheap by most
Western standards, the private hospitals that treat foreigners are out of reach for the
majority of people, and the revenue they bring in rarely makes its way to the public
sector. According to a 2006 report by the World Health Organization, less than 4% of
India's total government spending in recent years has gone toward health.
The flight of Americas medical refugees is indeed a symptom of a troubled health
system back home. Yet medical tourism need not be a distraction from necessary
reforms, but could be a catalyst to them. The prospect of losing revenues to India or
Thailand is already shocking hospital administrators and insurers into raising
standards, increasing price transparency and lowering costs. By introducing global
competition to an industry that's long been considered immune to outsourcing,
medical tourism may up the ante on reforming coverage, cost, and quality at home.
Adapted from Asia Times, 7 Nov 2008
Questions

(a) (i) Explain the relationship between approximate medical cost and estimated
annual number of medical tourist from US as observed in Figure 1. [2]

(ii) Using economic analysis, explain two factors that could have resulted
in rising number of medical tourists in Asia.

[4]
(b) Explain how consumption of generic drugs is form of positive externality. [2]
(c) (i) Explain how market dominance in pharmaceutical industry can result in
market failure. [4]

(ii) Discuss the extent to which the force of generic competition can help
to correct the above market failure. [8]

(d) How far do you agree that the impact of American-led boom in global
medical travel is only beneficial to developing economies? [10]

[Total: 30 marks]

9732/01/IJ C/Sep 2010

5
Question 2 The Asian Growth Story

Extract 4: China's Global Impact
China's impressive growth performance and continued integration into the global
economy over the past 25 years has been exceptional. In particular, China's strong
growth over the past few years has already had a considerable impact. In 2003, for
example, J apan's exports to China rose by 68%. In addition, China has now
overtaken the US as the main trading partner of South Korea and Taiwan.

China has had a similar impact on world commodity markets. It is now the biggest
consumer of many commodities in the world, including steel, copper, coal and
cement, and is the world's second-largest oil consumer after the US.

China's rise will lead to more jobs being lost in the manufacturing sector, and other
low-skill sectors of developed economies. However, as these jobs are lost, new
ones will be created as the money that China earns from its exports is spent on
imports from rich economies. This will allow the developed world to specialise more
in higher-value industries, leading to greater specialisation in the global economy.

The other main channel where China will affect the global economy is through
changing relative prices. China is already pushing down the price of most low-
value, labour-intensive products, such as clothing and some basic electrical goods.
Consumers in developed countries, who are net importers of these products, will be
the chief beneficiaries. On the other hand, there is expected to be a rise in the price
of skill-intensive goods that China needs to import; and of raw materials, such as oil,
grain and other agricultural products.

There will, however, be some countries that lose out as a result of China's growing
global economic influence. These are most likely to include countries whose exports
compete with those of China, but supply it with few intermediary products. These
countries will also suffer from higher prices of raw materials. This analysis is
supported by recent economic forecasts from the IMF, which show that by 2020 the
only region that will lose out from China's rise will be South Asia, including countries
such as Bangladesh, whose textile export industries will suffer in the face of cheaper
and more efficient Chinese competition.
Adapted from Asia Monitor, J an 2005

Extract 5: Decoupling from US and European Economy?
During the global boom years of 2003-07, there was much talk of Asia (and
emerging markets in general) 'decoupling' from the US and Europe, thanks to strong
growth in China and to a lesser extent India. China was very much seen as an
alternative anchor to the US, and statistics showing a rising proportion of individual
Asian countries' exports to China seemed to corroborate this view.

However, the decoupling argument had several flaws. Firstly, in an increasingly
globalised world, it does not make sense for Asia (or emerging markets) to decouple
from its main trading partners. So, Asia could not decouple from the US by coupling
to China, because China was itself coupled to the US. This leads to a second point,

9732/01/IJ C/Sep 2010

6
namely that a key factor behind increased intra-Asian trade was final demand from
the US and EU. In other words, much of intra-Asian trade is intermediate goods that
are assembled as final products in China, not necessarily for the Chinese market,
but for re-export to the Western world.

A third point is that although incomes are rising in China, Chinese private
consumption (i.e. for final products, not components) has been shrinking as a
percentage of GDP to less than 40%. With US consumption comprising 70% of a
US$14 trillion GDP (US$9.8 trillion), and Chinese consumption at 40% of a US$4.0
trillion GDP (US$1.6 trillion), there is no contest which ultimately exerts greater
global weight. In fact, it will probably be decades before Chinese consumers are
able to match their American counterparts.
Adapted from Asia Monitor, Feb 2009

Extract 6: Chinas share of world markets increased during the recession.
Trade frictions with the rest of the world
are hotting up. On 30 Dec, Americas
International Trade Commission approved
new tariffs on imports of Chinese steel
pipes, which it ruled were being unfairly
subsidised. On 22 Dec, European Union
governments voted to extend anti-dumping
duties on shoes imported from China for
another 15 months.

Foreigners insist that the main reason for
Chinas growing market share is that the
government in Beijing has kept its
currency weak. But there are several
other reasons why Chinas exports held up
better than those of its competitors during
the global recession. Lower incomes encouraged consumers to trade down to
cheaper goods, and the elimination of textile quotas in J anuary 2009 allowed China
to increase its slice of that market.

Foreign hostility to Chinas export dominance is growing. Paul Krugman, the winner
of the 2008 Nobel economics prize, wrote recently in the New York Times that by
holding down its currency to support exports, China drains much-needed demand
away from a depressed world economy. He argued that countries that are victims of
Chinese mercantilism may be right to take protectionist action.
Adapted from The Economist, 7 J an 2010

9732/01/IJ C/Sep 2010

7
Extract 7: Best Performer in 2010, Average in 2011
The Ministry of Trade and Industry (MTI) announced today that the Singapore
economy expanded by 17.9 per cent in the first half of 2010. MTI will maintain the
GDP growth forecast for 2010 at 13.0 to 15.0 per cent. In the second quarter of
2010, Singapore expanded by 18.8 per cent on a year-on-year basis, stronger than
the 16.9 per cent growth in the first quarter.

Manufacturing output expanded by 44.5 per cent on a year-on-year basis. Growth
was led by the biomedical manufacturing and electronics clusters, which increased
production of higher value active pharmaceutical ingredients and semiconductor
chips. The construction sector grew by 11.5 per cent, supported by an increase in
public sector construction activities.

Adapted from Singapore: Ministry of Trade & Industry, 10 Aug 2010
& Asia Monitor, Aug 2010

9732/01/IJ C/Sep 2010

8

Questions

(a) (i) Compare the change in the share of world exports among United States,
Germany, J apan and China over the period 1986 to 2010. [2]

(ii) Paul Krugman commented that China drains much-needed demand away
from a depressed world economy by holding down its currency to support
exports.

How far do you concur with his view? [5]

(b) With reference to extract 7 and your own relevant knowledge, explain why
Singapore is forecasted to be the top performing economy in Asia in 2010 but
an average growing economy in 2011. [5]

(c) (i) Assess who are the gainers and losers of Chinas impressive growth
performance and continued integration into the global economy. [10]

(ii) As a consultant economist, assess the options that you would recommend
to the governments of the affected countries. [8]

[Total: 30 marks]

-End of Paper-

INNOVA J UNIOR COLLEGE
J C 2 PRELIMINARY EXAMINATION 2
Higher 2

ECONOMICS
Paper 2

Additional Materials: Writing Paper and Cover Page
9732/02
21 September 2010

2 hours 15 minutes


Do not use staples, paper clips, highlighters, glue or correction fluid/tape.

and one from either Section A or Section B.

You are advised to spend several minutes reading through the data before you begin
writing your answers.

You are reminded of the need for good English and clear presentation in your answers.


Innova J unior College [Turn over

9732/02/IJ C/Sep 2010

2


Section A


1 Developments in modern technology and increasing availability of books,
magazines, newspapers and other printed publications on the Internet have had
major impact on the demand and supply of print media and associated services.

Assess how the markets involved might be affected by these developments. [25]

2 Greater contestability will be introduced in the public transport industry to
encourage greater efficiency and service improvements for the benefit of
commuters. The license period for future Rapid Transit System operating
licenses will be shortened while the basic bus service market will be opened up
gradually to allow greater competition.
Source: Land Transport Masterplan 2009
(a) Explain the type of market structure in which the Rapid Transit System and
bus service markets in Singapore are likely to operate in. [10]
(b) Assess whether Singapore governments move towards a more
contestable market in the public transport industry necessarily leads to
greater societal welfare. [15]

3 (a) Analyse, with supporting examples, how income inequality and positive
externalities can result in market failure. [10]
(b) Assess the extent to which government policies in Singapore can correct
these causes of market failure. [15]

9732/02/IJ C/Sep 2010

3

Section B


4 How far do you agree that the recent policies implemented by the Singapores
government are the most appropriate to enhance her global competitiveness?
[25]

5 (a) Analyse the effects of changes in exchange rate and interest rates on an
economys balance of payments. [10]
(b) Discuss the view that policies to correct a balance of payments deficit on
current account always result in lower standard of living in an economy. [15]

6

(a) Explain how immobility of factors of production can affect trade between
countries. [10]

(b) Assess the extent to which supply factors, rather than demand factors, are
the major determinants of trade patterns between Singapore and the rest
of the world. [15]

-End of Paper-

9732/02/IJ C/Sep 2010

4

Blank Page

Jurong Junior College
PRELIMINARY EXAMINATION 2010

ECONOMICS 9732/01
Higher 2 27 August 2010
2 hour 15 minutes

Additional Materials: Answer Paper


Do not use staples, paper clips, highlighters or glue.




JJ Economics
[Turn over]

J J C Prelim 9732/1
2

Question 1
UK grocery market

Extract 1: UK Amazon grocery launch

Amazon today launched a grocery division offering free delivery on thousands of household
goods. The online retailer, which launched in the UK in 1998 as a bookseller, will offer 22,000 top
grocery items.

As well as selling individual items the Amazon.co.uk grocery store allows customers to save
money by bulk-buying items such as nappies and washing powders. Goods on sale will also
include a large selection of international and specialist items including organic, gluten free and
sugar free ranges. Customers will be able to shop via their computers or their smart phones.

Source: Adapted from Guardian.co.uk, 7 J uly 2010

Extract 2: Internet grocery shopping is booming

Internet grocers are more popular in UK, largely because many city-dwellers lack cars. Verdict, a
research firm, reckons that internet orders will account for almost 5% of the UK grocery market this
year and perhaps double that by 2014. For example, the sales of Ocado, an online grocery, has
increased by 21% a year since 2007. However many of the online grocery firms are finding it
difficult to make profits. Grocers sell perishable products that have to be kept frozen or cool and
that must also be delivered at specific times. To make matters worse, online grocery shoppers
tend to want their food delivered at the beginning or end of the week, leading to a crush of orders.
All this is expensive.

Source: Adapted from Economist, 15 J uly 2010

Extract 3: Asdas takeover

The grocery supermarket group Asda is paying 778m to take over the Netto discount grocery
chain in an aggressive bid to close the gap with the market leader, Tesco.
Britain's second-biggest grocer, Asda, which is part of the Wal-Mart global retail empire, is buying
193 stores, subject to getting the go-ahead from the Office of Fair Trading (OFT). The price is the
equivalent of 4m for each Netto outlet. Asda has been struggling to keep pace with its rivals and
last week revealed its first decline in quarterly sales since 2006 as a result of tough competition
from a resurgent Tesco, as well as top performers Morrisons and Waitrose.
Last month Bond, Asda CEO, unveiled a five-year plan, setting a series of targets for Asda. It
included overtaking Tesco and opening 100 small supermarkets. The grocery had previously
stuck to opening superstores of up to 8000 sq metres because they are more profitable than small
outlets. But Asda has now conceded that it will have to open smaller shops to make any headway.
Asda expects to finalise the transaction after approval from the OFT this summer. The deal will
face opposition. J ames Lowman, chief executive of the Association of Convenience Stores, which
represents 33,500 small independent retailers, said: "The UK already has one of the most
concentrated grocery markets in the world with four companies controlling three-quarters of the
market. That leads to serious concerns about consumer choice."

Source: Adapted from Guardian.co.uk, 27 May 2010

J J C Prelim 9732/1
3
Extract 4: Asda Pricing Strategies

Christmas would not be Christmas without a supermarket price war, and last November two of the
leading UK grocery retailers, Asda and Tesco, duly kicked off the battle for the nation's festive
spend by announcing that they were cutting millions of pounds off prices in their stores.

Tesco said it was cutting its prices by 250m and Asda said it would roll back prices to the tune of
150m.

Persuading customers that they represent better value for money than their rivals, at a time of year
when people traditionally increase their grocery spending significantly, is vital to supermarkets
meeting their end-of-year profit targets. But it has become almost impossible for shoppers to know
what, if anything, the discounts actually mean for them. The Guardian looked at data provided by
third party analysts on thousands of prices in Tesco and Asda between 9 and 22 December, when
most people will have done their big Christmas shop. As well as the thousands of price cuts
promoted by the supermarkets, we identified thousands of price rises some of them more than
doubling the price of key purchases. The list of increases, taken from information on the
supermarkets' online stores which they say is reflected nationally in their shops, is published on
our website.

We asked Professor J ohn Bridgeman, who as director of the Office of Fair Trading led official
inquiries into the big UK supermarkets, to analyse and interpret the figures for us. The data shows
that between 9 and 22 December Asda increased prices on more than 2,000 lines while Tesco
upped the price of over 1,500 lines. Bridgeman's view was that the rises we found represented "a
systematic, cynical and aggressive attempt to exploit demand over Christmas and force prices up".

Bridgeman accepts that price rises are sometimes a reflection of increased costs from suppliers,
but believes the number and size of the rises we have found shows Tesco and Asda using the
Christmas period to "extract maximum profit" from shoppers who are too busy to go elsewhere.
The rises are targeted, he points out, at heavy store cupboard goods and essentials for the holiday
period. He said the Guardian investigation stood out in a field where there was very little
independent tracking of supermarkets pricing strategies.

Source: Adapted from Guardian.co.uk, 12 Feb 2010

Figure 1: UK Total Grocery Market Size

Source: IGD Research 2009

J J C Prelim 9732/1
4
Figure 2: UK Online Grocery Market Size

Source: IGD Research 2009

Questions

(a) With reference to Figure 1 and Figure 2, compare the changes in UK total grocery market
size and online grocery market size from 2007 to 2009. [2]

(b) With reference to the data where appropriate, explain the factors that affect the market for
online grocery. [6]

(c) Explain two sources of monopoly power for the grocery supermarket, Asda. [4]

(d) Discuss whether a merger of Asda and Netto is beneficial to both Asda and consumers. [8]

(e) How far would a knowledge of price elasticity of demand help Asda maximise its profits
during the Christmas season? [10]

Total: [30 marks]

J J C Prelim 9732/1
5
Suggested answers

(a) With reference to Figure 1 and Figure 2, compare the changes in UK total grocery
retail and online grocery retail market size from 2007 to 2009. [2]

Similarities: Both market sizes are rising from 2007 to 2009. (1)
Differences: The total grocery retail market size is increasing at an increasing rate, while the
online grocery retail market size is increasing at a decreasing rate. (1)

(b) With reference to the data where appropriate, explain the factors that affect the market
for online grocery. [6]

Online grocery market size is affected by demand and supply factors.

Factors that increase demand:
Convenience: For example as mentioned in Extract 1, Amazon has 22,000 items for sale
and consumers can make orders through using their computers and smart phones. People
find it convenient to shop online, it increases their individual choice and they get more
options which help them to find the lowest prices.

Increase in population who are IT savvy: There is an increase in the number of people who
are computer literate and are comfortable with the use of computers.

Factors that increase supply:
Number of sellers and cost of production: Number of sellers has increased over the years as
businessmen see the potential in this market. This causes supply to shift to the right.

However, as mentioned in extract 2, online grocery firms face a high cost of production due
to expensive storage costs of perishable food products and delivery costs during weekends.
This causes the supply curve to shift to the left.

Overall, the supply of online grocery is still likely to increase.

With an increase in both demand and supply, equilibrium quantity will increase. However,
price is indeterminate, depending on the relative strengths of demand and supply. If the
increase in demand is greater than supply, which is likely to be the case, then price will
increase.

3m for demand factors)
3m for supply factors) max 5m
1m to comment about equilibrium

(c) Explain two sources of monopoly power for the grocery supermarket, Asda. [4]

Based on the information in extract 3, the grocery market is an oligopoly, as four companies
control three-quarters of the market. Asda is thus an oligopolistic firm. Monopoly power
refers to the ability of the firm to set price above its marginal cost. The 2 sources of
monopoly power for Asda come from barriers to entry and product differentiation.

Barriers to entry: Setting up a grocery supermarket requires a huge capital outlay. This
makes it difficult for new firms to enter. Moreover, existing oligopolistic firms tend to have
extensive economies of scale, which helps each to lower its average cost and be able to
offer competitive prices for its products.

Differentiated products: Asda can have monopoly power by branding itself to be a
supermarket that offers many differentiated products within its premises and unique services.
The latter can include free delivery and credit terms offered to regular customers.
J J C Prelim 9732/1
6

- 2m for each source

(d) Discuss whether the merger of Asda and Netto is beneficial to both Asda and the
consumers. [8]

With the merger of Asda and Netto, Asda becomes bigger. A larger grocery supermarket
can gain both cost and revenue benefits.

Assuming that diseconomies of scale sets in late for grocery firms, a larger Asda can
benefit from greater economies of scale. For example, with a larger output, Asda can
enjoy marketing economies where it can obtain greater discounts when it buys its supplies
in bulk. As a result of all this economies of scale, the larger Asda can enjoy a lower
average cost. This can be passed on to consumers in the form of a lower price, which
makes Asda more competitive. This is important, as Asda is experiencing strong
competition from its rivals and is experiencing a fall in quarterly sales.

The merger of Asda and Netto will also help the bigger Asda to reap additional revenue
advantages. A larger firm can allow for greater product differentiation. This means that the
merged firm will have the financial prowess to provide for a larger range of products to
meet the needs of different niche markets. This can be important in the UK, where a
greater affluence of people will mean that they are willing to pay for premium products
which can better cater to individual taste and preferences.

As mentioned in extract 3, the merger of Asda and Netto will also allow the firm to make a
foray into opening small supermarkets which can penetrate into small housing estates to
cater to localised demand. This is likely to enhance its sales revenue and profits. With
higher profits, Asda can also do more marketing and technical research, and come up with
better processes and innovative methods to improve their efficiency and services. In
addition, due to the cost benefits enjoyed by a bigger firm, consumers in the housing
estates may now be able to enjoy lower prices of products as compared to that offered by
Netto.

However, as mentioned in extract 3, the merger may not be beneficial as competition is
reduced and consumers may be left with little choice. Moreover, with the larger firm, it may
not be able to provide more personalised services to consumers. With greater monopoly
power after a merger, Asda may also choose not to pass any cost savings that it reaped
from economies of scale to consumers in the form of lower prices.

In addition, a larger firm may also be slower to respond to changes in demand and this
may reduce its ability to manage changes in the market.

Overall, the merger is likely to bring benefits to Asda as well as the consumers.

Marks Description
L2 (4 - 8m)
For an answer that analyses the benefits and costs of
mergers. Answer also uses evidence from data and
come to a reasoned conclusion.
L1 (1 3m)
For an answer that shows a theoretical understanding of
the benefits and/or costs of mergers.

(e) How far would a knowledge of price elasticity of demand help Asda maximise its
profits during the Christmas period? [10]

Price elasticity of demand refers to the degree of responsiveness of quantity demanded to a
change in the price of the good, ceteris paribus.

Asda supermarkets sell a range of goods. With a knowledge of the price elasticity of
demand for its products, Asda can reduce the price of its products where demand are price
elastic during the Christmas season. Examples of such products are non-festive goods
which are not urgently required for consumption and are easily available in other
supermarkets. As mentioned in extract 4, Asda reduces the price of some of its products in
its supermarket chains. With a reduction in prices in these products, it will lead to a more
than proportionate increase in quantity demanded causing total revenue to increase.
[Elaborate.]

On the other hand, Asda will increase the prices of goods with inelastic demand. As
mentioned in extract 4, these are goods which are essential for the Christmas period and
where consumers are too busy to go elsewhere to shop for them. [Elaborate.]

Thus, a knowledge of price elasticity will help Asda make pricing strategies to maximise its
profits during the Christmas season. However, there are limitations to the use of price
elasticity concepts. In reality, price elasticity values are difficult to collect and such data may
not be reliable and accurate. Thus, Asda may have to depend on its business acumen to
decide on the products to reduce prices and those to increase prices.

While a knowledge of price elasticity is helpful, Asda can further maximise its profits by using
non-price competitive strategies to increase the demand for its products. [Elaborate.]

To maximise profits, Asda can also look into ways to reduce its cost of production. This
includes exploitation of economies of scale and improvement in technology to improve
efficiency.

In conclusion, Asda could use both pricing and non-price strategies to maximise profits
during the Christmas season. Efforts to reduce its cost of production will further enhance its
profits.

Marks Description
L2 (4 - 6m)
For an answer that analyses and explains how price
elasticity is applied to maximise profits for Asda.
Answer also uses evidence from data.
L1 (1 - 3m)
For an answer that shows a theoretical understanding of
the usefulness of price elasticity of demand.

E2 (3 - 4m)
For an answer that recognises that there are some
limitations on the use of price elasticity of demand and
further analyses and evaluates how other factors can
affect the profits of Asda.
E1 (1 - 2m)
For an answer that shows evaluation on the limitations of
the use of price elasticity of demand.

J J C Prelim 9732/1
8
Question 2
The Global Recession

Extract 5: Turning their backs on the world

Globalisation means the global integration of the movement of goods, capital and jobs. Each of
these processes is now in trouble. World trade has plunged.

The downturn has been sharpest in countries that opened up most to world trade, especially East
Asias tigers. Singapores exports are 186% of GDP; its economy shrank at an annualised rate of
17% in the last three months of 2008. Taiwans exports are over 60% of GDP; and its economy
may fall as much as 11% this year. The downturn has also hurt rich countries that specialise in
staid old-fashioned manufacturing supposedly a safer activity than the reckless delusions of
finance. On average, says the IMF, rich countries will contract 2% this year. But Germany and
J apan, big exporters of capital goods, cars and electronics, will do worse, their economies
shrinking by 2.5% and 2.6% respectively. In the last quarter, their economies contracted
alarmingly, falling at an annualised rate of 8% in Germany and by 13% - the worst since 1974 in
J apan.

Foreign Direct Investment (FDI) creates new factories and new jobs and is also one of the
commonest routes by which skills and technology are transferred from rich to poor countries. In
contrast to trade, the investment impact of the global downturn has so far been hardest on the
countries where the woes began: rich ones. They have seen FDI falls off one-third on average
and by half or more in Britain, Italy and Germany. Finland and Ireland have seen net outflows.
FDI flows to developing countries were still growing in 2008, albeit by only 4%, after a rise of 21%
in 2007. Flows to big South American countries were up by about a fifth; those to India more than
doubled, though they may ebb as GDP falters.

The third of the three main aspects of globalisation jobs is following the other two, with a lag.
The International Labour Organisation forecasts that unemployment worldwide will rise by around
30 millions above 2007s level in 2009. Most of that rise will be the result of recession, but some
will be attributable to the fall in trade and some to declining investment.

Source: Adapted from The Economist, 19 February 2009

Extract 6: Fiscal Stimulus

In an implicit backing of the British prime ministers 20b stimulus plan, the head of the
International Monetary Fund Dominique Strauss-Kahn said he had reversed his view of state
borrowing and believed that increasing government debt was the less bad solution when faced
with the worst downturn in up to 70 years. Nonetheless, Strauss-Kahn described the increase in
UK debt to fund the economic shock treatment as disturbing. The IMF chief said other countries
should follow the British example, adding that a stimulus of about 2% of global gross domestic
product, or 800b for the G20 nations, was the best option.

Source: Guardian, 22 December 2008

Extract 7: Threats to global trade

Although increased tariffs are a cause for concern, they are far from the only form of protection
being used in this global financial crisis. Two-thirds of the trade-restricting measures documented
by the World Bank are non-tariff barriers of various kinds.

J J C Prelim 9732/1
9
Indonesia has specified that certain categories of goods, such as clothes, shoes and toys, may be
imported through only five ports. Argentina has imposed discretionary licensing requirements on
car parts, textiles, televisions, toys, shoes and leather goods; licences for all these used to be
granted automatically. Some countries have imposed outright import bans, often justified by a
tightening of safety rules or by environmental concerns. For example, China has stopped imports
of a wide range of European food and drink, including Irish pork, Italian brandy and Spanish dairy
products. The Indian government has banned Chinese toys. In addition, anti-dumping is on the
increase.

Rich countries weapon of choice so far is neither tariffs nor non-tariff barriers to imports.
Manufacturers that rely on imported inputs may resist higher tariffs because they push up the
prices of those inputs, making domestic industry less competitive. Carmakers now prefer explicit
subsidies, and the world is replete with examples. Besides America, Argentina, Australia, Brazil,
Britain, Canada, China, France, Germany, Italy and Sweden have all also provided direct or
indirect subsidies to carmakers. The World Bank reckons that proposed subsidies for the car
industry amount to $48 billion. Nearly 90% of this is in rich countries, where it can easily be
slipped into budgetary packages to stimulate demand.

The worry about such subsidies is that they could cause production to switch from more efficient
plants (e.g. in central and eastern Europe) to less efficient ones in rich countries with deep pockets
(e.g. in western Europe). Moreover, subsidies will beget more subsidies and invite retaliation.

Protectionist urges are also being bolstered by countries seeming inability to co-ordinate their
fiscal stimulus programmes. Some countries have been reluctant to work the budgetary pump for
fear that their extra demand will leak abroad to the benefit of foreigners. To stop the seepage,
some governments have inserted discriminatory conditions into their fiscal programmes, the prime
example being the Buy American procurement rules that require all iron and steel used in
stimulus-funded infrastructure projects should be made in the United States.

Source: Adapted from The Economist, 26 March 2009

Figure 3: Current Account Balance in the UK

Source: Office for National Statistics
J J C Prelim 9732/1
10
Figure 4: Balance of trade in goods and services in the UK

Source: Office for National Statistics

Table 1: FDI Inflows in 2008, % change on previous year

Country Change
Singapore -57.3
Britain -51.2
Germany -48.9
France -27.7
J apan -22.7
US -5.5
China 10.7
Russia 17.5
Brazil 20.5
India 59.6

Source: United Nations Conference on Trade and Development

Questions

(a) Compare the change in current account balance of UK between 1988 and 2008 with the
change in balance of trade in goods over the same period. [2]

(b) (i) Name two categories in the current account apart from the balance of trade in goods
and services. [2]

(b) (ii) Explain the comparative advantage of UK as suggested by Figure 4. [2]

J J C Prelim 9732/1
11
(c) With reference to the data where appropriate, explain the possible impact of the global
recession on various countries. [6]

(d) Discuss whether fiscal stimulus programmes are effective in helping an economy to recover.
[8]

(e) Assess whether protectionism can be justified during a global recession, using both the case
study and your own relevant knowledge. [10]

Class Adm No

Candidate Name: _______________________
This question paper consists of 10 printed pages (including 2 BLANK pages).
[Turn over

2010 Preliminary Examination 2
Pre-university 3

H2 ECONOMICS 9732/01
Paper 1

Monday 13 September 2010 2 hours 15 minutes

Additional materials:
Answer paper


Write your name, class and admission number in the spaces at the top of this page and on all
pages of the work you hand in.
You may use a soft pencil for any diagrams or graphs.

Answer all questions. Begin Question 2 on a fresh sheet of paper.

At the end of the examination, hand in answers for Question 1 and Question 2 separately.

You are reminded of the need for clear presentation in your answers.

H2 Economics 9732/01/2010

2

Question 1 Road Traffic Conditions

Extract 1: ERP system: from gantries to satellites

The Land Transport Authority (LTA) has called for proposals for a gantry-free system that is
based on the use of satellites to track a vehicle on the road. This eye-in-the-sky method, if
implemented, will allow LTA to extend its ERP coverage to congested roads anywhere on the
island, without having to install more gantries, which cost about $1.5 million each. A satellite-
based system also means the Government can charge for using a stretch of road based on
actual congestion, instead of the flat fee levied when a motorist passes under an ERP gantry.

Transport Minister Raymond Lim said that while the current gantry-based ERP system has
worked well, it will not be sufficient. He also added that it may become impractical to continue
installing ever more physical gantries to manage congestion. There are already about 70 such
gantries islandwide. Furthermore, Transport engineering specialist Anthony pointed out that a
satellite system would work well for distance-based charging, where vehicles are charged for
how much of the road they use. 'It is also a more fair and equitable system for drivers,' he
said.
Source: Adapted from The Straits Times, 01 J uly 2010

Extract 2: China driving itself into gridlock

Congestion has been the norm for major Chinese cities for years. Guangzhou estimates that
traffic snarls waste 150 million hours a year and cause economic losses of 11.7 billion yuan
(S$2.4 billion) a year. The bumper-to-bumper traffic is also not helping air pollution. Air quality
readings recorded by the American Embassy are usually in the unhealthy range. The roar in
the car population has much to do with the global financial boom. Also, it has been
aggressively encouraging people to buy cars with the introduction of a slew of measures to
make a set of wheels cheaper for the average Chinese. Tax reductions of 5 per cent on small-
engine cars, subsidies for clean car technology and a concerted nationwide push for rural folk
to buy vehicles at a cheaper price were introduced.

China now needs a vehicle management policy to either curb ownership or usage - or better
still, both. One option is to extend the "Shanghai way" - limit vehicle purchase - to the rest of
the country. Since 1994, Shanghai has had a Singapore-style certificate of entitlement bidding
scheme for new vehicles. Last month, 8,500 certificates were issued, averaging about 25,000
yuan each. Alternatively, China as a whole can adopt the "Beijing method", which restricts
vehicle usage. Before and during the Olympics, the capital introduced a successful odd-even
number system based on the licence plates, taking half the private vehicles off daily. After the
Games, it was tweaked to the current last-number system, banning 20 per cent of the cars
from hitting the roads a day.

Lastly, China can go with the "Guangzhou option", which has said that it is following the
Singapore model of cordoning off the downtown area and charging drivers a fee for entering
the zone.
Source: Adapted from The Straits Times, 07 Nov 2009


3
Extract 3: Using Public Transport in Singapore

Using public transport is no longer a national matter, the global transport sector accounts for
23% of global carbon emissions (air, maritime, rail and road transport) out of which road
transport accounts for 73%. Increasing fossil fuel based car usage leads to declining air
quality with the increase in minute particulate matter. Problems of increased car usage include
traffic congestion, injuries and respiratory troubles. Singapore has done well to balance the
controlled development of private vehicle use and public transport and can serve as a role
model for other Asian cities.

The range of options make it really convenient to travel here - buses and trains and as a last
resort, taxis for the more inaccessible and less connected places. Of course, trains and
buses can be crowded during peak times, and some of the feeder buses from trains are not
always available, but by and large, Singapore has made public transport convenient, clean
and affordable.

Source: Adapted from EcoWalkTheTalk.Com, 22 J une 2010

Figure 1: Singapore Private Car Population and Daily Bus Ridership Annual Growth
-8
-6
-4
-2
0
2
4
6
8
2004 2005 2006 2007 2008 2009
Private Car Population
Daily Bus Ridership

Source: Adapted from www.lta.gov.sg, 5 August 2010

Table 1: Singapore Annual Average Quota Premium of COE for Cars 1600cc & Taxis
Year
Annual Average Quota
Premium of COE*
2008 $12 330
2007 $14 101
2006 $11 187
2005 $16 551
2004 $25 181
* COE (Certificate of Entitlement) is a quota system instituted by the Singapore government to
limit car ownership.
Source: Adapted from www.lta.gov.sg, 5 August 2010
Year
A
v
e
r
a
g
e

A
n
n
u
a
l

%

C
h
a
n
g
e


4

[BLANK]


5

Questions
(a) (i) Compare the percentage change in the population of private cars and
daily ridership of buses over the period between 2004 and 2009 in
Singapore.

[2]

(ii) Explain how the annual average quota premium of COE affects
private car ownership in Singapore.

[2]

(b) Explain whether Singapore public buses and trains are public goods. [3]

(c) Using demand and supply analysis, explain why traffic congestion is a norm
for major Chinese cities (Extract 2).

[5]

(d) Discuss the extent to which the call for a satellite-based ERP system by the
Singapore government is to improve the economic efficiency in the market
for road usage.

[8]

(e) Assess the effectiveness of the measures suggested in Extract 2 to tackle
the problem of heavy traffic in China.

[10]

[Total: 30 marks]


6
Question 2 Global Economic Recession

Extract 4: MAS makes drastic move to fight inflation

The Monetary Authority of Singapore (MAS) said yesterday it would allow an immediate jump
in the value of the Singapore dollar by moving up the range in which it allowed the local
currency to fluctuate.

The currency move, which came amid a new surge in oil and commodity prices, surprised
most economists, who expected the MAS to stick with the status quo, given the uncertain
economic outlook. Indeed, the local currency rose 1.8 per cent to $1.3572 against the
greenback yesterday. Experts now reckon that the Singdollar could reach $1.32 by year-end.

OCBC Bank economist Selena Ling said the economy's surprisingly strong growth of 7.2 per
cent in the first quarter probably gave the MAS 'comfort' to prioritise inflation over growth
concerns.

The MAS said in a statement that oil and food prices were likely to stay high for some time.
'Domestic cost pressures will persist due to short-term capacity constraints in certain
segments of the economy,' it added.

Inflation is expected to moderate in the latter half of the year, but experts believe policymakers
should consider moves beyond currency strengthening. 'A stronger Singdollar cannot mitigate
domestic sources of inflation like higher housing costs, wage costs and road usage costs,'
said Standard Chartered Bank economist Alvin Liew.

Source: The Straits Times, April 2008

Extract 5: IMF gives Singapore the thumbs-up
As the recession took hold last November, Singapore moved to a neutral exchange rate
policy, where the currency neither appreciates nor depreciates, and then shifted down the
band within which it trades in April this year.
With inflation not a concern, Singapore's monetary policy is appropriate, the international
Monetary Fund (IMF) report said, and should remain so for some time. But it added that
Singapore should return to a policy of allowing the currency to strengthen gradually once
economic recovery is 'well established'.
The Government's $20.5 billion fiscal resilience package was described as 'timely,
appropriately large and diversified'. $4.9 billion of that would be funded by the past reserves,
which have never been drawn on. A key plank of the Budget is a novel $4.5billion J obs Credit
Scheme through which the Government will pay a portion of employers wage bill. To help
Singaporeans upgrade their skills so that they can stay employed or seek re-employment, the
Government launched the Skills Programme for Upgrading and Resilience (SPUR) which
provided higher course fee support for companies and individuals.
But as risks remain on the horizon, the IMF said that the Government intended to undertake
additional measures if the economic growth path proved to be weaker than expected. It also
warned that removing the stimulus prematurely in the next Budget could undermine the
confidence established by the stimulus package.


7
The Government forecasts the economy to contract by between 4 and 6 per cent this year.
Second-quarter GDP grew 20.7 per cent from the first, in strong signs that the economy is
rebounding.
The IMF predicts global economic activity to pick up modestly next year and Singapore's GDP
to grow by a conservative 2.5 per cent. Over the medium term, trend growth is likely to be
weaker than before the crisis, due to tighter credit, and as trade and production patterns shift
to new markets.
Sources: MOF J anuary 2009, The Straits Times September 2009

Extract 6: UK Plans to increase borrowing to combat recession

British Prime Minister Gordon Brown said Monday he planned to increase government
spending by borrowing more to cushion the country's fall into recession. "The responsible
course of action is borrowing for what is necessary now and for the longer term," Brown told
business leaders and academics on Monday.
Last week, official statistics showed Britain's economy contracted for the first time in 16 years
in the third quarter between J uly and September, and the Bank of England is also expected to
cut interest rates to help support growth.
Brown and Bank of England Governor Mervyn King have predicted that next quarter's figures
will also show economic contraction, warning that Britain is likely to be heading into a
recession.
But not everyone is convinced that increasing borrowing is the right course of action. In a
letter to the Telegraph newspaper on Sunday, 16 leading economists argued that the plan
could do more harm than good. "It is misguided for the government to believe that it knows
how much specific sectors of the economy need to shrink and which will shrink 'too rapidly' in
a recession," the economists said in the letter. "Thus the government cannot know how to use
an expansion in expenditure that would not risk seriously misallocating resources."
Source: The Associated Press, October 2008
Figure 2

Source: Bank of England


8
Table 2: Singapores Key Economic Indicators
2005 2006 2007 2008 2009*
GDP, at current market price
(S$bn)
201.3 221.1 251.6 257.4 240.9
GDP at 2000 market prices
(% change)
7.3 8.4 7.8 1.1 -8.8
Inflation (% change)

0.5 1.0 2.1 6.5 0.1
Unemployment rate (%)

3.1 2.7 2.1 2.2 3.6
Productivity growth (% change)

2.8 1.6 -0.8 -7.8 -8.7
Current account balance (% of GDP)

23.8 26.4 25.2 15.2 15.5
Capital and Financial account balance
(S$bn)
-29.7 -35.1 -33.9 -16.2 -35.8

* forecast as at 2Q 2009
Source: Various

Table 3: UKs Key Economic Indicators
2005 2006 2007 2008 2009*
GDP, at current market price
(bn)
1253 1322 1401 1443 1414
GDP at 2000 market prices
(% change)
2.1 2.8 3.0 0.7 -4.1
Inflation (% change)

2.1 2.8 2.0 3.9 0.8
Unemployment rate (%)

4.8 5.4 5.4 5.6 7.4
Productivity growth (% change)

0.8 2.4 2.3 0.5 -2.4
Current account balance (% of GDP)

-2.6 -3.4 -2.9 -1.7 -2.0
Capital and Financial account balance
(bn)
-687.3 -571.9 -995.7 655.2 na
Government budget balance (% of GDP)

-3.5 -4.5 -4.1 -5.5 -14.4

* forecast as at 2Q 2009
Source: Various


9

Questions

(a) (i) Compare the change in Singapores general price level between
2005 and 2008 with that of the UK over the same period.

[2]

(ii) Identify the possible causes of inflation in Singapore. [1]

(b) Explain the effect of the change in the exchange rate policy on the economy
as described in Extract 4.

[3]

(c) To what extent can productivity growth explain the deterioration in the
balance of payments of Singapore?

[6]

(d) How can the data be useful in comparing the impact of the global recession
on the standard of living between Singapore and the UK?

[8]

(e) Using both the case study and your own relevant knowledge, compare and
evaluate two policy options adopted by Singapore and the UK in response
to the recession.

[10]

[Total: 30m]


10

[BLANK]
Class Adm No

Candidate Name: _______________________
This question paper consists of 2 printed pages.
[Turn over

2010 Preliminary Examination 2
Pre-university 3

Paper 2: Essay Questions

Tuesday 21 September 2010 2 hours 15 minutes

Additional materials:
Answer paper


Write your name, class and admission number in the spaces at the top of this page and on all
pages of the work you hand in.
You may use a soft pencil for any diagrams or graphs.

and one from either Section A or Section B. Begin each question on a fresh sheet of paper.

At the end of the examination, hand in answers for Sections A and B separately with the
cover page on top of each Section.

You are reminded of the need for clear presentation in your answers.

2
Section A

1 With the recovery of the world economy and the opening of the two integrated
resorts which housed casinos, tourist spots like Universal Studio and new hotels,
the tourist trade in Singapore will be greatly affected.

Assess how the hotel and its related industries might be affected by these
developments.

[25]

2 (a) Explain why firms have different profit levels in different markets. [10]

(b) Discuss the extent to which the profit level of a firm will determine its behaviour
in the real world.

[15]

3 The Housing and Development Board (HDB) of Singapore has a ruling that a
couple who are buying a new flat in its public housing program must have a
combined monthly household income of not more than $8000. This is because
new HDB flats are heavily subsidized by the government.

(a) Explain whether you consider a HDB flat a public or merit good. [10]

(b) Discuss whether the above action by the Singapore government leads to a
better allocation of resources in the housing market in Singapore.

[15]

Section B

4 Amidst weak employment and housing markets, consumers are saving more and
spending less than they have in decades. New York Times

Discuss the possible impact of such consumer behaviour upon the economy. [25]

5 (a) Explain how changes in the external value of a currency can affect the
domestic price level.

[10]

(b) Discuss whether an increase in the general price level will affect the domestic
sector more than the external sector in Singapore.

[15]

6 (a) Explain why protectionism still exists with globalization. [12]

(b) Discuss some measures a government can adopt when confronted with
increasing protectionism.

[13]

MERIDIAN JUNIOR COLLEGE
Preliminary Examination
Higher 2

___________________________________________________________________
Economics 9732/1

2 Hours 15 Minutes
Additional Materials: Answer Booklet/Writing Paper
___________________________________________________________________


Do not open this booklet until you are told to do so.

Write your name, class and register number on all the work you hand in.
Write in dark blue or black pen.


[Turn Over]

2

9732/01/JC2 PRELIMINARY EXAMINATIONS/MJC/2010

Question 1: The Case of Missing Taxis
With the liberalization of the taxi industry in January 2003, there are now several taxi
companies in Singapore. Each company maintains its own fare and surcharge structures
but the differences between them are minimal. The liberalization of the industry allows the
taxi operators the flexibility to provide differentiated services to better meet the demands of
passengers. The Land Transport Authority (LTA) has also put in place a licensing
framework for taxi companies to comply with a set of Quality of Service (QoS) standards to
ensure that service standards in the industry are upheld.

Extract 1: Taxi Fare Revision

A stronger economy, an improved taxi booking system and one of the wettest weathers in
recent years resulted in a record number of call bookings for ComfortDelGro taxis last year.
In all, over 17 million taxi bookings were received for Comfort, CityCab and Yellow-Top taxis
in 2006 - 20% more than in 2005.

On average, commuters who call in the system wait 30 seconds for a taxi number and are
picked up within 6 minutes of the confirmation. But demand during peak periods and rainy
days usually surges. As a result, some commuters may have had to wait longer than usual
for a taxi. It is a common complaint among commuters that they are unable to get a cab
from the city area during evening peak hours. One reason for this is that many taxis leave
the city centre for the suburbs and drivers find little incentive to drive all the way back to the
city to pick new passengers up. This situation is further exacerbated by the fact that demand
for taxis generally spikes in the city centre in the evenings.

ComfortDelGro Corporation is revamping its taxi fare structure to better match the demand
for and supply of taxi services at different times of the day. The changes are aimed at
making taxis more readily available to commuters when they need it most. Under the new
pricing structure, the bulk of ComfortDelGros taxi passengers those who travel during off-
peak hours, will pay 10% more in fares. The Peak City Area Surcharge will also be raised
from $1 to $3 and all drivers who are unable to get a passenger within 15 minutes of
entering the ERP zone will enjoy an ERP rebate. Thus, passengers are expected to pay
between 18% and 49% more, depending on whether they hail a cab from the city or the
suburbs.

In addition, the move towards increasing taxi fares comes amid the increase in the
operating cost for a taxi driver. This is due to higher taxi rental and an increase in the price
of diesel. The price of diesel has increased to $1.523 per litre which translates to an
increase of $12 to $15 in daily fuel cost.

The general population had mixed views with regards to the revised taxi fares. Meanwhile,
observers agreed that taxi fares here are lower compared to those in developed cities, and
increases in fares would help cabbies fight rising costs. One passenger also commented
that she did not mind the increase of 30 cents since she is already taking a cab during the
peak hour.

Source: Adapted from ComfortDelgro media releases, 2006 - 2007

3


Extract 2: ComfortDelgro Big Brother?
In July 2006, ComfortDelGro raised fares for all three operators under its umbrella, and
SMRT Taxis and TransCab followed suit. Premier Taxis adjusted its fares differently by only
increasing some fare components, while SmartCab chose not to raise its fares at all,
resulting in the most marked price differentiation between the companies since deregulation
of taxi fares in 1998. One month later, it was reported that these fare adjustments had
resulted in a drop of up to 20% in earnings for taxi drivers.
On 10 December 2007, ComfortDelGro announced another revision in fares with increases
ranging from 10% to 49%. It called on other taxi companies to follow its fare structure "as
soon as possible". 6 months later, ComfortDelGro announced the implementation of a $0.30
fuel surcharge starting from 17 July. Other taxi companies except Prime Taxis followed suit
with different implementation dates.
ComfortDelgro launched the free SMS booking system in May 2008. The latest hassle-free
SMS taxi booking service is the first of its kind in Singapore because it enables commuters
to book a taxi via SMS any time from any location.

Source: Adapted from ComfortDelgro media releases, 2007 2008
Extract 3: Review of the fare revision
The new taxi fare structure has been effective in ensuring that demand for taxi services is
met. It is now much easier to get a taxi in the city during peak periods. The waiting times at
taxi stands in the evening have improved substantially in the city area, from 5 to 22 minutes
on average before the fare revision to 2 to 6 minutes currently.
Taxi drivers earnings have also increased. ComfortDelgros data from a sample of 5,000
taxis showed that the average daily fare collected by taxi drivers had increased from $307 to
$318 in the 4 weeks after the fare revision. The LTA will continue to monitor the situation as
both taxi drivers and passengers adjust to the new fares.

Source: Mr Raymond Lim, Transport Minister, Oral Answer to Parliament Matter, 22 January 2008

Table 1: Fare Comparisons across Countries

Average 9-km,
Off-peak trip
Average 9-km,
Peak trip
Singapore S$8.40 S$14.35
Hong Kong S$14.30 S$14.30
Sydney S$28.70 S$28.70
London S$40.15 S$51.60

Source: Adapted from ComfortDelgro media releases, 2007

4


S
i
z
e

o
f

t
a
x
i

f
l
e
e
t

Table 2: Summary of Fare Adjustments

Basic Fare
Old Fare Revised Fare
Flag Down: $2.50 for 1
st
km Flag Down: $2.80 for 1
st

km

Peak Period Premium
$2 flat rate 35% of metered fare

Late Night Surcharge
Staggered surcharge of 10%-
50% from 11.30pm to 5.59am
Midnight-05:59am 50% of
metered fare

Source: Adapted from ComfortDelgro media releases, 2007

Figure 1: Taxi Population (2005 to 2010)

0
3000
6000
9000
12000
13000
18000
21000
24000
27000
2003 2006 2007 2008 2009 May-10
CLhers
remler
1rans-Cab
SM81
ComforLuelCro

Source: Land Transport Authority

Year
5


Questions:

a (i) With reference to Figure 1, describe the changes in the taxi industry
over the period 2005 to May 2010.

[2]

(ii) Explain 2 reasons for the change in ComfortDelGros market share. [4]
b (i) Using appropriate diagram(s), account for the change in taxi flag down
fares in 2007.

[4]
(ii) Using the concept of price elasticity of demand, discuss whether taxi
drivers or passengers are more likely to bear the burden of the increase
in fuel cost during peak and off-peak hours.

[6]
c How far can you conclude that the taxi industry in Singapore is a
monopolistic market?

[6]

d If you are an economist in the Ministry of Transport, assess whether the
government should intervene in the taxi market to regulate taxi fares.

[8]

Total Marks: 30

6


Question 2 Protectionism and Recession

Extract 4: International Commitment Necessary To Overcome Downturn

In a press conference at Downing Street, British Prime Minister Gordon Brown stressed the
need for international commitment to overcome the economic downturn. Mr Brown repeated
his calls for countries to work together in response to global recession, saying trade would
help "the poorest and most vulnerable". He said: "We are seeing a large fall in world trade.
The 1930s brought protectionism in response to recession; in 2009 we must tackle
protectionism head-on." The world should move from "beggar-thy-neighbour policies to
support-thy-neighbour policies," he added.

The Prime Minister also added that any economic stimulus package must "help the poorest,
who are in the end the hardest hit by the global recession".
Adapted from BBC, 2009

Extract 5: China Ready to Accommodate on ASEAN-China FTA
The ASEAN-China FTA the worlds third largest free-trade area came into effect on 1
January 2010. The FTA has a combined GDP of US$ 6.6 trillion, 1.9 billion people and total
trade volume of US$ 4.3 trillion. In recent weeks, however, the regional media had reported
on the apprehension raised by the private sector and industry associations in Indonesia
which fear that the entry of cheaper Chinese products would undermine domestic
manufacturing.
Secretary-General of ASEAN, Dr. Surin Pitsuwan said that all FTA agreements, including
the ASEAN-China FTA, provide for measures that will protect, assist and facilitate industry
adjustments. These include safeguards, anti-dumping measures or modifications of
concessions. Chinas State Councilor, Mr. Dai Bingguo meanwhile stressed that China is
committed to common development and prosperity and that both ASEAN and China should
seize the opportunities offered by the FTA and further develop their cooperation.
Earlier in his remarks, Dr Surin said that economic and trade relations between ASEAN and
China have strengthened significantly. Trade between ASEAN and China reached US$
192.7 billion in 2008. This growth placed China as ASEANs third largest trading partner in
2008, accounting for 11.3 per cent of ASEANs total trade. Economic cooperation between
ASEAN and China will see Chinas FDI inflows into ASEAN increase dramatically.

Adapted from ASEAN Secretariat, 22 January 2010

Extract 6: ASEAN Vows to Cut Tariffs as Recession Batters Regional Economy
Southeast Asian leaders pledged to cut trade barriers and open more service industries as
the bloc struggles to overcome a global recession that has eroded export demand and
boosted protectionist sentiment.
The leaders reaffirmed their determination to ensure free flow of goods, services and
investment, the 10-member ASEAN said in a statement after meeting in Cha-am, Thailand.
They agreed to stand firm against protectionism and to refrain from introducing and raising
new barriers.
7


ASEAN leaders warned of the dangers of measures aimed at shielding domestic industries
and goods from overseas competition as the worldwide economic downturn threatens jobs
and hurts manufacturing.
We want to be clear that the ASEAN countries are firmly committed to free trade, and well
do whatever we can to make sure no countries resort to protectionist measures to try to
ease their way out of the crisis, Thai Prime Minister Abhisit Vejjajiva said at a news briefing
today. If any of that happens, and if all countries begin to join in, then everybody loses.
Asias export-dependent nations are reeling from the global slowdown, which has slashed
demand for the regions computer chips, cars and commodities.
Amid the free-trade agreements, some countries are putting in place policies to help
domestic businesses that may come at the expense of overseas ones.
Indonesias Trade Ministry issued a decree ordering civil servants to use local products,
Jakarta Globe reported Feb. 16, citing Trade Minister Mari Pangestu. The decree is aimed
at boosting domestic demand and helping local industries including food, beverages,
footwear, clothing and music, the report said.
It is a normal reaction for countries to resort to protectionist measures in a slowdown,
Malaysian Prime Minister Abdullah Ahmad Badawi told the Bangkok Post in an interview
published Feb. 27. If we are not supportive of our own industries, and do not buy our own
products and services we will have a serious problem, Abdullah said. As it is, we are told
that countries which have been importing our products before are not going to be importing
the same amount anymore. We have to protect our people.
Adapted from Bloomberg News 1
st
March 2010

8


Table 1: Chinas Key Performance Indicator 2003-2011*
China 2003 2004 2005 2006 2007 2008 2009 2010 2011
Real GDP
(annual %change) 10 10.1 10.4 11.6 13 9.6 8.7 10.1* 9.3*
Current Account
balance (in billion) 46 69 161 253 372 426 284 264* 309*
Fiscal Balance
(% of GDP) -1.2 -0.4 -0.2 0.5 2 1 -1.7 -0.9* -0.3*
Inflation rate (CPI in %) 1.2 3.9 1.8 1.5 4.8 5.9 -0.7 1.8* 2*
Exchange rate
(average per USD) 8.28 8.28 8.2 7.98 7.61 6.96 6.84 NA NA

Memorandum Items:

OECD-wide real GDP
growth (%) 2 3.2 2.7 3.1 2.7 0.6 -3.5 1.9* 2.5*
OECD-wide inflation 2.4 2.3 2.2 2.3 2.3 3.2 0.5 1.3* 1.2*
OECD-wide fiscal
balance (% of GDP) -4.1 -3.4 -2.7 -1.3 -1.3 -3.5 -8.2 -8.3* -7.6*
Current Account Balance (in US$ billion)
USA -522 -631 -749 -804 -727 -706 -434 -506* -566*
Japan 136 172 166 172 213 157 126 146* 148*
Germany
48 127 142 190 266 245 134 162* 199*
*Estimates

Table 2: Selected economic indicators of selected ASEAN countries, 2009
Singapore Malaysia Thailand Indonesia Philippines
Components of GDP (percent
of GDP at current market
prices)

Private consumption 40.9 49.9 55.0 58.6 73.9

Government
consumption
11.5 14.1 13.3 9.6 10.5

Gross domestic
capital formation
27.2 14.5 21.8 31.0 14.6

Exports of goods and
services
199.3 96.4 68.4 24.1 31.7

Imports of goods and
services
178.2 74.9 57.9 21.3 30.8
Foreign direct investment, net
inflows, (percent of GDP at
current prices
9.2 0.8 2.3 0.9 1.2
Gross domestic savings,
(percent of GDP at current
market prices)
48.3 36.0 31.7 31.8 15.6
Fiscal balance, (percent of
GDP at current market prices)
7.6 -7.0 -4.1 -2.3 -3.9
Source: Asian Development Bank
Source: OECD Report China in the 2010s- Rebalancing Growth and Strengthening Social Safety Nets
9


Questions

a Summarize the changes in the external value of the Yuan from 2005
to 2009.

[1]

b (i) Suggest possible reasons for the relationship between Chinas
current account balance and her fiscal balance from 2003 to 2009 as
seen in Table 3.

[4]

(ii) Account for the change in Chinas projected current account balance
between 2010 and 2011.

[3]

c Compare Chinas economic performance with that of the OECD
countries in 2009.

[4]

d Using Keynesian analysis, evaluate the likely impact of the ASEAN-
China FTA on the national income of the various ASEAN nations in
Table 4.

[8]

e The world should move from "from beggar-thy-neighbour policies to
support-thy-neighbour policies"

As an economic advisor to the Malaysian government, would you
recommend this shift in policy amidst global recession?

[10]

Total Marks: 30

End of Paper


COVER SHEET

ECONOMICS HIGHER 2

PAPER 1

Name: ______________________ Civics Group: _______________

Register Number: _____________ Economics Tutor: ___________

13 September 2010 2 hours 15 minutes


Write your name, civics group, register number and economics tutors name in the spaces
at the top of this cover page and on all the work you hand in.

At the end of the examination, fasten this cover sheet to your answer scripts for Question 1
with the string provided before submission.

QUESTIONS ATTEMPTED

MARKS

(a)(i)
(a)(ii)
(b)(i)
(b)(ii)
(c)
(d)

TOTAL
/30

JC2 PRELIMINARY EXAM 2010
Question 1
9732/01


COVER SHEET

ECONOMICS HIGHER 2

PAPER 1

Name: ______________________ Civics Group: _______________

Register Number: _____________ Economics Tutor: ___________

13 September 2010 2 hours 15 minutes


Write your name, civics group, register number and economics tutors name in the spaces
at the top of this cover page and on all the work you hand in.

At the end of the examination, fasten this cover sheet to your answer scripts for Question 2
with the string provided before submission.

QUESTIONS ATTEMPTED

MARKS

(a)
(b)(i)
(b)(ii)
(c)
(d)
(e)
TOTAL
/30

Question 2
9732/01

Preliminary Examination
Higher 2

___________________________________________________________________
Economics 9732/2

2 Hours 15 Minutes
Additional Materials: Answer Booklet/Writing Paper
___________________________________________________________________



Write your name, class and register number on all the work you hand in.



[Turn Over]

___________________________________________________________________


2

Answer three questions in total

Section A


1 Fears of a property bubble forming saw the government introducing
measures such as removing easy financing schemes to cool the private
homes sector. But Mr Mah Bow Tan said a call for the government to
artificially dampen prices is not the solution.
Channel NewsAsia 29 Dec 2009

(a) Explain the determinants of housing prices in Singapore. [10]

(b) How far would you support the governments stand not to artificially
dampen prices in the housing market?

[15]

2 The market for package holidays in Singapore is served mainly by
travel agencies such as Chan Brothers, Dynasty and SA tours. The
development of the Internet has enabled travelers to purchase their
holidays online, changing the way these markets work.

(a) Explain why profit levels can vary considerably across oligopolistic
industries.

[10]

(b) Comment on the assertion that the development of the Internet has
resulted in better outcomes in the market for package holidays for
society and producers.

[15]

3 Assess the view that the Singapore government should use taxes
rather than any other economic policies when dealing with the market
failure associated with negative externalities.

[25]

3

4 The recent financial crisis saw Singapore's exports plunge as the global
recession has affected almost all major economies in the world,
including the USA.

(a) Explain how the recent financial crisis would affect the circular flow of
income in a country.

[10]

(b) Discuss the relative effectiveness of demand-side and supply-side
policies in sustaining economic growth and stability in Singapore.

[15]

5 Analyze the recent sources of inflation in Singapore and assess whether
low inflation should be the main macroeconomic objective of the
Singapore government.

[25]

6 While Singapore has always shared strong trade ties with manufacturing
powerhouse China, it recently forged closer economic relationship with
mineral-rich Peru. In 2008, Singapores trade with China amounts to
S$6.92 billion while that with Peru stood at a meagre S$75.2 million.

(a) Explain why Singapore signs FTAs with countries as diverse as China
and Peru.

[10]

(b) Assess the extent to which globalization has changed Singapores
pattern of trade.

[15]

END OF PAPER

COVER SHEET

ECONOMICS H2 (9732)

PAPER 2

Name : ______________________ Civics Group: _______________

Register Number: _____________ Tutor : ____________________

17 September 2010 DURATION: 2 hr 15 minutes


Write your name, civics group, register number and economics tutors name in the spaces at
the top of this cover page and on all the work you hand in.

At the end of the examination, fasten this cover sheet to your answer scripts for with the string
provided before submission.

Questions Attempted

Marks

Question 1

(a)
(b)

Question 2

(a)
(b)
Question 3 -

Question 4

(a)
(b)
Question 5 -

Question 6

(a)
(b)

Total Marks

/ 75


NATIONAL J UNIOR COLLEGE
SH2 Preliminary Examinations for General Certificate of Education Advanced Level
Higher 2

ECONOMICS 9732/01

Paper 1: Case Study Questions 15 September 2010
2 hour 15 minutes



Write your student registration number and name on all the work you hand in.
Do not use paper clips, highlighters, glue or correction fluid.

Answer all questions. Start each question on a new piece of paper.

At the end of the examination, fasten all your work securely with the cover pages given [one cover
page for one question].
Fill in the necessary information on the cover pages.


This document consists of 9 printed pages; including 2 cover pages.

Economics Department
[Turn Over
NJ C 2010

2
NJ C 2010 9732/ Sep 2010


Question 1

Woes of the Confectionery Companies

Extract 1: Struggles of Ivory Coasts cocoa farmers are set to force up the price of
chocolate

Cocoa prices hit a 30-year high yesterday as poor weather threatens to drive the price of
chocolate up again for Western consumers.

Production in Ivory Coast, which provides about a third of the worlds cocoa beans, has
slowed as a result of poor weather and under-investment after the 2002-03 civil war. This
years harvest has been damaged by dry weather, pests such as the Pod Borer moth and
swollen-shoot disease. There is trouble with supplies from other major growers too. The El
Nino weather phenomenon has hit Indonesia, the worlds third largest producer, and
Ecuador, the seventh largest.

Laurent Pipitone, senior statistician at the International Cocoa Organisation, said: We have
now had three consecutive years of supply declining. Stocks are at an all-time low. The Ivory
Coast has reached a peak. Farmers dont use many chemicals and pesticides there and
they need to use more. They need to invest more in chemicals and other farming techniques
to increase their yields.

Western demand is growing. The fashion for upmarket chocolate has helped to boost
demand as it typically has a higher cocoa content. Cocoa is also increasingly being used for
financial investment rather than merely sold to industry.

The Ivorian Government is trying to address the problem. Tito Tiehi, an official in the Ivory
Coasts agriculture programme, said: There will be a strong structure for controlling the
many aspects of the sector. We will implement a policy to defend Ivory Coasts place as top
producer and even win back market share worldwide.

The Fair Trade Association advocates setting a minimum price for cocoa so that farmers are
less vulnerable to market oscillations.

Source: The Times, 24 October 2009

Extract 2: Regulators raid chocolate makers in Europe on suspicion of price fixing

German investigators have raided the offices of several major confectionery companies amid
allegations they fixed the price of chocolate.

Mars, Nestl, Kraft and Ritter, which have all confirmed they are part of the investigation by
the Federal Cartel Office, face multimillion-pound fines if found guilty of the charges. The
investigation, which comes days before Valentine's Day, one of the peak times for chocolate
sales, was launched after several of the companies raised their prices by between 10 and 12
per cent within a few weeks of each other, raising the suspicions of the authorities.

Chocolate-makers said the price rises were due to increasing costs for cocoa, the price of
which has jumped 32 per cent in the past year, and sugar, which has risen 22 per cent. Milk
costs are estimated to have risen by a third last year, while the price of nuts has also soared.

3
However, the cartel office alleges that the price rises were even higher than the increase in
raw materials. The companies could be fined up to 10 per cent of their annual turnover.

Source: The Independent, 12 February 2008

Extract 3: Rebuff by Cadbury doesnt deter Kraft

Determined to become a global food and confectionery giant, Kraft Foods said Monday that
it would pursue a $16.7 billion takeover of Cadbury, the British chocolate maker.

Combining Kraft, which makes Oreo cookies, Toblerone chocolates and Ritz crackers, with
Cadburys Trident gum and Dairy Milk chocolates would create a giant with $50 billion in
yearly revenue, spanning the world from the United States and Mexico to Britain and India.

A takeover of Cadbury would help Kraft, the biggest food conglomerate in North America,
compete with its larger rival, Nestl. Cadbury would strengthen Krafts market share in
Britain and India, where Cadbury is among the most popular chocolate brands. It would also
expand Krafts gum business and give it a global distribution network.

The company, whose roots can be traced to 1824 when J ohn Cadbury opened a shop in
Birmingham, England, to sell tea, coffee and, later, cocoa beverages, is not expected to give
in easily. It said that it was confident in Cadburys stand-alone strategy and growth
prospects as a result of its strong brands, unique category and geographic scope.

Speaking in a conference call on Monday, Ms. Rosenfeld of Kraft disagreed. Cadbury has
limited opportunity as a stand-alone entity in this increasingly competitive environment, she
said, adding that Kraft feels quite confident with the proposal and looks forward to
continuing the dialogue.

Source: The New York Times, 7 September 2009

Extract 4: Kraft promises investment in Cadbury after takeover

The strategy director of US giant Kraft Foods vowed Sunday to invest in chocolate maker
Cadbury and create more jobs in the business in the UK as it seeks to head off concern
about its takeover.

Michael Osanloo told The Sunday Telegraph newspaper that Kraft would respect the "history
of Cadbury and the integrity of the brands" after it agreed to buy the firm in a deal worth 11.5
billion pounds.

"As far as Cadbury in the UK goes it is our hope, desire and our plan to invest in Cadbury,"
he said. "I would fully expect that once we can actually look at what is going on and have a
more informed perspective that this should, down the road, increase manufacturing jobs in
the UK. I genuinely believe that we can create a tremendous amount of savings in things like
procurement, on how we source cocoa, dairy, sugar, packaging and advertising. I am very
optimistic that the vast majority of our synergy savings will come from things that do not
affect jobs."

Prime Minister Gordon Brown said this week his government had sought assurances from
Kraft about the future of the more than 5,000 workers at Cadbury amid public dismay at the
sell-off of such an iconic British brand.

NJ C 2010 9732/ Sep 2010

4
Osanloo said it was "unfortunate" that Cadbury had previously been cutting jobs at its two
major plants in Britain, adding: "I would love to be able to figure out a way to do something
other than what the current plan is."

Source: AFP, 24 January 2010

Table 1: Share of Confectionery Sector (by value of total sales in 2009)

Company Name Percentage of Market Share
Cadbury 7.8%
Kraft 9.3%
Mars 16.1%
Nestl 14.2%
Ferrero 8.1%
Others 44.5%

Source: Guardian, 20 January 2010

Questions

(a) Account for the sharp increase in cocoa prices. [5]

(b) With the help of a diagram, explain how setting a minimum price for cocoa can
make farmers less vulnerable to market oscillations. [4]

(c) State and justify the type of market structure operating in the confectionery
sector. [3]

(d) As an economic advisor to the British government,

(i) assess the impact of the takeover of Cadbury by Kraft Foods. [10]

(ii) evaluate the possible policies to reduce/ prevent the detrimental effects
caused by the behaviours of the confectionery companies. [8]

[Total: 30]
NJ C 2010 9732/ Sep 2010

5
Question 2

Fiscal Stimulus for the Global Recession

Extract 5 Global outlook and policy challenges

Economies around the world have been seriously affected by the financial crisis and slump
in activity. The advanced economies experienced an unprecedented 7 percent decline in
real GDP during the fourth quarter of 2008, and output is estimated to have continued to fall
almost as fast during the first quarter of 2009. Although the U.S. economy may have
suffered most from intensified financial strains and the continued fall in the housing sector,
western Europe and advanced Asia have been hit hard by the collapse in global trade, as
well as by rising financial problems of their own and housing corrections in some national
markets. Emerging economies too are suffering badly and contracted 4 percent in the fourth
quarter in the aggregate. The damage is being inflicted through both financial and trade
channels, particularly to east Asian countries that rely heavily on manufacturing exports and
the emerging European and Commonwealth of Independent States (CIS) economies, which
have depended on strong capital inflows to fuel growth.

The World Economic Outlook (WEO) projections assume that financial market stabilization
will take longer than previously envisaged, even with strong efforts by policymakers. Overall
credit to the private sector in the advanced economies is expected to decline in both 2009
and 2010. Meanwhile, emerging and developing economies are expected to face greatly
curtailed access to external financing in both years.

The difficult and uncertain outlook argues for forceful action on both the financial and
macroeconomic policy fronts. Policymakers must be mindful of the cross-border
consequences of policy choices. Initiatives that support trade and financial partners
including fiscal stimulus and official support for international financing flows will help
support global demand, with shared benefits. Conversely, a slide toward trade and financial
protectionism would be hugely damaging to all, a clear warning from the experience of
1930s beggar-thy-neighbour policies.

Source: International Monetary Fund: World Economic Outlook, April 2009

Extract 6 The next front is fiscal

When credit markets are dysfunctional, private demand is fading and confidence weak, a
fiscal jolt is a good option. Cutting taxes puts extra cash straight into people's pockets. By
stepping up their own spending, governments can directly boost demand and employment.

Some countries have more scope for fiscal stimulus than others. Many governments in
emerging markets, especially those with big external deficits, will be limited by investors'
unwillingness to hold their debt. That is why Hungary tightened its budget this week. At the
other extreme lies China with huge foreign exchange reserves, and a current account and
budget surplus. Within the rich world, countries such as Italy, with ageing populations and
high debt burdens, have less room.

America has the greatest scope for short-term stimulus, despite running the world's biggest
current account deficit. That is because dollars and US Treasury bills rank as safe havens
nowadays. Also, because its taxes are lower and social safety nets less generous, America
has fewer "automatic stabilisers" than Europe, where spending on unemployment benefits
automatically rises further in a downturn. The scale and mix of a fiscal stimulus will differ by
NJ C 2010 9732/ Sep 2010

6
country. In America, federal aid to the states makes a lot of sense. In Europe, a cut in value-
added taxes would be good. China should boost social spending.

Source: Adapted from Economist; 1 November 2008, Vol. 389 Issue 8604

Extract 7 Indias fiscal package

India has little room for a big-bang fiscal stimulus package like China's 4 trillion yuan plan,
according to economists. Instead, the government is hoping that existing spending plans can
help it ride out the global financial storm. Still, spending outlined in the February budget went
up more than 6 percent to 7.51 trillion rupees, or $158.5 billion, in a package criticized by
many as populist ahead of national elections in 2009.

The government asked parliament for an additional $21.7 billion last month to finance a
programme to waive farm debts and subsidise food and fertilizers. Analysts said this would
result in higher borrowing, putting pressure on government finances and the fiscal deficit. For
now, India is relying on these projects, which also include a national job guarantee plan and
an urban renewal mission, to keep the economy ticking, rather than on a big new stimulus
package.

But economists say India has a poor track record in ensuring projects get implemented,
undermining their effectiveness as a source of economic stimulation. Nearly 35 percent of its
spending still goes for subsidies and interest payments. Corruption and bureaucracy are also
obstacles to funds reaching their goal, as is projects starting or finishing on time, although
the government has streamlined some of its approvals.

"Our capacity to spend and do quality work is limited," said Saumitra Chaudhuri, economic
adviser at the ratings agency ICRA. "We are quite good at wasting money such as subsidies
for petroleum products and fertilizers. So any blanket call for further public expenditure is
very misdirected."

Source: Adapted from The New York Times, 10 November 2008

Table 2: Key Economic Indicators (2008)

GDP
(current
prices) per
capita (US$)
Government
gross budget
balance as %
of GDP
Inflation
rate (%)
Exports of
goods and
services as
% of GDP
Imports of
goods and
services as
% of GDP
China 3,315.3 -0.7 5.9 37.8 29.2
India 1,016.2 -4.9 8.3 24.0 30.3
Singapore 38,972.1 5.0 6.5 234.3 215.3
United Kingdom 43,785.3 -5.4 3.6 28.9 32.0
United States 46,859.1 -6.1 3.8 13.0 17.7

Source: World Economic Forum, Global Competitiveness Report 2009-2010

NJ C 2010 9732/ Sep 2010

7
Table 3: Summary of Singapores Fiscal Position

2004 2005 2006 2007
Government budget balance
(Million dollars)
10,127.6 13,397.5 21,017.7 29,768.3
Government budget balance as
% of GDP
5.46 6.66 9.50 11.83

Source: Singapore Yearbook of Statistics 2009

Questions

(a) (i) Describe the trend in the Singapore government budget balance between
2004 and 2007. [2]

(ii) Explain the theoretical effect of the trend described in (i) on Singapores
national income, assuming all other things remain constant. [2]

(b) (i) Using only data in Table 2, compare the current and future standard of
living of an average US resident with that of a Singapore resident. [4]

(ii) Explain other indicators you would use to compare the relative standard of
living between the US and Singapore. [4]

(c) The scale and mix of a fiscal stimulus will differ by country (Extract 6
Paragraph 3). Discuss. [8]

(d) It is mentioned that policymakers must be mindful of the cross-border
consequences of policy choices (Extract 5 Paragraph 3). Discuss the view that
protectionism is potentially damaging to all countries. [10]

[Total: 30]

-- END OF PAPER --

NJ C 2010 9732/ Sep 2010

NATIONAL JUNIOR COLLEGE
2010 SH2 Preliminary Examinations

ECONOMICS 9732/01
Higher 2

Wednesday 15 SEPTEMBER 2010

CASE STUDY COVER SHEET

Name :
Subject
Class
: Tutor :

Question Marks Total
(a)
(b)
(c)
(i)
1
(d)
(ii)


ECONOMICS 9732/01
Higher 2

Wednesday 15 SEPTEMBER 2010

CASE STUDY COVER SHEET

Name :
Subject
Class
: Tutor :

(i)

(a)
(ii)

(i)

(b)
(ii)

(c)
2
(d)

This document consists of 5 printed pages; including 3 cover pages.

NJ C 2010

Economics Department
[Turn Over

SH2 Preliminary Examinations for General Certificate of Education Advanced Level
Higher 2

ECONOMICS 9732/02

Paper 2: Essay Questions 3 September 2010
2 hour 15 minutes



Write your name and subject class on all the work you hand in.
You may use a soft pencil for diagrams, graphs or rough working.

Answer three questions in total, of which one must be from Section A, one from Section B, and one
from either Section A or Section B.
Start each question on a new piece of paper.

At the end of the examination, fasten all your work securely with the cover pages given [one cover
page for one question].
Fill in the necessary information on the cover pages.


2
NJ C 2010 9732/ Sep 2010

Section A

1 In light of the global economic downturn, the Government has announced a personal
income tax rebate of 20%. In addition, a 40% property tax rebate is given for industrial
and commercial properties to help reduce the cost of running businesses.
Ministry of Finance, Singapore Budget 2009

Discuss the effect on market equilibrium of the above budget initiatives for different types
of goods & services. [25]

2 Consumers tastes and preferences is the most important factor in influencing a firms
pricing behaviour. Discuss. [25]

3 With reference to examples, discuss whether there is a need to change the current
policies adopted by the Singapore government in the market for healthcare. [25]

Section B

4 The 2010 FIFA World Cup is viewed as a defining moment for South Africa, with $75
billion in improved roads, airports and other infrastructure; a reduction in unemployment
and the potential enhancement of international investment and tourism.
Source: The New York Times, 27 June 2009
(a) Explain the impact of hosting the 2010 FIFA World Cup on the different types of
unemployment in South Africa. [10]
(b) To what extent is a higher rate of economic growth always beneficial for South
Africa? [15]

5 The Government will introduce a temporary J obs Credit scheme which will encourage
our businesses to preserve jobs in the downturn. Employers will receive a 12% cash
grant on the first $2,500 of each months wages for each employee on their CPF payroll.
Furthermore, to help Singaporeans stay employed or seek reemployment, the
Government launched the Skills Programme for Upgrading and Resilience (SPUR) which
provided higher course fee support for individuals and companies that send their workers
for training.
Ministry of Finance, Singapore Budget 2009

Assess whether the above policies fully address the economic priorities of the Singapore
government in recent years. [25]

6 It has been asserted that the signing of more free trade agreements (FTAs) brings about
benefits to consumers at the expense of local producers.

(a) Explain how the signing of more FTAs can help an economy to achieve its
macroeconomic objectives. [10]
(b) Discuss whether you agree with the above assertion. [15]
-- End of Paper --


ECONOMICS 9732/02
Higher 2

Friday 3 SEPTEMBER 2010

ESSAY COVER SHEET

Name :
ST Class : Tutor :

Circle the question attempted

Section A
1

2

3

Section B
(a)
4
(b)
5
(a)
6
(b)


ECONOMICS 9732/02
Higher 2


ESSAY COVER SHEET

Name :
ST Class : Tutor :


Section A
1

2

3

Section B
(a)
4
(b)
5
(a)
6
(b)


ECONOMICS 9732/02
Higher 2


ESSAY COVER SHEET

Name :
ST Class : Tutor :


Section A
1

2

3

Section B
(a)
4
(b)
5
(a)
6
(b)

PRELIMINARY EXAM
2010

NYJC
Economics J C 2
H2 (9732)

Paper 1 - Case St udy

Saturday
18 September 2010
0900 - 1115
Total Marks: 40%

TIME 2 hour 15 mins

INSTRUCTIONS TO CANDIDATES

Do not open this paper until you are told to do so.

Write your name, class and name of economics tutor in the space provided on the
writing paper.

Answer all questions. The number of marks is given in the brackets at the end of each
question. Write your answers on the writing papers provided. If you use more than
one sheet of paper, fasten the sheets together.

You are advised to spend several minutes per question reading through the data
before you begin writing your answers.

There are _8_ printed pages including this cover page
J 2 H2 Economics (9732/1) 1
Question 1: Alcohol consumption

Extract 1
Binge drinking an " emerging issue in Singapore" , says Health Promotion Board
By Alicia Wong and Sufian Suderman, TODAY (Singapore) | Posted: 17 December 2008 0940 hrs (Adapted)

SINGAPORE:
Binge drinking consuming five drinks or more for males, or four drinks or more for females,
within two hours is an emerging issue in Singapore, said HPB in a tender document posted
on the GeBIZ website.

The 2006 Student Health Survey showed that one in two students aged 12 to 17 has tried
alcohol, even though it is illegal for them to buy it. This is a worrying trend, said HPB, as those
who start drinking before age 15 are four times more likely to become alcohol-dependent than
those who start at 21.

One problem: Clubs closing later these days. The longer (people) are out clubbing, the more
they drink, said Ms Sheena J ebal, the chief executive of NuLife Care and Counselling.

Before hitting the nightspots, young clubbers may buy and chug alcohol from a convenience store
first as it is cheaper, to get high. Many turn to cheap chinese wine, which has 40 to 50 per cent
alcohol content, compared to four per cent for beer.

Parents unwittingly aid in such dangerous behaviour, warned Ms J ebal, who has conducted
research on this area. Family members tend to trivialise the issue as a one-time thing, so the
youth keep doing it. Some mothers even give their children more allowance to support the habit,
out of fear their children would end up stealing or prostituting themselves, she said.

Then there is peer acceptance of binge drinking as a social norm. Mr Yusof Ismail, chief
executive of the Ain Society, said: When there are so many people doing this, the guilt
mechanism doesnt work. He added that the rebellious factor in binge-drinking was, in itself,
addictive to the young.

Last year, Asia Pacific Breweries Singapore spearheaded a youth-led moderate drinking
campaign, Get Your Sexy Back. This year, it became a full-fledged programme driven by youth
volunteers.

Extract 2
Rolling away the barrel
The Economist (April 10
th
2010) Adapted

Across Europe, economies are stagnating and unemployment is climbing. Reason enough, you
might think, to hit the bottle. Europeans put away over 9 litres of alcohol a year per person, twice
the global average. The European commission has declared that alcohol is a key public-health
and social concern. Yet in most big EU countries drinking is in decline. In France and Italy the
average adult drinks over a third less than he or she did 30 years ago.

What explains the great sobering-up? In part, the drivers appear to be socially responsible. Rising
numbers of urban workers and the insidious spread of Anglo-Saxon fast food habits are working
against the old traditions of a glass with breakfast followed by a long lunch fuelled by a bottle or
two. These countries also had a lot further to fall. In 1980 France, Italy and Spain were the
booziest nations in Europe.


SINGAPORE Per capita Consumption
(litres of pure alcohol) age 15yrs+
0
0.5
1
1.5
2
2.5
3
1
9
9
3
1
9
9
4
1
9
9
5
1
9
9
6
1
9
9
7
1
9
9
8
1
9
9
9
2
0
0
0
2
0
0
1
Wine
Spirits
Beer
Total
Figure 1
(EUROPE) Litres of pure alcohol consumed per person
(Adult 15yrs+)
0
2
4
6
8
10
12
14
16
18
20
1
9
9
0
1
9
9
1
1
9
9
2
1
9
9
3
1
9
9
4
1
9
9
5
1
9
9
6
1
9
9
7
1
9
9
8
1
9
9
9
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
Britain
France
Italy
Germany
Figure 2

Extract 3
Hello beer! Bye wine!
Christopher Lim | The Business Times | Singapore, March 5, 2010
MOVE over, wine bars. The art of wine appreciation and
food to match may well be losing its appeal if the recent
activity in the beer scene is anything to go by.
Restaurants which feature beer prominently on their
menus are increasing in number, while local breweries
are starting to quench thirsts overseas, getting a foothold
even in beer-obsessed countries such as Australia.
Table1: Price of a pint of beer
around Singapore

Location Price
Clarke Quay $13.12 USD
Suntec $8.2 USD
Orchard $6.72 USD
China Town $4.43 USD
Tampines $2.95 USD
Punggol $2.48 USD
Source: pintprice.com

Some are still considering local expansion, but are far
more confident of regional expansion. For example, after
13 years in Singapore, Brewerkz is planning to expand to
Hong Kong in the fourth quarter of this year.
One factor that doesnt seem to be an issue for beer
restaurants in Singapore is the amount of time it takes for
initial investments to turn a profit. Oosters the latest
beer restaurant to close a branch took only half a year
for its flagship branch at Far East Square to recover initial
investments when it first opened.
We have been around for seven years; that says a lot, says Irwin Pang, general manager of the
Belgian brasserie. Business has been great so far despite the economic downturn in 2009.
Things are picking up and I hope for things to get better, he says.
The dining scene in Singapore is hotting up as more players enter the fray. The challenges lie in
the availability of trained F&B workers from the kitchen and from the service sides. And the
challenges mainly come from the lack of manpower, the rental costs and rising of raw material
costs," says Ang Kiam Meng, President of the Restaurant Association of Singapore.

Question

a) i Compare the trends in alcohol consumption in Europe with that of Singapore
from 1993 to 2001.
(2m)

ii Using demand and supply analysis, explain the likely reasons for the above
trends.
(4m)

b) Using examples, account for the differences in the price of a pint of beer at
various locations around Singapore (Table 1).
(4m)

c)

Classify the type of market structure beer restaurants operate under in
Singapore. J ustify your answer.
(2m)

d) Singapore brewers should target regional rather than domestic growth for
their own benefit. Do you agree?
(8m)

e) Explain clearly why alcohol could be considered a demerit good and evaluate
the measures that governments can take to alleviate the key public-health
and social concern of alcohol consumption.
(10m)

[TOTAL: 30m]

Question 2: Economic Recovery in Spain and Germany

Table 2: Selected Economic Statistics, 2009

Country Real GDP (% Change) Inflation Rate (% Change)
France -2.5 0.1
Germany -4.9 0.2
Spain -3.6 -0.3

Table 3: Unemployment Rates as Percentage of Labour Force

Country 2005 2006 2007 2008 2009
France 8.9 8.8 8.0 7.4 9.1
Germany 10.5 9.8 8.3 7.2 7.4
Spain 9.2 8.5 8.3 11.3 18.0

Table 4: Current Account Balance as Percentage of GDP

Country 2005 2006 2007 2008 2009
France -0.4 -0.5 -1.0 -2.3 -2.2
Germany 5.1 6.4 7.7 6.7 5.0
Spain -7.4 -9.0 -10.0 -9.7 -5.4

Figure 3: Spain Annual Percentage Change in Labour Productivity and Wages

Figure 4: Germany Annual Percentage Change in Labour Productivity and Wages

Source: OECD Economic Outlook, 25 May 2010


Extract 4: Recession fears engulfing Europe

Many EU nations are in real trouble. In Spain, economy minister Pedro Solbes declared that the
country was facing its "most complex crisis ever" following a collapse of the property market.
Spain has suffered a housing market collapse and many people have run up huge personal
debts.
Nick Kounis, chief economist of the Belgian bank Fortis, says he has become increasingly gloomy
about the eurozone economy because of rising oil prices. "They have been the main reason the
European Central Bank brought forward its interest rate rises - and higher rates will dampen
demand and have a direct impact on consumer spending," he says.
He is also concerned about the situation in emerging market countries with which the EU does a
great deal of trade. "These emerging economies are hugely important to the eurozone, because
they buy a large percentage of our exported goods. Most of the recent growth in European
exports has been to those countries. "But rising oil and food prices are hurting their economies
too and that is bound to have a knock-on effect on Europe's economy."
Adapted from BBC News, 17 July 2008

Extract 5: China warns EU on protectionism

While the EU and China are major trade partners, frictions have been on the rise, especially with
Europe opening a growing number of anti-dumping cases against Chinese industries ranging
from, candle-makers to screws and bolts. Meanwhile, Europe remains frustrated at obstacles to
doing business in China's vast and fast growing markets and is also deeply concerned about
counterfeiting.

China's Vice Premier Wang Qishan warned Europe on Thursday about turning to protectionism in
the depths of an economic crisis at the start of two-days of high-level talks with EU officials. "Both
sides should oppose protectionism in unequivocal terms," Wang told senior EU commissioners,
including trade chief Catherine Ashton, as the talks got underway in Brussels. "The beggar-thy-
neighbour approach will only lead to problems," he warned, insisting that "China and the
European Union have a lot to offer each other.
Source: EUbusiness Ltd, 7 May 2009

Extract 6: The Crisis in Spain

Every member of the eurozone has weaknesses that limit its potential. Spain seems to contain a
continents-worth of frailities in just one country. Like Ireland, its consumers are weighed down by
huge mortgage debts. Spain has a rigid system for setting wages. The attempt to free up Spains
job market by allowing temporary work contracts has reduced incentives to train workers, holding
back productivity. Spain has steadily lost cost competitiveness against the euro zones core
countries, centred around Germany.

Politicians in Spain have woken only recently to the need for reform. The wage system demands
it most urgently. Pay is set centrally through a complex system of agreements across regions and
industries. That means wages adjust only slowly to changes in business conditions. Despite a
deep recession and zero inflation, pay growth averaged 3% last year, according to the OECD.
That helps explain why Spains jobless rate shot up so quickly; it now stands at 19.5%.
Source: Economist.com, 11 February 2010

Extract 7: Germanys exporting prowess is leaving the rest of the euro area behind

Forecasters reckon that GDP for the euro zones economy grew at an annualised rate of around
2% in the second quarter, a decent number by European standards. Fittingly for the country that
gave most to bail out the euro zone, Germany did rather better. Its GDP growth rate may have
been 4% or more. Business confidence in Germany certainly looks perkier. In contrast to the
trend in the rest of the euro zone, unemployment in Germany has fallen lower than even before
the financial crisis. The job market has been helped by a short-time working scheme and flexible
hours. Many of the workers whose hours were cut have been quickly drawn back into full-time
work.

Germanys revival has been built largely on exports. Timo Klein, an economist at Global Insight in
Frankfurt, is upbeat about Germany. "If you compare Germany with the rest of the eurozone, it is
still outperforming," he says. That is partly because exports of specialised German equipment
and machinery are still strong. "These goods are not easily substituted by similar products from
other countries," says Dr Klein. "In terms of quality, many German companies are world leaders.
If you want the best of certain type of product, then you have little choice but to buy it from
Germany."

Having sold as much as they could to rich-world countries, German companies are looking for
fresh sources of growth in Asia and Latin America. German firms have squeezed the euro zone
like a lemon and then thrown it away, says Marco Annunziata, at UniCredit. Germanys shift
away from European markets started long before recession hit. By 2008 exports of goods to the
euro zone accounted for 17% of German GDP, compared with 23% to countries outside it, says
J ulian Callow at Barclays Capital.

Germanys bent for engineering fits with the demands of its newer customers such as
industrialising countries like China and Brazil. A bigger surprise is how well German cars have
been selling to well-to-do consumers in emerging markets. China is now the main market for the
Mercedes S-class, a car with a price tag that is prohibitive for most rich-world consumers. Other
German carmakers, such as VW and BMW, are also living well off Chinese demand. Many car
plants have returned to full capacity far sooner than had seemed likely just a year ago.

Adapted from Economist.com, 8 July 2010


Questions

(ai) What happened to the general price level in Spain in 2009? [1]
(aii) Using Tables 3 and 4, explain which country performed the worst in 2009. [3]
(bi) Compare the trends in labour productivity for Spain and Germany between
2007 and 2009.
[2]
(bii) How far does the data in Figure 3 help to explain the changes in the current
account balance for Spain from 2007 to 2009?
[4]
(c) Explain how Europe will be affected by the rising oil and food prices faced
by the emerging economies.
[4]
(d) The beggar-thy-neighbour approach will only lead to problems. (Extract 5)
Do you agree?
[6]
(e) Discuss the view that Spain should follow the measures taken by Germany
to address its macroeconomic problems.
[10]

[Total:30m]

PRELIMINARY EXAM
2010

NYJC
J C2 Economics
H2 (9732)

Paper 2 - Essay

Thursday
23 September 2010
1400 - 1615 TIME : 2 h 15 mins

INSTRUCTIONS TO CANDIDATES

Do not open this paper until you are told to do so.

Attempt 3 questions, with at least one from each section.

The number of marks is given in the brackets at the end of each
question. Write your answers on the writing papers provided. If you use
more than one sheet of paper, fasten the sheets together.

Write your name, class and name of economics tutor in the space
provided on the writing paper.

There are 2 printed pages including this cover page



Section A


1 We must implement subsidy reforms for foodstuffs that will remove distortions in the
marketplace and enable us to better target our resources to those most in need, and on
investments that will provide lasting benefits for Malaysians.
Statement from Malaysian Prime Ministers Office, 15 July 2010
(a) Using economic analysis, explain how the market for foodstuffs has been
affected by the subsidies. [10]
(b) Discuss the view that the Malaysian government should cut subsidies for
foodstuffs to better target resources to those most in need. [15]

2 Nokia, the worlds largest cellphone maker, said on Thursday that its profit fell by
64 percent in the second quarter as it struggles to compete with innovative software
experts Apple and Google in the critical smartphone segment.
International Herald Tribune, 22 Jul 2010
(a) Explain the market structure that cellphone makers are likely to operate in. [10]
(b) Assess whether it is always in the consumers interest when firms are more
competitive in the market. [15]

3 (a) Distinguish between public goods and demerit goods, making clear in each case
how they cause markets to fail. [12]
(b) Discuss whether taxation is the best policy to correct the market failure resulting
from demerit goods. [13]

Section B


4 The people in United States are weathering the economic storms of stagflation, fueled by
rising oil and food prices, and intensifying housing and credit problems.
Adapted from Worries grow for worse stagflation, Associated Press, 26 Feb 2008
(a) Explain the economic problems faced by the United States. [10]
(b) To what extent are demand management policies effective in tackling stagflation? [15]

5 The pursuit of rapid economic growth should be the macroeconomic priority of a government.
To what extent do you agree with this statement? [25]

6 Due to the global financial crisis, countries are quick to impose trade barriers to solve
their domestic woes.
(a) Explain the above statement. [10]
(b) In view of the protectionist tendency, discuss the measures that the Singapore
government can take to help alleviate the problems caused by the financial crisis. [15]

Candidate Name: __________________________ CT Group: ________
Index Number: ________

PIONEER JUNIOR COLLEGE
JC 2 PRELIMINARY EXAMINATION 2010
Higher 2

ECONOMICS 9732/01


2 hours 15 minutes

Additional materials: Writing paper



Write your name, class and index number on all the work you hand in.


At the end of the examination, fasten your work for Question 1 and 2 separately.


You are advised to spend several minutes reading through the data before you begin writing
your answers.


[Turn over
2
Question 1 Developments in the PC Industry

Extract 1: The Growing PC Industry

Worldwide PC shipments have lately been growing by about 12% a year. This year the number
of PCs sold will reach an all-time high of nearly 260m. The growth is mainly generated by
consumers and small businesses. Both increasingly prefer laptop PCs to desktops according to
IDC, a market-research firm. Above all, emerging economies such as China and India are
making manufacturers happy: their rising middle classes and small businesses have
discovered the PC. In China, shipments are growing nearly four times as fast as in America.

Only two years ago most industry observers would not have dared to predict that HP would be
best placed to benefit from these growth opportunities. HPs well-designed machines,
distinctive marketing and vast network of retail partners enabled it to capture a larger market
share. Consumers are quite willing to order desktop machines online, but they prefer to touch
laptops before buying them, since they are much more of a fashion statement than a beige box
under the desk, says Charles Smulders of Gartner, a market-research firm. HP is also present
worldwide, notably in China, where it is the number two behind Lenovo.

Acer is similarly well placed, having staged one of the more stunning turnarounds in the PC
industry after an ill-fated attempt to enter the American market in the 1990s. Like HP, it sells
through retail and has put an emphasis on design and marketing. Acer announced on 27
th

August that they would pay $710m to buy Gateway, a smaller American rival. The combined
firm will be the world's third-largest PC-maker by unit shipments. Acer will have the size and
global presence to compete with the two American heavyweights, Hewlett-Packard (HP) and
Dell, if the deal goes ahead. Buying Gateway will boost Acer's presence in America. In Europe,
meanwhile, it plans to acquire Packard Bell, a PC-maker based in the Netherlands.

In contrast, the market has been moving away from Dell, once the industry leader. Its hyper-
efficient supply chain and online-only sales model were perfect when corporate customers were
driving growth. But competitors have cut costs and online-only is not enough when selling to
consumers and in emerging economies. Having lost the top spot to HP, Dell has started to give
itself a makeover: selling through Wal-Mart, a retail giant, for example, and adding colour to
some products.

Source: Adapted from www.economist.com, 30 Aug 2007

Table 1
Worldwide PC Shipments Estimates 2005 - 2008 (Market Share)

2005 2006 2007 2008
HP 14.6% 15.9% 18.2% 18.5%
Dell 16.8% 15.9% 14.2% 14.3%
Acer 4.6% 5.8% 9.0% 11.0%
Lenovo 6.9% 7.0% 7.2% 7.2%
Toshiba 3.3% 3.9% 4.0% 4.5%
Others 53.8% 51.5% 47.3% 44.5%
TOTAL 100.0% 100.0% 100.0% 100.0%
Notes: Data includes desk-based PCs, mobile PCs and X86 servers
Source: Gartner

3
Figure 1
Worldwide PC Shipments (Millions of Units)

Notes: Data includes desktop PCs and portable PCs
Source: Adapted from IDC

Extract 2: For all the PCs in China

Lenovo has over 35% of the Chinese market, more than 20 percentage points ahead of its
closest competitor, HP. Lenovo relies on a vast network of resellers and retailers to close the
deal with customers. The company has resellers in more than 1,000 cities in China. HP cannot
match this reach, nor will it kill itself trying. In China a lot of companies say they want to be
number one and try very hard at high cost, says Adrian Koch of HP Asia-Pacific. His company
now sells computers in about 420 cities, and hopes to reach 500 in two years. In the biggest
cities it hopes to appeal to repeat buyers who no longer just go for the best price in town, says
Robin Seow of HP China. If you fight tooth and nail on cost, it will be a tough and bloody price
war, he says.

In HP's experience, Asian buyers value form as well as function. The classic portable
computer was a big, fat, bulky unit driven by US consumer needs, says Mr Koch. It was
thrown into the back of the car, so it did not matter how heavy it was. In Asia, where people
travel by bus and train, something less cumbersome is preferred. Outside the big cities the PC-
makers must win over first-time buyers, who might be choosing between a computer, a new TV
or a refrigerator. In Hong Kong or Singapore computer-makers may be selling to enthusiasts,
keen to know the specifications of the product. But in other parts of Asia people are still wary of
computing. In India, for example, Lenovo emphasises its computers' one-key recovery button,
which rescues the system after a crash. As Dell showed, PC-makers' greatest innovations may
be not in what they sell, but in how.

Source: Adapted from www.economist.com, 8 Nov 2007

[Turn over
4
Extract 3: The Dark Side of the PC Industry Boom

Millions of tons of e-waste disappears from the developed world every year and continues to
reappear in developing countries, ending up in massive toxic dumps where children burn and
pull them apart to extract metals for cash. The dumping of the developed world's electronic
trash, or e-waste, is in direct contravention of international legislation and is causing serious
health problems for inhabitants such as nausea, headaches and respiratory problems. Despite
international bans, the illegal trade in e-waste is highly lucrative. It is possible to extract more
gold out of a tonne of electronic circuitry than from a tonne of gold-bearing rock. Computers
have become an everyday item. Consumers and businesses are replacing their kit at an ever
increasing rate, creating a new waste mountain.

Six years ago the EU produced the waste electrical and electronic equipment (WEEE) directive,
which introduced new curbs and restrictions on the movement of e-waste. The directive heavily
regulates the movement of e-waste for recycling and bans its export for disposal. It also
introduced a scheme under which the cost of properly disposing of electronic equipment put on
the market after August 2005 must be picked up by the producers of the waste - manufacturers,
retailers, branders and importers.

DanWatch, a partner organisation of Consumers International, has evidence that computer
equipment from British companies and even local authorities is being dumped in West Africa.
Properly functioning computer equipment is exempt from the WEEE rules about export. In fact
the regulations encourage refurbishment and re-use of computer equipment. But there is no
regime that checks computer equipment destined for re-use before it is shipped overseas.
Regulating waste in England and Wales falls under the remit of the Environment Agency but
the agency simply does not have the resources to check every consignment destined for re-use
in the developing world. Part of the problem is that the agency does not even have to be
notified about the movement of goods for re-use so it would not know which containers to
target.

Source: Adapted from The Guardian, 6 May 2008

5
Questions

[Turn over
(a) (i) Compare the change in market shares of Worldwide PC Shipments of Dell with
that of HP from 2005 to 2008.
[2]

(ii) With the aid of a diagram, explain the impact of the change in market share on
the profits of HP.
[6]

(b) In view of the possible merger with Gateway, explain how size and global
presence enable Acer to compete with the two American heavyweights,
Hewlett-Packard (HP) and Dell.
[4]

(c) Discuss whether the rise in e-waste dumping is a result of non-price
competition by PC-makers.
[8]

(d) With reference to the case study and your own knowledge, propose and
evaluate policy options to correct the market failure caused by e-waste
dumping.
[10]
6
Question 2 Global Financial Crisis

Extract 4: Bank of England's dilemma: A house price crash or soaring inflation
Which would you rather face: a recession and house price crash or years of soaring seventies-
style inflation?
For the past decade, inflation was kept unusually low by the influx of cheap goods from China.
This meant the Bank of England (UKs Central Bank) could keep interest rates low without
driving inflation higher. But as China's appetite for energy and food ballooned, so have the
prices of oil, wheat, meat and most other important staple goods.
It has come at the worst possible time: the crunch in credit markets has pushed up families'
mortgage rates (interest rate on home loan). The UK economy is facing the sharpest slowdown
in 16 years and the outlook for the housing market and property prices is at its worst.
In normal circumstances, the Bank of England would have already cut the official interest rate
far and fast, hoping lenders would follow suit with the rate of their home loans. However, doing
so would risk pushing up inflation, which is already stubbornly above the target set. It might
seem tempting to let inflation go and put off the immediate pain, but this could be poisonous for
the economy in the long-run. Some judicious interest rate cuts will help soften the economic
slowdown while keeping inflation in check. However, despite having cut the official rate three
times in the past five months, the mortgage rates faced by households have actually risen by
around 1.25 per cent.
Source: Telegraph, 24 Apr 2008
Extract 5: Dent in Singapore's financial hub dream

Despite its limited exposure to the toxic securitized financial products which had blown big
holes in Western banks' balance sheets, Singapore's economy is in a bad way. That's because
its economic growth is still highly reliant on commercial trade, with merchandise exports
representing over 220% of gross domestic product (GDP), according to a Credit Suisse
research report. Typically, around 20% of those shipments are destined for US markets,
making Singapore's economic growth highly correlated to America's performance, according to
the same research. As such, Singapore is already technically in recession, where a slump in
exports pushed quarterly growth into negative territory for the second quarter in a row.

Third-quarter gross domestic product (GDP) contracted 6.3% from the previous quarter. The
Ministry of Trade and Industry revised down its full-year economic growth forecast down for the
second time this year, recently trimming its projection to "around 3%" from 4% to 5%
previously.

Meanwhile, inflation earlier this year reached a 26-year high and consumer prices are on pace
to rise between 6% and 7% this year, according to the Monetary Authority of Singapore (MAS).
Singapore's National Trade Union Congress has (NTUC) warned that retrenchment will rise
next year as business continues to deteriorate.

Singapore's ability to maintain a position as a global financial hub - already the world's largest
private banking center next to Switzerland - will also likely require a rethink in the wake of the
crisis, some analysts say. The decline in stock market wealth across the globe means the need
for wealth managers and private bankers will decline in the months, if not years, ahead.

Source: Asia Times, 6 Nov 2008

7
Extract 6: Deglobalisation

The economic meltdown has popularized a new term: deglobalisation. Globalisation means the
global integration of the movement of goods and capital. Each of these processes is now in
trouble. World trade has plunged. The downturn has been sharpest in countries that opened up
most to world trade, especially East Asias tigers. The downturn has also hurt rich countries that
specialise in old-fashioned manufacturing supposedly a safer activity than the financial
sector. Germany and J apan, big exporters of capital goods, cars and electronics, will do worse,
their economies shrinking by 2.5% and 2.6%.

Trade problems have been worsened by shifts in capital flows. The United Nations Conference
on Trade and Development (UNCTAD) says worldwide FDI inflows shrank 21% in 2008 to $1.4
trillion. The World Association of Investment Promotion Agencies says FDI will contract by a
further 12-15% in 2009.

In response, the 10-member Association of Southeast Asian Nations (ASEAN) has launched a
new joint charter to move closer to becoming a unified economic bloc. Greater regional
integration among them is viewed as necessary to maintain global competitiveness as other
regions of the world, including Europe and North America, have established trade and
investment blocs. The ASEAN integration aims to bring down trade barriers at a time when
global economic turmoil threatens to spur a new era of global protectionism.

The crisis has revealed certain weaknesses in the Singapore economy. Singapores high
export dependence on the United States and Europe and its small share of the exports
catering to China domestic market makes it vulnerable. Chinas imports from Singapore for
its own domestic use comprise just 37 percent of Singapores domestic exports to China
(including oil), and a mere 4.2 per cent of Singapores total domestic exports. Singapores low
personal consumption which is less than 40 per cent of gross domestic product means that
domestic demand is insufficient to counter the fall in external demand. The low consumption is
partly due to the high levels of home ownership which causes many Singaporeans to be asset-
rich but cash-poor. In addition, with increasing competition from China, more electronics firms
are relocating from Singapore to China. Unlike regional competitors such as Taiwan and South
Korea, the lack of local electronics champions to anchor the industry in Singapore may have
intensified the relocation trend.

Sources: Asia Times, 17 Dec 2008, The Economist, 19 Feb 2009,
The Straits Times, 16 J an 2009

Table 2: UK and Singapore: selected economic indicators 2007-2009
UK Singapore
2007 2008 2009 2007 2008 2009
Real GDP (% change) 0.6 -0.68 -0.73 8.2 1.8 -1.3
Inflation rate (%) 2.3 3.6 2.2 2.1 6.6 0.6
Unemployment rate (%) 5.4 5.8 7.8 2.3 2.2 3.2
Current account ($b) -72.9 -43.2 -24.2 71.1 50.7 47.1
Current account
(% of real GDP)
-2.6 -1.6 -1.1 28.9 20.2 19.0
Budget balance (% GDP) -0.3 -3.5 -7.1 12.1 9.6 -1.8
Productivity growth (%) 2.1 -0.8 -3.2 1.6 -5.7 -5.2
Exchange rate (per US$) 0.50 0.55 0.64 1.51 1.41 1.45
Inward FDI flows ($b) 186.4 91.5 45.7 35.8 10.9 16.8
Source: www.singstat.gov.sg, www.statistics.gov.uk

[Turn over
8
Figure 2: UKs and Singapore % change in House Prices

Source: Halifax

Source: Urban Redevelopment Authority, Singapore

Table 3: Gross Domestic Product (GDP)
and its components in UK and Singapore (% of total), 2008
UK Singapore
GDP (US$b) 1990 1561.2 113.1
By expenditure (% of total)
Consumption 64 41
Government expenditure 22 11
Investment 17 31
Exports 29 234
Imports 32 215
Source: United Nations Statistics Division

UK
Singapore Annual % Change in House Prices
9
Questions

(a) (i) Compare the change in house prices for UK and Singapore in 2008 in
Figure 2.

[2]
(ii) Using data from Table 2, explain the change in house price for UK in 2008.

[2]
(b) With the help of AD/AS diagram, explain how changes in prices of oil and
house had affected UKs equilibrium output and price level in 2008.

[4]
(c) Comment on the use of interest rate to promote higher economic growth in UK.

[4]
(d) Using data, discuss whether the global financial crisis will have a greater
impact on the UK or Singapore economy.

[8]
(e) As a consultant economist, assess the options that you would present to the
Singapore government as possible responses to the challenges posed by
slowdown in world trade and foreign direct investment.

[10]

End of Paper

10

BLANK PAGE

Candidate Name: __________________________ CT Group: ________
Index Number: ________

PIONEER JUNIOR COLLEGE
JC 2 PRELIMINARY EXAMINATION 2010
Higher 2

ECONOMICS 9732/02

Paper 2 Essay Questions 21 September 2010

2 hours 15 minutes

Additional materials: Writing paper


Write your name, class and index number on all the work you hand in.

Answer three questions in total, of which one must be from Section A, one from Section B and
one from either Section A or Section B.

Answers for Section A and Section B are to be handed in separately.
At the end of the examination, fasten all your work for each section securely.

[Turn over
2


Section A


1 Starbucks experiences a decline in customer visits in America. The current economic environment is
the weakest in the company's history, marked by lower home values and rising costs for energy, food
and other products that are directly impacting Starbucks customers. Starbucks has also been dealing
with fierce coffee competition from McDonald's and Dunkin' Donuts.
Adapted from The Guardian, 24 April 2008
(a) Explain what might cause Starbucks to experience a decline in customer visits in
America.

[10]

(b) Assess the relevance of price elasticity of demand, income elasticity of demand and
cross elasticity of demand to the Chief Executive of Starbucks who aims to increase
sales revenue.

[15]

2 Assess the view that oligopoly is the best market structure to promote efficiency, equity and
innovation.

[25]

3 (a) Explain whether public housing could be considered to be an example of a public good or
merit good.

[10]

(b) Discuss whether government intervention can lead to a more efficient allocation of
resources where merit goods exist in markets.

[15]

Section B


4 (a) Explain Singapores choice of exchange rate rather than interest rates as an instrument
for its monetary policy.

[10]

(b) Discuss whether changes in domestic or foreign factors are more likely to influence the
exchange rate of the Singapore economy.

[15]

5 Assess the view that raising labour productivity is the best way to achieve the macroeconomic
aims of Singapore.

[25]

6 China still keeps surplus of both the current account and the capital account in the first half of
2009.

(a) Explain why some countries such as China are experiencing current account surplus
while other countries such as USA are experiencing current account deficit.

[10]

(b) Assess whether surplus in both the current account and capital account are always
beneficial for an economy.

[15]
End of Paper
1
Year 6 Preliminary exam 9732_01
RI 2010

[Turn over
RAFFLES INSTITUTION
2010 YEAR 6 PRELIMINARY EXAMINATION

Higher 2

ECONOMICS 9732/01
Paper 1

3 September 2010

2 hours 15 minutes

DO NOT open this booklet until you are told to do so.

Write your name, index number and CT class on all the work you hand in.

Answer ALL questions. Start your second question on a fresh sheet of paper.

At the end of the examination, fasten your work for the 2 questions separately
with the cover pages provided.

The number of marks is given in brackets [ ] at the end of each part question.


2
RI 2010

[Turn over

Answer all questions

Question 1

Telecommunications and Information Technology

Table 1 Singapore Mobile Services Market (000)

2007 2008 2009 2010 2011* 2012*
Subscribers 5,619 6,338 7,054 7,703 8,331 8,966
Prepaid 2,608 3,079 3,736 4,344 4,809 5,222
Postpaid 3,011 3,259 3,318 3,359 3,522 3,744
Revenue (US$m) 2,175 2,311 2,413 2,462 2,538 2,671

*Estimated
Source: adapted from Frost & Sullivan, Sol E. Solomon, ZDNet Asia on March 3, 2009

Table 2: RINGING IN THE CHANGES

1988 to 1997

SINGTEL MONOPOLY

1997:
Basic
cellphone
plan per
month $47

2008:
Basic
cellphone
plan per
month $20

April 1997:
M1 enters market

All telcos slash prices for incoming call plans
by 10% to 20%
Impact: Customers able to forward calls to
new number. Mobile phone bills halved due to
competition

April 2000:
Starhub enters market
Impact: Starhub introduces free incoming
calls and per-second biling plans

June 2003:
Singtel & M1 offer free incoming
calls. Customers able to forward
SMSES to new number
Impact: Telcos stop $8-$10 monthly portability
charge (June 2003)
Starhub offers free IDD calls to US, China &
Hong Kong (August 2003)
Singtel offers free IDD calls to 13 destinations

June 2007

June 2008:
Full number portability:
customers can retain number
despite switching operators
All telcos slash prices for incoming call plans
by another 10%
Source: Adapted from The Straits Times, 16 April 2008

3
RI 2010

[Turn over
Extract 1: Singapore Mobile Market Still Shines

Demand for 3G mobile services continues to be strong. With Singapore's high mobile
market penetration and stabilized voice revenues, increasing data revenue is "definitely
an important growth strategy for any operator".

"Organizations recognize that smartphones are emerging as powerful, useful pocket
computers, and as these phones become cheaper, we expect that more companies will
implement them to help employees remain constantly connected," said Sandra Goh,
Southeast Asia business group director of Microsoft's mobile communications business.

SingTel's Wong expects mobile data usage to increase with the rollout of higher mobile
broadband speeds, which will allow telcos to offer richer content. He said SingTel will be
enhancing its mobile networks to offer faster mobile broadband.

Another trend in Singapore is that people are accessing wireless on-the-move and
wireline broadband at home. "These two services are complementary, so we expect that
there will be more fixed broadband users taking up mobile broadband services, too."

"On the bright side, Singapore's increasing population will continue to offer an
opportunity to local mobile operators in the coming years", the analyst added.

Source: adapted from Frost & Sullivan, Sol E. Solomon, ZDNet Asia on March 3, 2009

Extract 2: 'Leadership Position' Helped SingTel Snag iPhone Contract

Singtel said that its dominant market position with its 2.57 million mobile customers here
had contributed to its iPhone deal. Rival telcos StarHub and M1 remain in discussions
with Apple. StarHub has indicated that it was confident of securing distribution deals.

SingTel underlined its strength by unveiling a solid set of numbers yesterday. Net profit
for the year to March 31 was $3.96 billion, up 4.8 per cent from the year before, with
revenue rising 11 per cent to $14.8 billion. Group net asset value per share rose to $1.32,
from $1.312. The firm declared a final dividend of 6.9 cents per share.

Group chief executive Chua Sock Koong said 'all our businesses are performing well
and the group's fundamentals are strong' despite a challenging environment where
labour and rental costs rise and profits is thin, especially in Singapore and in Australia.
While the company maintained its double-digit earnings growth target and is focused in
Singapore on gaining market share, Ms Chua warned that the uncertain macroeconomic
environment was likely to have an impact on future growth. The global credit crisis had
impacted the company: tighter credit meant fewer competitors for deals but also fewer
deals as potential sellers pulled back. In the last 15 years, SingTel has spent about $18
billion acquiring stakes in foreign, high-growth telcos such as India's Bharti Airtel and
Indonesia's Telkomsel.

Source: The Straits Times May 15, 2008

4
RI 2010

[Turn over
Extract 3: Wiring for a Sustainable World

Information technology (IT) is both a significant source of environmental emissions and a
key enabler of many strategies to mitigate environmental damage. At present, ITs share
of the worlds environmental footprint is growing because of the ever-increasing demand
for IT capacity and services. The adoption and use of information and communications
technologies in China, India, and other developing economies will account for much of
this growth. Emissions could increase fourfold by 2020.

Companies are now taking steps to reduce the environmental impact of their IT. E.g., IT
manufacturers are organizing programs to collect and recycle hazardous electronics,
diverting them from the waste stream. McKinsey research has shown that ITs bigger
role lies in its ability to reduce environmental stress from broader corporate and
economic activities. Other manufacturers are dematerializing physical goods and
processes through telecommuting, video conferencing, Internet shopping, and
downloading content rather than using paper.

Users and vendors of information and communications technologies alike will need to
innovate. If governments introduce a price on carbon emissions or if energy prices rise
further (or both), the increased costs of production could be passed on to buyers. This
would challenge IT managers to rethink the way they manage the demand for and
supply of IT services, as well as their use of IT applications. At the same time, firms will
have a big incentive to invest in energy-saving products and services. Increasing
demand for information and communications technologies that promote abatement will
create attractive growth opportunities for those companies. Management systems that
build the constant improvement of resource use into an organizations processes and
strategies will raise its standing with external stakeholders while also helping the bottom
line.

Source: Adapted from https://www.mckinseyquarterly.com/

Questions

a i. Using Table 1, compare the trend of the prepaid and postpaid mobile
phone users between 2007 and 2012.

[2]
ii. How far can the concepts of price and cross elasticity of demand be used
to account for the change in Singtels total revenue earned in 2008?

[6]
b Extract 2 stated that Singtel is able to use its leadership position to help it get
the iPhone contract. To what extent is Singtel able to benefit from its
leadership position?

[6]
c With reference to data where appropriate, assess the impact of opening up the
telecommunications market in Singapore.

[8]
d Discuss whether relying on information technology to cut carbon emissions
would solve the problem of environment damage and consider whether
government intervention is needed.

[8]

[Total: 30]
RI 2010
Question 2
Gross Domestic Product and Economic Growth

Table 3: Singapore: Selected Economics Indicators 2006

GDP at Current Market Prices ($m)
GDP at 2005 Market Prices ($m)
Contribution to GDP by
Manufacturing Sector at 2005 Market
Prices ($m)
Unemployment Rate (%)
Productivity (% Change)
Current Account Balance ($m)
CPI (% Change)
S$ Per US$
Figure 1: Extent of Re

Extract 4: Economic Review Committee vs

In February 2003, the then Economic Review Committee (ERC) recommended to the
government to remake Singapore as a
manufacturing. To enable manufacturing to
Singapore must maintain cost compet
continue to attract high-quality investments.

In its report, the ERC stated
would be no day-shift jobs for Singaporeans. Production costs would go up and
companies would be forced to move elsewhere, where workers are cheaper and more
readily available.

5

Gross Domestic Product and Economic Growth
: Singapore: Selected Economics Indicators 2006-2009

2006 2007 2008
GDP at Current Market Prices ($m) 230,509.2 266,405.1 273,537.2
226,802.8 246,161.9 250,549.7
Manufacturing Sector at 2005 Market 59,838.0 63,393.0 60,738.5
2.7 2.1 2.2
1.9 -0.1 -7.2
55,769.5 71,097.2 50,673.3
1.0 2.1 6.6
1.5336 1.4412 1.4392
Figure 1: Extent of Re-exportation

Review Committee vs Economic Strategies Committee
government to remake Singapore as a high value-added, high tech growth hub for
. To enable manufacturing to continue to be an important engine of growth,
Singapore must maintain cost competitiveness, increase labour productivity and
quality investments.
the ERC stated: Without foreign workers manning the night
shift jobs for Singaporeans. Production costs would go up and

[Turn over
2009
2009
265,057.9
247,334.2
58,226.7
3.0
-3.9
47,107.6
0.6
1.4034


Strategies Committee
added, high tech growth hub for
continue to be an important engine of growth,
increase labour productivity and
: Without foreign workers manning the night-shifts, there
shift jobs for Singaporeans. Production costs would go up and
6
RI 2010

[Turn over
The ERC had a point, and its even truer today, when there are more elsewheres for
companies to move to than in 2003. The idea that cutting back on foreign workers will
magically raise productivity is dubious. More likely, such a policy would reduce output
and maybe even reduce productivity.

Japan does not rely much on foreign workers. In cross-country comparisons of
productivity for the years 2006-2008, Japan emerges second best in services, third best
in manufacturing, and the best in construction. However, Japans economic growth has
been near zero and its per capita income stagnant and the absence of foreign workers
has added to its ageing problem.
Source: The Business Times, 2 February 2010

Extract 5: Best Bet is Productivity, Not More Foreign Labour
The government will not let in more foreign workers to ease the tight labour market and
rising wages. In fact, it phased in increases in the foreign worker levy.

Manpower Minister Gan Kim Yong says the only way out is to boost productivity. With
higher productivity, companies will get more out of fewer workers and can afford to pay
higher wages. Hence the Economic Strategies Committee (ESC) has set the productivity
target of a 2-3% increase to be achieved by a combination of higher labour quality and
increased capital deepening.

The overall jobless rate had fallen to 2.2% at end-March. If the jobless rate falls further,
the labour market will become tighter. Mr Gan is keen to entice more women and older
people who left the work place to get back there. "There's a limit to how many actual
people we have who can enter the work force, given our population," he said. And this
constraint should drive home how critical productivity improvement is for Singapore.

Source: The Business Times, 7 July 2010

Extract 6: A Boss View of the Pay Picture

The Economic Strategies Committee (ESC) aims to grow the economy through greater
improvements in productivity but employers opt for the easy way out hiring more
foreign workers instead of boosting productivity. Mr Lee, President of the National
Employers Federation, says not all sectors (construction and marine among them) can
wean dependence on foreign workers. This is because of the perennial problem of locals
shunning jobs in certain sectors.
Source: The Straits Times, 23 July 2010

Extract 7: Go for Growth

Today, the task for the Economic Strategies Committee (ESC) is to find new ways to
grow the economy in this post-recession world. The growth model was questioned, from
Singapore's heavy reliance on global trade which led to the country being among the first
few economies to slide into a recession during the recent global economic crisis, to its
continuing dependence on foreign labour as a key growth driver in the last few years.
Other issues were highlighted -- declining labour productivity, dipping share of
contribution from local companies to growth figures, and low domestic consumption due
to lower wages and increases in financial liabilities.

7
RI 2010

[Turn over
With mounting concern over the declining contribution of local enterprises to growth
figures, there have been calls to grow the domestic market. Dr Choy Keen Meng from
NTU said last year that a 'long-held bias in favour of manufacturing must be shed' so as
to develop the services sector. He noted that Singapore's high but declining growth rate
has been accompanied by severe volatility not merely because of external factors such
as the global economy or electronics cycles, but also because of domestic industrial
restructuring and falling consumption ratio.

Domestic consumption's share of Singapore's GDP has been falling over the years, and
is now less than 40%. A stronger services sector would help temper volatility and
stimulate private consumption, as services is expected to make up 70 per cent of output
in future.
Source: The Straits Times, 25 January, 2010

Extract 8: Stick with Exports, Asia Urged

Asia should keep exports going as a key driver of growth even as regional countries look
to domestic markets to power their expansion, said Finance Minister Tharman
Shanmugaratnam.
At the same time, they need to open up their own markets to more imports of goods and
services, he said at an IMF conference. Striking such a balance, he noted, is a 'better
formula' than a strategy that focuses purely on domestic markets. Mr Tharman's
comments came amid an ongoing debate over whether Asia needs to rethink its export-
driven development model, given the slowing demand from a sluggish Europe and US.
The IMF projected 3.3% growth for the US this year, and 1% growth for Germany and
other European nations. Asia, however, is expected to expand by 7.5% this year.
Observers suggest that the region be nurtured as a 'second engine of growth' - domestic
demand - as a long-term policy, to pick up the slack in external demand and ensure
continued growth.
Mr Tharman said that both engines - export and import - are needed to propel the
burgeoning region forward. Asia's game plan should not be a 'retreat' from the global
markets, he stressed. Rather, it should be about 'an intensification of globalisation in
Asia'.

Source: The Straits Times, 14 July 2010

Extract 9: The Financial Crisis and East Asia

East Asian economies were relatively well insulated against the financial impacts of the
global financial crisis but their dependence on trade through regional production
networks and export-led growth strategies made them vulnerable to the sharp
contraction of demand from the North American and European economies.

There is a strong reaction in the region to this revealed vulnerability. Governments are
asking how they can reduce their dependence on exports to the advanced industrial
economies and rely more on regional and domestic demand. This reasoning leads to an
emphasis on alternative growth engines in the region (such as potentially large demand
in China and India) and on ways to deepen the linkages among the regions economies.

8
RI 2010

[Turn over
Some prominent East Asian thinkers see the region at a crossroads. Asia is unique: by
2030 three of the worlds four largest economies will be located there and the worlds
two largest populations live side by side. By 2020 China will produce 44% of Asias
economic output and India and Japan will account for 17% and 15%t, respectively, as
estimated by the Asian Development Bank in its 2008 study. Together the three will be
20% larger than the US economy.
Source: The East Asia Forum, 26 July 2009

Questions

a Using the data in Table 3:

i. Identify and explain the indicator used to measure the economic growth
of a country.

[2]
ii. Summarize the trend in Singapores economic growth rate from 2006 to
2009.

[2]
b Comment on the success of Singapores stated goal to remake itself as a
high value-added, high tech growth hub for manufacturing from 2006 to 2008.

[4]
c With the help of a diagram, suggest two reasons to account for Singapores
growth rate in 2009.

[6]
d To what extent might reducing reliance on foreign labour help to improve
labour productivity and sustain economic growth?

[6]
e Assess whether an intensification of globalization in Asia is a better growth
model compared to one that looks to the domestic market.

[10]
[Total: 30]

Copyright Acknowledgements:

Question 1 Table 1 ZDNet Asia, 2009
Question 1 Table 2 The Straits Times, 16 April 2008
Question 1 Extract 1 ZDNet Asia, 2009
Question 1 Extract 2 The Straits Times, 15 May 2008
Question 1Extract 3 The Straits Times, 16 April 2008
Question 2 Table 3 Department of Statistics
Question 2 Figure 1 Department of Statistics
Question 2 Extract 4 The Business Times, 2 February 2010
Question 2 Extract 5 The Business Times, 7 July 2010
Question 2 Extract 6 The Straits Times, 23 July 2010
Question 2 Extract 7 The Straits Times, 25 Jan 2010
Question 2 Extract 8 The Straits Times, 14 July 2010
Question 2 Extract 9 The East Asia Forum, 26 July 2009
1

RI 2010

[Turn over
RAFFLES INSTITUTION
2010 YEAR 6 PRELIMINARY EXAMINATION

Higher 2

ECONOMICS 9732/02
Paper 2

16 September 2010

2 hours 15 minutes

DO NOT open this booklet until you are told to do so.

Write your name, index number and CT class on all the work you hand in.

Answer three questions in total, of which one must be from Section A, one from Section B and one
from either Section A or Section B.
Start each question on a fresh sheet of paper.

At the end of the examination, fasten your work for the 3 questions separately with the
cover pages provided.


2

RI 2010

[Turn over
Answer three questions

Section A


1 Music recording companies have been plagued with the issue of illegal distribution
of their music and of lost sales from their digital recording media like CDs. On the
other hand, consumers have been willing to pay for online music services by Apple
iTunes to download songs of their preference for a price of $0.99 each.

(a) Distinguish between private goods and public goods and consider whether
digital content is a public good. [12]
(b) Discuss the effectiveness and desirability of protecting intellectual property
rights. [13]

2 The pay-TV market in the UK consists of Sky TV, Top-Up TV as well as Virgin
Media. At present, Sky TV controls 100% of the subscription movie market and
more than 80% of the premium sports content. Ofcom, the regulator for UKs
Communications industry, recently decreed that Sky TV has to supply its premium
services to its rivals at a controlled price.

(a) Explain how, in economic theory, a firm determines price and output. [10]
(b) To what extent will an industry, such as the above, always lead to a few large
firms dominating the industry? [15]

3 The pricing of water should be left to market forces. However, some governments
choose to subsidise water while others place a tax on it. Comment. [25]

Section B

One or two of your chosen questions must be from this section.

4 (a) Explain and compare the effects of the 2008 global financial crisis on small
and open countries like Singapore and big countries like Australia. [12]
(b) Discuss the best policy option that the Singapore government could adopt to
reduce the adverse impact of the crisis. [13]

The Singapore government implemented a budget deficit while the
Monetary Authorities of Singapore pursued zero appreciation of the
exchange rate. Discuss the factors that would affect the success of the
two policies in reducing the adverse impact of the crisis in Singapore.

5 In the light of America's growing twin deficits (budget deficit and current account
deficit), the US government is putting pressure on China to revalue her domestic
currency.

(a) Explain the problems faced by a country if it incurs a twin deficit. [10]
(b) Discuss whether conflicts in achieving macroeconomic objectives will arise for
the Chinese authorities when she revalues her domestic currency. [15]

3

RI 2010

[Turn over
6 Globalisation brings about the need for structural changes in an economy as it
forces local industries to become competitive with global producers.

Discuss whether globalisation necessarily results in more benefits for developing
countries than for developed countries. [25]


[Turn over

ECONOMICS 9732/01


2 hour 15 minutes


Write your index number and name on all the work you hand in.


At the end of the examination, fasten your work securely together.
Answers for Question 1 and 2 are to be handed in separately.
Start Question 2 on a new sheet of paper.


RIVER VALLEY HIGH SCHOOL
YEAR 6 Preliminary Examination
Higher 2
2
RVHS 2010 9732/01


Question 1 Development and Competition in the Smartphone Market

Extract 1: The Battle for the Smartphone's Soul
According to Informa, a market research firm, the market for smartphones will grow from
$39 billion in 2007 to $95 billion in 2013, by which time they will make up nearly half of
the handset market by value and 34% by volume.
As handsets get smarter, the nature of the industry will change. It will be less about
hardware and more about software, services and content. In fact, for the first time, more
will be spent this year on such intangibles than on the handsets themselves. And this is
why, also for the first time, a fierce battle between operating systems for handsets has
broken out.
According to Roberta Cozza of Gartner, another market research firm, each operating
system will be trying to win the hearts and minds of software developers in 2009. But
even if one comes out ahead, it is unlikely that the market will consolidate soon.
Indeed, the best outcome is a continuing battle. If the market for mobile phone operating
system were to consolidate quickly or go down the same route as PC operating systems,
which wound up being dominated by Microsoft Windows, the result would probably be
less innovation. And it is by innovating rapidly that the mobile phone industry has the
best chance of weathering the oncoming recession.
Source: The Economist, 22 November 2008

Extract 2: Competition Heats up among Smartphone Operating Systems
There is suddenly a race for rolling out not just new smartphones but also smartphone
operating systems (OSs). With the roll-out of 3G networks, the market is heating up as
new entrants are unveiling their products. Apple is, of course, the pioneer with its iOS
platform, but now Googles Android, Nokias MeeGo, Microsofts Windows Phone and
Black-Berrys RIM OSs have joined the market. The new kid on the block is Samsung
with its Bada OS. With the 3G roll-out, the top players are expected to flood the market
with newer smartphones and OSs, making a smart pick of a smartphone terribly tough.
Analysts feel that for new entrants like Samsung to succeed, they should support their
devices through regular updates of the OSs. In addition, apps are important as they
make or break a smartphone. Without apps, a device is a dumb device.
Source: The Economic Times, 9 J uly 2010
3
RVHS 2010 9732/01
[Turn over

Extract 3: Survival of the Fittest
Worldwide smartphone sales to end users are booming. Among the most successful
vendors were Apple and Blackberry, which controlled an integrated set of operating
system (OS), hardware and services. To compete in such a crowded market,
manufacturers need to tightly integrate hardware, user interface, and social networking
services if their solutions are to appeal to users, said Robert Cozza, principal research
analyst at Gartner. J ust adding a qwerty keyboard will not make a device fit the
communications habits of today's various consumer segments.
Source: Gartner, 19 May 2010

Extract 4: Singaporeans Big on Smartphones
Sales of smartphones in Singapore began rising late last year. Consumers had been
drawn to the devices, which allow them to watch YouTube videos, get turn-by-turn
driving directions, download and play music, and even play games in addition to making
phone calls and sending text messages while on the move. In addition, operators have
helped drive demand by dangling heavily discounted handsets and generous price
plans.

Industry sources say Nokia and Blackberry handsets make up the bulk of smartphones
in use currently. However, the rise of the Apple iPhone and more recently handsets
running Googles operating system (Android) like Samsung Galaxy S could change this
soon. Google also has partnerships with multiple phone makers such as HTC, Motorola
and Samsung.
Source: The Straits Times, 25 August 2010

Table 1: Worldwide Sales of Smartphone by Operating System
2007 Q2 2008 Q2 2009 Q2 2010 Q2
Operating
System
Units
('000)
Market
Share
(%)
Units
('000)
Market
Share
(%)
Units
('000)
Market
Share
(%)
Units
('000)
Market
Share
(%)
Symbian 18,273 65.6 18,405 57.1 20,881 51.0 25,387 41.2
Research
in Motion
2,471 8.9 5,594 17.4 7,782 19.0 11,229 18.2
Android -- -- -- -- 766 1.8 10,606 17.2
iOS 270 1.0 893 2.8 5,325 13.0 8,743 14.2
Microsoft
Windows
Mobile
3,212 11.5 3,874 12.0 3,830 9.3 3,096 5.0
Linux 2,816 10.1 2,359 7.3 1,901 4.6 1,503 2.4
Other OSs 811 3.0 1,077 3.4 497 1.2 1,085 1.8
Total 27,855 100.0 32,221 100.0 40,972 100.0 61,649 100.0
Source: Gartner
4
RVHS 2010 9732/01

Questions

(a) (i) With reference to Table 1, describe the trend in the total worldwide sales
of smartphones from 2007 Q2 to 2010 Q2.

[2]
(ii) Using economic analysis, explain the above trend. [6]

(b) Identify and account for the difference between the absolute and relative
changes in worldwide smartphone sales by Symbian OS during the same
period.
[2]

(c) (i) Describe the type of market structure that the smartphone OS
companies operate in.

[2]
(ii) In the light of the data provided, evaluate the claim in Extract 1 that the
best outcome is a continuing battle among the operating systems in this
market.
[8]

(d) Assume that you are the product manager of a handset maker. Propose
strategies that will help your company to successfully compete in the market
for smartphones. J ustify your answer.

[10]

[30 marks]

5
RVHS 2010 9732/01
[Turn Over

Question 2 Weathering the Economic Crisis

Extract 5: Singapore officially in recession
Singapore officially slid into recession today, the first in East Asia to be hit by a global
economic slowdown, prompting the central bank to end a policy favouring gains in its
currency in an effort to support the economy. The economy contracted by 6.3% in the
third quarter, having shrunk by 5.7% in the second quarter of 2008. This forced the
government to cut its growth forecast for this year from 4%-5% to 3%. Prime Minister
Lee Hsien Loong said Asian economies faced slowing growth for at least the next year
and will not be spared in this global crisis.
Source: The Guardian,10 Oct 2008

Extract 6: Singapores Resilience Package
Singapore has unveiled a massive S$20.5 billion (US$14.5 billion) plan in its 2009
Budget. The multi-billon dollar plan, called the Resilience Package, will go into five main
areas. Included in this package are two extraordinary measures. They are the J obs
Credit and a Special Risk-Sharing Initiative (SRI). Under the J ob Credit Scheme, the
government will help employers, with their wage bills by giving a cash grant for each
employee on the CPF payroll. As for the SRI, it includes a Bridging Loan Programme to
help firms to improve their access to working capital and a trade finance scheme to help
firms obtain loans to fulfil their orders.

Source: Channelnewsasia.com, 22 J anuary 2009

Extract 7: Chinas Stimulus package
On November 9, China's State Council announced its long-awaited stimulus package.
The body, the central government's cabinet, said it would spend an "estimated" 4 trillion
Yuan, about US$586 billion, over the next two years on 10 major areas. In addition, it will
loosen credit and reduce taxation. This influx of government funding would help bring
about an additional $59 billion in private investment. Chinese state media called the plan
"a wide-ranging effort to offset adverse global economic conditions by boosting domestic
demand."

The real question is whether it will have a lasting effect at home. The Chinese economy,
the fastest growing in the world this decade, is now spiralling downward. Last year,
gross domestic product jumped 11.9%, according to Beijing's official numbers. This
quarter, growth is expected to clock in at about 5.8%. In late J uly, the Politburo officially
reversed course from fighting persistent inflation to lifting growth. Since then, China's
technocrats have, among other things, provided tax rebates, handed out incentives for
home purchases and cut interest rates three times in six weeks. Nothing, however, has
seemed to work. Pessimistic forecasts have apparently unnerved China's policymakers,
thereby causing them to endorse the aggressive plan to stop the slide in growth. The just
announced program is much bigger than what foreign analysts had expected. Yet it may
not have the intended effect.
Source: Forbes.com, 11 Nov 2008
6
RVHS 2010 9732/01

Extract 8: Signals from the sudden announcement
The sudden announcement of the package, without the inconvenience of having to win
approval by anything as inconvenient as a Congress, points to a number of things we
can expect from China in 2009 and beyond. First, China has the money and capacity to
mobilise resources quickly to stimulate growth. It is likely to be an important part of the
solution to what looks to be a global recession. Second, and less reassuringly, Chinas
dramatic action suggests that the countrys leaders are seriously worried about the
extent of the economic slowdown. There had a mesmerising predictability in recent
years to Chinas double-digit growth rates. But China needs very fast growth both to
generate jobs in the short term and, for the longer term, to ensure that China builds a
solid basis for wealth before it starts to suffer the ageing effects of its one-child policy.

Source: The Economist, 12 Nov 2008

Table 2: Economic Data of Selected East Asian Economies, 2008

GDP
Exports Imports
US$ billions (% of GDP)
China 4327 37.8 33.2
Hong Kong SAR 216 212.3 201.5
J apan 4911 17.4 17.3
Malaysia 221 103.6 80.5
Singapore 182 234.3 215.3

Source: 2009 International Trade Statistics Yearbook

Table 3: Latest IMF Projections of selected economies
(Year over year percent change)
Projections
Economies
2007 2008 2009
United States 2.0 1.4 -0.3
Euro area 2.6 1.2 -0.7
J apan 2.1 0.5 -0.2
China 10.0 8.3 7.1

Source: IMF Economic Outlook, Nov 2008

7
RVHS 2010 9732/01

Table 4: Details on the Singapores Resilience Package
Purpose Allocation
J ob Credit Scheme (S$4.5 billion)
Expand Recruitment across ministries and statutory boards
$5.1 billion
(26.8%)

Stimulate bank lending through Special Risk-Sharing Initiative (SRI)
$5.8 billion
(28.3%)

Cut in corporate tax to 17%
Property tax rebates for commercial properties
$2.6 billion
(12.6%)

Rebates on HDB services and conservancy charges and rentals,
personal income tax rebates, public assistance scheme
S$2.6 billion
(12.6%)

Infrastructure
$4.4 billion
(21.5%)

Total $20.5 billion

Source: The Straits Times, 22 J anuary 2008

Questions

(a) (i) What is meant by recession?

[1]
(ii) With reference to the data where appropriate, explain why Singapore
was the first East Asian economy to fall into a recession from the global
economic crisis.
[6]

(b) (i) Compare the size of the stimulus package of China and Singapore.

[2]
(ii) Account for the differences that you have observed. [5]

(c) Analyse why and comment on whether the influx of government funding would
bring about an additional $59 billion in private investment in Extract 7.
[8]

(d) Evaluate the choice of the top macroeconomic aim of the stimulus packages
unveiled by the Singapore and China government.
[8]

[30 marks]

8
RVHS 2010 9732/01

BLANK PAGE


[Turn over

ECONOMICS 9732/02

Paper 2: Essays Questions 17 September 2010

2 hour 15 minutes


Write your index number and name on all the work you hand in.

Start each question on a new sheet of paper.

At the end of the examination, fasten your work securely together.
Your work for Section A and B are to be handed in separately with the cover page.
Indicate on the cover page the question(s) you have attempted for that section.


RIVER VALLEY HIGH SCHOOL
YEAR 6 Preliminary Examination
Higher 2
2

RVHS 2010 9732/02


Section A

1 The government has announced better than expected economic data and a sizeable cut
in the number of certificate of entitlement (COE) in the next two quarters.

(a) Explain, with the help of a diagram, the concept of scarcity, choice and
opportunity cost in view of the underlying objective of the certificate of
entitlement.

[10]
(b) Assess the impact of the above announcements on the government and
prospective car buyers in the current quarter and the subsequent quarter.

[15]

2 Discuss why price competition, product development and product promotion differ
across industries and whether they benefit the consumers.

[25]

3 (a) Analyse why government should intervene in the market for healthcare. [12]
(b) Discuss whether the current interventions in the market for healthcare by the
Singapore government are sufficient.

[13]

Section B

4 (a) Explain how a change in the U.S. interest rate can lead to a lower circular flow
of income and expenditure for Singapore.

[12]
(b) Examine whether a lower circular flow of income and expenditure necessarily
mean a lower standard of living.

[13]

5 The Monetary Authority of Singapore (MAS) is leaning towards tightening monetary
policy by allowing the Sing dollar to strengthen although no final decision has been
made.
(a) Explain why MASs monetary policy is centred on the exchange rate and the
factors that could influence her monetary policy stance.

[10]
) (b) Discuss whether a tightening monetary policy is the best policy to maintain
Singapores favourable current account balance.

[15]

6 Globalization is often regarded to be a double-edged sword.
(a) Explain the relevance of this statement to Singapore. [12]
(b) Discuss whether the Singapore government currently adopts appropriate
policies to overcome the two most harmful effects of globalization.

[13]

ST ANDREWS J UNIOR COLLEGE

PRELIMINARY EXAMINATIONS 2010


Higher 2

ECONOMICS 9732/01

Paper 1: Case Study Questions 3 Sep 2010
2 hours 15 minutes







[Turn Over
SAJ C 2010

SAJ C 2010 9732/01/PRELIM
2
Question 1 The Beverage Industry Fame or Fury?

Extract 1: An Era of Competition

Much like the old tale about boiling a frog, the slow, steadily increasing heat of fuel prices
had passed with little notice for several years. But when suddenly immersed in a boiling
market of stratospheric price increases in 2008, beverage distributors intent on surviving
jumped quickly out of the pot of complacency, with a growing appreciation for the need to
more closely manage fuel costs. While practices such as limiting engine idle time and
optimising routes are among the more obvious methods of holding down fuel costs, there are
other several ways to cut costs. PepsiCo reached an agreement to buy its two largest
bottlers in August 2009, The Pepsi Bottling Group Inc. (PBG) and PepsiAmericas, Inc., for
US$7.8 billion. The acquisitions will create one of the largest food and beverage companies
globally and will give PepsiCo control of 80 percent of its North American beverage volume,
a strategic move that allows the company to respond more quickly to changes in consumers
preference for more health- and wellness-oriented beverages. PepsiCo also predicts the
deals will help it save about US$300 million a year by 2012.

Pepsi and Coke, the world's most popular carbonated drinks, are losing their shares in the
country's beverage market due to aggressive marketing of similar products and sudden
emergence of so-called energy drinks. Industry people said that the demand for beverage,
especially energy drinks, is rising as youths, who represent a larger section of the
consumers, prefer energy drinks to Coke and Pepsi. "We're in an era of competition. We'll
have to survive through new market strategies and promotional activities," said Mr
Mohiuddin, deputy director of Abdul Monem Ltd., bottlers of Coke, Pepsi and allied products.

Adapted from http://www.thefinancialexpress-bd.com, 7 Nov 2009 and
Beverage World magazine, Sep 2009 Issue

Extract 2: Fury against Cans and Bottles

Industry greenwashing obscures the real environmental costs of consuming beverages out
of aluminum cans and polyethylene terephthalate (PET) bottles.

Though often touted as the most recyclable package in America, more than half of the 99
billion cans sold in the U.S. ended up in a landfill or incinerated, said J ennifer Gitlitz,
Container Recycling Institute (CRI) research director. Globally, the figure added up to about
1.5 million tons of wasted cans in 2005. Valuable ecosystems on every continent have been
destroyed for the convenience of the aluminum industry and consumers, added Peter
Bosshard, Policy Director of International Rivers Network. Hydropower dams linked to
aluminum smelters have flooded vast tracts of land, displaced tens of thousands of people,
and created unsustainable debt burdens for poor countries.

According to Sunday Age, Australias consumption of bottled water (packaging, shipping,
refrigerating) is costing the planet 314,000 barrels of oil a year whereas Pacific Institute
recently calculated that demand for bottled water in the U.S. was burning up at least 17
millions barrels of oil a year. With only 35 per cent of water bottles being recycled, and 55
per cent going to landfill, Australian Conservation says the bottled water craze also poses an
enormous waste hazard. However, Sally Loane, spokeswoman for Coca-Cola Amatil,
Australias largest producer of bottled water, said the company was making every effort to
reduce the impact of plastic bottles on the environment. She defended the companys right
to sell and market a product that is in high demand. There is a market for it. Consumers
like the convenience of bottled water. A lot of people believe it tastes better. Its nice and
cold. Thats what consumers want, and thats what were giving them.
Adapted from http://hubpages.com (accessed on 16 August 2010) and
Containers Recycling Institute, 17 May 2006
3
Extract 3: Government Policies Too little too late (and too wrong too?)

As the global beverage marketplace swells up to a tune of US$700 billion, there would be as
bloated a challenge to prevent the irreversible damage to the environment. Often, efforts by
governments were quoted as being too little, too late, if not outright inappropriate. For
example, New J erseys recycling effort needs a swift boost. Despite introducing a bottle
deposit (consumers need to pay a deposit to purchase beverage in a bottle and redeem the
deposit after recycling the empty bottle), the state does not have a long-standing curbside
programme in place to encourage recycling. In Philadelphia, Mayor Nutter's proposed soda
tax has gotten the attention and analysis a proposed new tax deserves. The scrutiny has
shown why it shouldn't be enacted. The tax lacks coherent policy foundations, draws
unjustifiable distinctions, could violate state law, poses several practical implementation
problems, and would be too easily avoided.

Danish ambassador to Singapore, Ms. Lauritzen, suggests that a national frame is no longer
sufficient, if we are to handle the challenge. She added that every national government,
international organisation and global company will have to formulate a policy of goals and a
strategy of actions on how to behave in this new context. And it is of vital importance that we
strengthen the rules and processes of the international system.

Adapted from http://www.nj.com (accessed on 20 Aug 2010), www.philly.com 24 Mar 2010 and
www.ambsingapore.um.dk (accessed on 20 Aug 2010)

Table 1: Market Share of Top 5 Carbonated Soft Drinks
Companies in the U.S. (%)

2007 2008 2009
Coca-Cola Co. 42.8 42.7 41.9
PepsiCo 31.1 30.8 29.9
Dr Pepper Snapple 15.0 15.3 16.4
Cott Corp. 4.8 4.7 4.9
National Beverage 2.5 2.6 2.7

Adapted from Beverage-Digest, 30 Mar 2009 and 24 Mar 2010 Issues

Questions

(a) (i) Describe the 5-firm concentration ratio trend for 2007 2009 as given in Table 1.
[1]

(ii) Based on your answer to (a) (i), identify the market structure under which the
beverage firms operate in the U.S. [1]

(iii) Would firms in such an industry compete on price? J ustify your answer. [4]

(b) Assess the importance of achieving various types of efficiencies by the firms in the
beverage industry on improving consumers welfare. [8]

(c) (i) Explain any one of the sources of market failure as mentioned in the data. [6]

(ii) Discuss the roles that a local government can play in dealing with the market
failure identified in (c) (i). [10]

Total: 30 marks
4
Question 2 Trade and Global Recession

Extract 4: Global Recession to Deepen

The World Bank said the global recession this year will be deeper than predicted in March.
The world economy will contract 2.9%, compared with a previous forecast of a 1.7% decline.
Growth will be 2% next year, down from a 2.3% prediction. Economic growth in the
developing world will be 1.2%, scaling back from earlier predictions of 2.1%.

While a global recovery may begin this year, impoverished economies will lag behind rich
nations in benefiting from the upswing. Unemployment is on the rise and poverty is set to
increase in developing economies. Reduced capital inflows from exports, remittances and
foreign direct investment mean increasingly grave economic prospects for developing
nations. Decreased aid from advanced economies because of the economic crisis will also
likely hurt their public finances.
Adapted from http://www.bloomberg.com, 22 J un 2009

Extract 5: Recession in South Africa

The resilience of Africas largest economy is set to be tested in the immediate future if the
current world recession continues. The combination of fiscal prudence and stringent
regulation has so far helped cushion the countrys economy from the global economic
turmoil.

This year, South Africas currency, the rand, has fallen by 34%, from an average of R7/US$1
in the early months of 2008 to an average of R10/US$1. Partly as a result of the global
slump, the countrys economy is expected to slow down to 3.5% this year, from 5.1% last
year. The projected growth will be further reduced to 2.6% in 2009.

The countrys export earnings, especially from minerals, would be severely affected by the
lower demand for South African exports and declining commodity prices owing to the global
recession. Companies in the mining, automotive, leather and textile industries appeared to
be embarking on large scale retrenchments.

A likely immediate outcome of the current crisis is a cut in interest rates by the South African
Reserve Bank, which has raised them by 5% since J uly 2006. The hope is that rate cuts will
spur consumer spending again. At present, the manufacturing sector, especially the vehicle
sector, is feeling the effects of high interest rates on consumers. As the recession bites, the
drop in global demand for locally manufactured goods has also led to job losses. But interest
rate cuts alone will not be adequate. An appropriate government intervention would be to
focus more systematically on creating employment opportunities on a larger scale.

This requires measures to strengthen the overall efficiency of the economy, especially
through enhanced infrastructure. It also requires more consistent government support and
re-sourcing of employment-creating activities such as agriculture, light manufacturing,
personal and private services and construction. In addition, South Africa should streamline
immigration and taxation policies to create a more attractive environment for foreign
investors.
Adapted from http://www.twnafrica.org, 29 Aug 2009

5

Extract 6: Transmission of the Global Recession through US trade

International trade has played a major role in the global recession especially in transmitting
demand contractions across national boundaries. Countries catch recessions from their
major export partners while transmitting recessions to their major import suppliers.

US exports go disproportionately to the EU and Canada, while US imports come
disproportionately from China, J apan and the rest of Asia. More precisely, from 2006-2008,
the EU and Canada accounted for 42.9% of US exports and 34.0% of US imports on a
nominal basis, while Asia accounted for 35.5% of US imports and only 25.9% of US exports.
China alone accounted for 16.1% of US imports and only 5.9% of US exports.

Imports from China dominated the US (real) import decline, while exports to Canada figured
disproportionately in US export declines. The decline in US import demand, as well as its
depth, was significantly influenced by particular sectoral weaknesses in the US economy, in
particular the timing of the housing and oil bubbles. The collapse of US housing associated
with the financial crisis shows up clearly in US construction imports, which began to decline
much earlier than US imports in general and have fallen more deeply.
Table 2: Largest Real US Import Declines (July 2008 - February 2009)
Real Change
Some of US major imports
USD millions %
Principal Suppliers
Passenger Cars -7,500 -58.1 J apan, Canada, Germany, Mexico
Computers -2,420 -35.2 China, Malaysia
Crude Oil -1,970 -20.1 Canada, Saudi Arabia, Mexico, Venezuela
TV & Monitors -1,600 -36.7 China, Mexico
Organic Chemicals -1,350 -27.9 Ireland, Germany
Knit Apparel -1,280 -35.2 China, Vietnam
Toys, Games & Sporting Goods -1,220 -46.9 China, J apan
Telecommunications -1,160 -19.9 China, Mexico, Korea
Motor Vehicle Parts -1,080 -38.6 Canada, J apan
Table 3: Largest Real US Export Declines (July 2008 - January 2009)
Real Change
Some of US major exports
USD millions %
Principal Suppliers
Passenger Cars -2,380 -65.7 Canada, Germany
Plastics -1,430 -35.8 Canada, Mexico
Gas turbines -1,413 -71.4 Saudi Arabia, Mexico
Integrated circuits & parts -1,210 -42.2 China, Malaysia, Taiwan
Aeronautic Parts -1,203 -78.1 J apan, Korea
Iron & Steel -831 -46.9 Canada, Mexico, China
Motor Vehicle Parts -830 -40.5 Canada, Mexico
Organic Chemicals -620 -23.7 Canada, Mexico
Transport Vehicles -606 -56.6 Canada, Mexico

Adapted from http://www.voxeu.org, 29 Aug 2009


6
Extract 7: 'Buy American' provision in stimulus bill passed by US government

The Buy American provision imposes a general requirement that any public building or
public works project funded by the new stimulus package uses only iron, steel and other
manufactured goods produced in the United States. This is meant to regenerate jobs at
home instead of abroad by forcing government contractors for new highways, schools,
bridges and energy grids to use domestic materials and equipment, even if they are more
expensive. Much of the previous tax rebate cheques to stimulate the economy went to
Chinese-made televisions and Korean-made refrigerators.

Nations including China and many in Europe are preparing to spend billions of dollars of
taxpayer money on stimulus projects. American companies are angling for a piece of those
pies and retaliatory measures against U.S. companies could significantly complicate those
efforts. The European Commission threatened countermeasures if the Buy American
provisions are enforced.
Besides "protectionist message" attached to imposing such barriers on foreign companies,
the measures could violate trade deals the U.S. has signed in recent years. Despite
promises offered earlier to refrain from taking such measures, there are early signs that
nations are putting up trade barriers to protect domestic companies as the global downturn
worsens. Before the global economy turned critical in the second half of 2008, the US steel
industry was operating at near capacity and steel prices were climbing sky-high. Now, U.S.
unemployment rate is soaring.
Adapted from http://www.washingtonpost.com, 29 J an 2009

Questions

(a) Using examples from Tables 2 and 3 and Extract 6,
(i) explain if the U.S.s pattern of trade is consistent with the Theory of
Comparative Advantage. [4]

(ii) explain one factor which might account for the largest fall in the U.S. imports.
[2]

(b) (i) Economic forecasts made earlier are often revised later on. Suggest one
reason for the change in the world growth forecasts in Extract 4. [3]

(ii) From Extract 5, identify and explain any data which suggest an impending
economic slowdown in South Africa. [5]

(c) Countries catch recessions from their major export partners while transmitting
recessions to their major import suppliers. Comment. [6]
(d) Assess the policies used by both the U.S. and South Africa to cope with the global
recession. [10]

Total: 30 marks

~~ End ~~
ST ANDREWS J UNIOR COLLEGE

PRELIMINARY EXAMINATIONS 2010


Higher 2

ECONOMICS 9732/02

Paper 2: Essay Questions 17 Sep 2010
2 hours 15 minutes







[Turn Over
SAJ C 2010

2

Section A


1 There has been a sharper rise in world petroleum prices compared to food prices in the last 10
years.

Discuss the likely causes of the above and its effects on the global allocation of resources. [25]

2 The telecommunications industry is arguably a classic example of the price leadership model.

(a) Explain the factors that a firm may consider in deciding whether to engage in price
leadership behaviour. [10]

(b) Comment on whether pricing decisions should remain as the primary strategy for a
telecommunications firm. [15]

3 In 2009, the government announced a Resilience Package to provide support for Singaporeans
during the economic downturn. The Resilience Package and other government schemes
added an estimated $1270 per household member on average in 2009.

(a) Explain why income inequality is a source of market failure. [10]

(b) Evaluate the various measures which the government has put in place over the years to
reduce income inequality in Singapore. [15]

Section B


4 The decline in export earnings in 2009 for Singapore was resulted from a steep decline in
manufacturing output, reflecting the sharp collapse in external demand.

(a) Explain the factors that might have caused the fall in Singapores export earnings in 2009.
[10]

(b) Discuss the view that improving trade competitiveness will help a country achieve its
economic objectives. [15]

5 For any economy, labour is a key ingredient in creating output and powering growth. To raise
output through labour, an economy can either keep increasing the number of workers which
is not viable in the long term or raise the amount of output from each worker. More
productive workers tend to improve an economys competitiveness.
Adapted from The Straits Times Dec 2009

Assess whether the policies currently undertaken by the Singapore government to address
declining productivity would bring more harm than good to the economy. [25]

6 Globalisation presents an opportunity for Singapore but there are threats that the Government
needs to be aware of and take appropriate measures to balance the pros and the cons.
Source: The Straits Times Oct 2008

(a) Analyse the impact of globalisation on Singapore. [12]

(b) Discuss the relevance of the multiplier and the degree of openness of the Singapore
economy in influencing its macroeconomic policies in dealing with the negative effects of
globalisation. [13]

1
SRJC 9732/01/JC2PreliminaryExam/10 [Turn over

ECONOMICS 9732/01
Higher 2

PAPER 1 20 August 2010

2 hours 15 minutes

Additional Materials: Writing paper

SERANGOON JUNIOR COLLEGE
JC2 Preliminary Examination


Write down your name and civics group on all the work you hand in.


Start your answers to each case study question on a new sheet of writing paper. Fasten your
answers to questions 1 and 2 separately.




2

Question 1

Extract 1: Indian jewellery firm eyes global mart

Jewellery firm, Shrenuj acquired Diamond Trading Corporation's 50 per cent stake in Arisia
Jewellery, a company that promotes the solitaire diamond jewellery brand Arisia. It is focusing
on the luxury market with plans to launch diamond studded handbags, watches and mobile
phones under its premium jewellery brand, Arisia. It plans to take Arisia into West Asia, Eastern
Europe and China markets, which are emerging as lucrative markets. It was said that the
companys entry in West Asia is a natural extension due to the presence of many Indian
migrants there.

Shrenuj will make the Chinese debut with Joliesse, a Hong Kong-based jewellery chain, which it
acquired in 2003. Pranava Bhargava, its group general manager, said, We have re-positioned
Joliesse as a mid-end fashion jewellery retailer. It plans to open two stores in China and 18
outlets in Hong Kong in the next two years.

Going forward, the company expects one-third of its revenues to come from the jewellery
branding and retailing.

Source: Rediff India Abroad, 11 January 2008

Extract 2: DeBeers

DeBeers, a South Africa-based holding company, is historically and currently the main driver of
the diamond industry. It has proven itself in the market with revenues of US$7,958 million in
2005, an increase of 13% over 2004. Yet, DeBeers is seeing a gradual decrease in its market
share to 43% in 2005 as other players are making a name for themselves and becoming a
formidable threat.

Alrosa, a Russian state-owned diamond company produces nearly 100% of Russias rough
diamonds and more than 20% of the worlds rough diamonds, making it the second largest
producer, second only to DeBeers. The others are Rio Tinto and BHP Billiton, two major
Australian firms in diamond mining, and Leviev, a Russian company which owns mines and is
the largest cutter and polisher of diamonds in the world.

Source: Duke University Report, 2007

Extract 3: Why buy synthetic?

Laboratory diamond producers focused on the financial, environmental and political advantages
that their product had over natural diamonds. Synthetic diamonds cost anywhere from 15% to
40% less than naturally mined diamonds and sometimes considerably less for coloured stones.

Compared to a natural diamond which required several hundred tons of earth be extracted for
each carat often at the expense of both human and animal habitats, lab-grown diamonds were
considerably more eco-friendly. According to the Canadian Arctic Resources Committee, as far
as 200 kilometres downstream from the lake where Canadas Ekati diamond mine sat,

3
environmental destruction, particularly of fish habitats, was seen in numerous lakes and
streams. Diamond mining had also taken a toll on land-based wildlife habitats.

Source: David McAdams and Cate Reavis, MIT Sloan Management, 7 January 2008

Extract 4: The cartel isn't forever

On July 13th, DeBeers finally pleaded guilty to charges of price-fixing of industrial diamonds and
agreed to pay a US$10m fine. DeBeers executives are at last free to visit and work directly in
the largest diamond market, America.

For generations, the industry that sells $60-billion-worth of jewellery alone each year has been
run by DeBeers as a cartel. The South African firm dominated the digging and trading of
diamonds for most of the 20th century. It runs most of the diamond mines in South Africa,
Namibia and Botswana that long produced the bulk of world supply of the best gemstones. For
decades, if anyone had rough diamonds to sell on the side, DeBeers bought these too. A huge
stockpile helped it to maintain high prices while it successfully peddled the myth that supply was
scarce. DeBeers' days of market dominance are clearly drawing to a close.

Price-fixers harm the entire economy. Consumers have to pay more for goods and services,
and get less choice. Price-fixing also undermines faith in the benefits of markets. In America,
authorities have been adopting fierce measures against price-fixing. Bosses are routinely sent
to jail, and their companies can be forced to pay fines equal to three times the estimated
damages.

Source: The Economist print edition, 15 July 2004

SRJC 97
Figure 1: World GDP and Diamond Price

Questions

(a) Identify and explain the likely relationship between world GDP and
diamonds.

(b) Assess the relevance of the concepts of elasticity of demand in explaining the strategies
adopted by Shrenuj to increase its market share.

(c) (i) Describe the type of market structure operating in the diamond industry.

(ii) Using economic analysis and with an appropriate diagram, explain the effects of
the entry of other playe
price and output.

(d) With reference to Extract 3, identify the type of externality that exists in the diamond
industry and explain how it leads to i

(e) Evaluate the possible measures that a government could take to control
power, using both the case study and your own relevant knowledge.

4
9732/01/JC2PreliminaryExam/10
Figure 1: World GDP and Diamond Price, 1960-2008
Identify and explain the likely relationship between world GDP and

Assess the relevance of the concepts of elasticity of demand in explaining the strategies
to increase its market share.
Describe the type of market structure operating in the diamond industry.
Using economic analysis and with an appropriate diagram, explain the effects of
entry of other players into the diamond industry on DeBeers equilibrium

With reference to Extract 3, identify the type of externality that exists in the diamond
industry and explain how it leads to inefficiency in resource allocation.
Evaluate the possible measures that a government could take to control
using both the case study and your own relevant knowledge.
Sources: Antwerp World Diamond Trade Centre, 2010
World Bank, World Development Indicators, 2010
[Total: 30 marks]

[Turn over
Identify and explain the likely relationship between world GDP and the price of
[2]
Assess the relevance of the concepts of elasticity of demand in explaining the strategies
[6]
Describe the type of market structure operating in the diamond industry. [2]
Using economic analysis and with an appropriate diagram, explain the effects of
DeBeers equilibrium
[5]
With reference to Extract 3, identify the type of externality that exists in the diamond
[5]
Evaluate the possible measures that a government could take to control a firms market
[10]
Sources: Antwerp World Diamond Trade Centre, 2010
World Bank, World Development Indicators, 2010

[Total: 30 marks]
5
Question 2

Extract 5: Revaluation of yuan holds little promise

The conventional wisdom among American policymakers and commentators regarding the huge
US trade deficit with China is that the yuan must be revalued. But evidence of the past 2 years
suggests a revaluation would have little impact on the deficit and would only hurt Chinese
workers and small manufacturers.

Conceding to earlier pressures, China changed its decade long policy of pegging the yuan to
the US$ in July 2005. The yuan rose by more than 5% in the first year and after that by 12% in
the second year. Yet the US trade deficit with China continued to swell and is expected to reach
US$260b by the end of 2007. So the policy has failed to achieve its objective.

In recent years, the US economy has undergone fundamental changes that have reduced the
effectiveness of exchange rates in changing patterns of trade, particularly with countries like
China.

Revaluation of the yuan would have the desired effect only if the goods imported from China are
produced in the US. But that is not the situation as there are few American substitutes. Chinese
apparel, computer parts, electronics, furniture, toys and many products no longer compete with
similar American made goods. If not from China, the US would have to buy them from
elsewhere. So the deficit would remain, only it would be with other countries.

The US trade deficit with China is structural in nature; largely caused by the aggressive
globalisation of American businesses and their international repositioning since the 1980s.
Taking advantage of Chinas vast supply of cheap labour and lack of market regulations, many
American companies moved to China to set up branches. Purchases by American businesses
from their affiliates in China continue to rise at a fast rate from 10% of total imports in 1992 to
24.5% in 2007.

The deficit is also aggravated by the widespread use of subcontracting agreements between
American companies like Mattel, Nike and thousands of manufacturers in China making semi-
finished and finished goods for the US market. Since the subcontractors are paid in US dollars,
the revaluation of the yuan leaves the American multinationals and their demand for Chinese
products unaffected. Imports from China thus remain unchanged.

Source: Adapted from The Straits Times, 20 January 2008

Extract 6: Globalisation: uncertainty amid creative destruction

With rising unemployment and growing trade deficit, the US economy is heading south and
trade is increasingly seen as the main culprit. Some Americans believe that international trade is
taking away more jobs from the state than it is creating.

The volatility of globalisation is a cause of growing anxiety among wage earners the world over.
The days of lifetime employment are mostly over, contracts are growing shorter and the number
of temp staff is rising. Since capital is increasingly mobile, investment is moving to countries
where absolute returns are higher, regardless of consequences for immobile workers. Millions of
US blue collar jobs have disappeared as factories moved to China and Southeast Asia.

6
Relocation fattened the corporate bottom line as Western-designed, low priced made-in-China
goods have invaded shopping malls. Low prices at Tesco and Wal-Mart helped middle class
wage earners cope with their falling real income, but the uncertainty about the future continues
to haunt workers.

Economists argued that this creative destruction was an inevitable part of economic growth
and innovation, which would in the end create new jobs and benefit society as a whole. But as
China, India and other developing countries have brought in hundreds of millions of new
workers into the global workforce, many western economists, who once championed
globalisation, are no longer so sure of themselves. They fear that the industrial prowess of the
emerging economies poses a serious challenge to the welfare of workers in the West.

This backlash in turn, threatens the principle of free trade. Anti-globalisation produces a tariff
war. Driven by interests, protectionism grew in Europe, followed by a beggar-thy-neighbour high
tariff wall in the US. The desire to protect jobs by shutting down trade led to the Great
Depression. Growing anti-globalisation sentiment is worrying. There is a need to find ways to
make Americans more comfortable with globalisation. If trade is forced to shut down, the results
could be disastrous for all.

A debate is under way in the EU & US as to how workers who fall victim to creative destruction
should be helped. Should governments come to the aid of companies which cannot cope with
global competition? What should responsible governments do? Not close their doors to global
trade, that is for sure. Instead the answer lies in governments stepping in to address those
distortions. Otherwise, we will all be the poorer for it.

Source: Adapted from The Straits Times, 12 August 2008

Table 1: Current Account Balance (US$ billion)
2003 2004 2005 2006 2007 2008
US -521 -630 -748 -803 -718 -669
China 45.9 68.7 160.8 249.9 371.8 426.1

Source: Bureau of Economic Analysis, US Department of Commence

Table 2: US Economic Indicators

Source: Various

Year 2003 2004 2005 2006 2007 2008
Real GDP growth rate (%) 2.5 3.6 3.1 2.7 2.1 0.4
Trade balance (as a % of GDP) -4.6 -5.3 -5.8 -5.8 -5.0 NA
Trade (as a % of GDP) 25.1 26.8 27.6 28.7 NA NA
Personal consumption expenditure
(% change) 2.8 3.5 3.4 2.9 2.6 -0.2
Government consumption expenditure
(% change) 2.2 1.4 0.3 1.4 1.7 3.1
Productivity (% change) -4.7 -1.4 -0.5 -0.6 -1.7 -3.6

7
Questions

(a) Explain what is meant by a revaluation of the yuan. [1]

(b) (i) Explain how a revaluation of the yuan could affect the US current account
balance with China. [2]

(ii) With reference to Extract 5 and Table 1, discuss the extent to which the
revaluation of the yuan has achieved its intended effect on the US current
account balance with China. [5]

(c) With reference to Table 2,

(i) Describe the trend of the US real GDP. [2]

(ii) Account for the change in the US real GDP in 2008. [4]

(d) Growing anti-globalisation sentiment is worrying. (Extract 6)

Explain why this sentiment is worrying. [6]

(e) Using both the case study and your own relevant knowledge, comment on the impact of
globalisation on developing and developed countries. [10]

[Total: 30 marks]

End of Paper

1

ECONOMICS 9732/02
Higher 2


2 hours 15 minutes

Additional Materials: Writing paper


Write down your name and civics group on all the work you hand in.


Start your answers to each essay question on a new sheet of writing paper. Fasten your
answers to each section separately.




SERANGOON JUNIOR COLLEGE
JC2 Preliminary Examination

2


Section A


1 Assess the usefulness of price elasticity of demand, income elasticity of demand and
price elasticity of supply to a government in formulating microeconomic policies. [25]

2 Barriers to entry is the only factor influencing a firms pricing strategy and it would
always lead to inefficiency. Discuss. [25]

3 (a) Explain how public goods and merit goods cause markets to fail. [10]

(b) Consider whether market-based solutions are the best way for the Singapore
government to correct market failure that results from the existence of a
negative externality. [15]

Section B


4 Labour productivity in Singapore has fallen by 3.9% in 2009.

(a) Analyse the possible macroeconomic outcomes of falling labour productivity.
[10]

(b) Discuss the view that supply-side policies are more effective than demand-
management policies to achieve full employment in an economy. [15]

5 (a) Explain why governments should be concerned about a fall in real GDP. [10]

(b) To achieve high and sustained growth, low inflation is an essential condition.
Hence, its attainment should be the main aim of government economic policy.
Discuss. [15]

6 While integration into the world economy continues to underpin Singapores
economic success, its exposure to the global business cycle is posing considerable
challenges at present.

(a) Explain how Singapores balance of payments might have been affected by
the global business cycle in recent years. [10]

(b) Discuss what policy options would best reduce a countrys balance of
payments deficit. [15]

End of Paper

VICTORIA JUNIOR COLLEGE
2010 JC2 PRELIMINARY EXAMINATION
H2 ECONOMICS PAPER NO. 9732/01

17 September 2010 2:30 4:45 pm


Write your name and class on all the work that you hand in.
You may use a soft pencil for diagrams.
Do not use staples, paper clips, glue or correction fluid on the work that you hand in.


The number of marks is given in [ ] at the end of each question or part question.
Start each case study answer on a fresh sheet of writing paper.
At the end of the examination, fasten your work securely, by question, using the strings
provided.

____________________________________________________________________
1

Question 1
The Airline Industry

Chart 1

Extract 1; British Airways-Qantas merger talks begin
British Airways confirmed that negotiations with Qantas for a merger were taking place in a brief
statement, after reports surfaced in Australia that a deal was in the pipeline.

Should the agreements go ahead, the airlines would be able to slash operating costs by
merging many of the back office operations such as administration and ticket sales. A pairing
with the Australian carrier would create a global corporation with 15.4billion annual sales and a
43 per cent market share of the London to Sydney service.

The past year has been the toughest for the airline industry since the aftermath of September
11. While plummeting oil prices have given the industry some relief, the global economic crisis
has led to a dramatic drop in the number of people flying. A series of banking collapses have
led to a sharp fall in demand for expensive business travel upon which many airlines depend.
Airlines have been forced to axe routes and let many of their employees go. In a desperate
effort to fill their planes, they also offer millions of cheap seats.

Meanwhile, budget airline Ryanair continues to chip into the market share of its struggling rivals
with lean and mean cost-cutting and reduced fares.

Source: The Daily Telegraph, 02 Dec 2009

2
Extract 2: Airlines vow to halve carbon emissions by 2050
The aviation industry will tomorrow make a dramatic pledge to slash carbon dioxide emissions
in half by 2050 in a move that will force up air fares and spark a green technology race among
aircraft manufacturers.

Airlines have been accused of dragging their heels over climate change, but the strategic shift
reflects industry concerns that if it does not address its growing emissions, it could become a
target at the global warming summit in Copenhagen in December.

Aviation currently contributes 3.2% of all carbon emission. However, the government's advisory
body, the Committee on Climate Change, warned that as the country builds more airports and
more airlines emerge to handle the increasing number of air travellers, aviation will account for
as much as a quarter of all emissions in the developed world even if it caps 2050 emissions at
2005 levels.

The Committee also recommended state investment in the green technology. Cutting the
industry's emissions will require radical advances in technology that, if they are not achieved,
would force airlines to make up the difference on carbon trading or offset markets. Airlines are
expected to lose $11bn (6.8bn) this year, and their weak balance sheets will be strained further
by carbon permits, analysts say.
Source: The Guardian, 21 Sep 2009
Extract 3: Cap-and-Dividend to replace Cap-and-Trade
On J anuary 28th, The USA formally pledged to the United Nations that it would reduce its
greenhouse-gas emissions by 17% (from what they were in 2005) by 2020.

Maria Cantwell, a junior senator, is pushing a simpler version of cap-and-trade, called cap-and-
dividend. Under her bill, the government would impose a ceiling on carbon emissions each
year. Producers and importers of fossil fuels will have to buy permits. The permits would be
auctioned, raising vast sums of money. Most of that money would be divided evenly among all
Americans. While general price levels will undoubtedly rise, a family of four would receive
perhaps $1000 a year, which would more than make up for it. And it would leave all but the
richest 20% of Americanswho use the most energymaterially better off.

The Senate is not likely to pass a comprehensive climate bill any time soon. Meanwhile,
President Obama unveiled a plan devoting $150 billion over 10 years in the development of
advanced energy technologies and the promotion of alternative sources of energy. With energy
conservation as one its top priorities, the Obama Administration aims to boost energy efficiency
and help Americans cut their energy bills. The Environmental Protection Agency, on the other
hand, is trying to regulate greenhouse gases under existing laws. The Clean Air Act, for
example, gives the Agency the authority to limit emissions of air pollutants coming from sources
like chemical plants, utilities, and steel mills. But regulation is no substitute for putting a price on
carbon, which would harness the power of the market to cut emissions more cheaply.

Source: The Economist, 06 Feb 2010

3
Questions

(a) i) Using Chart 1, compare the growth rates of economy class travel and
first/business class travel between J ul 2008 and Mar 2010.

[2]
ii) Explain the possible reasons for the trend observed in (ai).

[4]
(b) Discuss if the government would object to the British Airways-Qantas merger in
view of the economic situation then.

[8]
(c) i) With reference to Extract 2 and with the aid of a diagram, explain if there is a
need for the government to intervene in the airline industry.

[6]
ii) Assume that you are the Minister for the Environment of Singapore. Taking into
consideration the possible impact on the economy, justify which of the policies
found in the extracts you would choose to curb carbon emission.

[10]
Total: 30m
4
Question 2

The Chinese Economy

Chart 2 Chart 3

Note: Headline exports to GDP ratio refers to official recorded exports figure whilst true exports ratio refers
to value added share of manufactured exports.

Extract 4: An old Chinese myth

Most people suppose that China's economic success depends on exporting cheap goods to the
rich world. If so, its growth would be seriously dented by a stuttering American economy.
China's exports have surged from 20% of GDP in 2001 to almost 40% in 2007 after it joined the
World Trade Organization in 2002. This seems to suggest that not only exports are the main
driver of growth, but also that China's economy would be hit much harder by an American
downturn than it was during the previous recession in 2001.

If exports are measured correctly, however, they account for a surprisingly modest share of
China's economic growth. The headline ratio of exports to GDP is very misleading. It compares
apples and oranges: exports are measured as gross revenue while GDP is measured in value-
added terms. Although the headline exports-to-GDP ratio has almost doubled since 2000, the
value-added share of exports in GDP has been surprisingly stable over the same period. This is
explained by the rise in imported inputs arising from Chinas effort to see its economy move up
the value chain from basic products to sophisticated manufacturing products.

And even if the contribution from net exports fell to zero, China's GDP growth would still be
close to 9% thanks to strong domestic demand. The boost from net exports is unlikely to vanish,
even if America does sink into recession, because exports to other emerging economies, where
demand is more robust, are bigger than those to America. According to Standard Chartered
Bank, Asia and the Middle East accounted for more than 40% of China's export growth in the
first ten months of 2007, North America for less than 10%.

Source: Adapted from The Economist, 3 Jan 2008

5
Extract 5: Can the worlds fastest-growing economy avoid a sharp downturn?

After growing by an annual average of over 10% over the past five years, Chinas economy has
suddenly cooled more quickly than expected. That still sounds pretty impressive, but other
indicators suggest weaker times ahead. Construction, steel demand, electricity consumption,
car sales and air travel have all been falling in recent months. Industrial production grew by only
8.2% in the year to October, less than half its pace a year ago and its slowest for seven years.
Share prices have slumped by 70% from their peak and house prices have started to drop.
Property sales are running 40-50% lower than a year ago. Unsurprisingly, surveys show that
consumer and business confidence is cracking.

Chinas slowdown only partly reflects weaker exports as the world economy sags. Some of it is
home-grown, caused by a deliberate tightening of monetary policy to curb inflation and an
overheated property market. Indeed, export growth has held up surprisingly well. In the first ten
months of this year, exports were 21% higher in dollar terms than a year ago, compared with
growth of 26% in 2007.

The eye-popping 4 trillion Yuan stimulus package unveiled by Chinas State Council this week is
to be spent over the next two years. The total increase in spending, if genuine, would surely
represent the biggest two-year stimulus (outside wartime) by any government in history.

The package includes public works, social welfare and tax reform. The main spending areas are
public housing for poor households; infrastructure projects such as railways, roads, airports and
the power grid; speeding up rebuilding after the May earthquake; and increased spending on
health and education. The government also plans to boost rural incomes by raising the
minimum purchase price of grain as well as increasing subsidies for farmers, and promises
plumper social-security benefits for low-income groups.

Some commentators have criticized the package for focusing too much on investment (which is
already high as a share of GDP in China) rather than spurring consumption through income-tax
cuts. But in a country like China, where the saving rate is high and confidence is failing,
infrastructure investment is much better at boosting growth.

Source: Adapted from The Economist, 13 Nov 2008

Extract 6: Fears of Chinese economy overheating

China said consumer prices and bank lending accelerated in April, fuelling fears the economy
may overheat and building pressure on Beijing to hike interest rates and let its currency rise.
New loans issued by Chinese banks hit 774 billion yuan ($113.4 billion dollars) in April after
falling to 510.7 billion yuan in March while property prices rose 12.8 per cent year-on-year in
April, official data showed.

"Currently, prices are rising quite fast but consumer price index (CPI) increases are mainly due
to food and rent prices,'' a spokesman for the National Bureau of Statistics (NBS), Sheng
Laiyun, said. "In the near term, prices are still under quite significant upward pressure. Total
demand is still on the rise and domestic liquidity is still abundant.''

The CPI, the main gauge of inflation, rose a higher-than-expected 2.8 per cent compared with
April last year, the NBS reported. The increase outpaced the 2.4 per cent jump in March but
was still below the government's own inflation target of three per cent for the year.

6
7
Mr Sheng insisted consumer price increases were still "relatively mild'' and it was still possible
for Beijing to achieve its official target, but analysts expressed concern that the rises were too
fast. "China is at risk of overheating, with spot fires breaking out in various parts of the
economy, most notably the property market and bank lending,'' said Brian J ackson, a senior
analyst at Royal Bank of Canada in Hong Kong.

Mr J ackson said higher interest rates and a moderate appreciation in the currency would help
Beijing avoid inflationary pressures reaching "damaging levels''.

Policymakers have also introduced a series of measures in recent weeks to rein in property
prices. Among them are a tightening of restrictions nationwide on advance sales of new
property developments, the introduction of new curbs on loans for third home purchases and the
raising of minimum down-payments for second homes.

A top government economist said at the weekend that the scope for a rise was small because
economic growth likely peaked in the first quarter and rates in the United States and other
countries remained relatively low.

Source: Adapted from Heraldsun.com.au, 4 Jun 2010
Questions:
(a) i) Compare the trend in Chinese headline exports-to-GDP ratio and the true
export ratio between 1980 and 2006.
[2]

ii) Explain the possible reasons for the above trend in a(i) [4]

(b) With reference to Extract 4 and Chart 3, to what extent was the Chinese
economy affected by the downturn in the American economy in 2008?

[6]
(c) Discuss the impact of the huge stimulus package on the Chinese economy.

[10]

(d) Comment on the effectiveness of the various economic measures mentioned
in the extracts that can be used by the Chinese government to prevent the
economy from overheating.
[8]

Total: 30m

------------ End of paper ------------
VICTORIA JUNIOR COLLEGE
2010 JC2 PRELIMINARY EXAMINATION
H2 ECONOMICS PAPER NO. 9732/02

3 September 2010 2:30 4:45 pm


Write your name and class on all the work that you hand in.
You may use a soft pencil for diagrams.
Do not use staples, paper clips, glue or correction fluid on the work that you hand in.


The number of marks is given in [ ] at the end of each question or part question.
Start each answer on a fresh sheet of writing paper.
At the end of the examination, fasten your work securely, by question, using the strings
provided.

____________________________________________________________________
1
Section A

1. Using appropriate examples, discuss the extent to which elasticity concepts
impact the effectiveness of microeconomic and macroeconomic policies of
different governments.

[25]

2. In Singapore, the healthcare industry has been expanding over the past decade.
The emergence of large medical groups, such as Healthway Medical
Corporation offering a wide range of services in family medicine, specialist care
and dental care, has threatened the survival of small neighbourhood clinics
providing just basic healthcare services, some of which have already been
forced to close down.

a) Explain the possible reasons for the expansion of the healthcare industry
over the past decade.

b) To what extent will the growth of large medical groups such as Healthway
Medical Corporation drive out small neighbourhood clinics?

[10]

[15]
3. Singaporean households across all income groups earned more money last
year, said the Department of Statistics. In fact, its findings showed the average
monthly household income rose by over 9 percent, the fastest rate of growth in
10 years. But the income gap between the rich and poor has also widened.

Channel News Asia 13 Feb 2008

a) Examine the main sources of income inequality in Singapore.

b) Evaluate the policies currently used by the Singapore government to address
the issue of income inequality.

[10]

[15]

2
3
Section B

4. The Singapore economy is expected to grow by 4-6 percent for the whole of
2008. Annual inflation hit a 25 year high of 6.6 percent as the local currency
weakened and global oil price reached US$147 a barrel, the highest ever
recorded. Unemployment rate rose to 3.4 percent.

Adapted from Channel News Asia, Oct 2008

a) Explain the possible causes of Singapores high inflation rate.

b) To what extent is curbing inflation more important than reducing
unemployment in Singapore?

[10]

[15]
5. In the face of the worst global economic recession since the 1960s, Singapore's
export-dependent economy is projected to register a 5% GDP decline in 2009.

The Economist, 23 Jan 2009

Discuss the possible impact of the global economic recession on a small and
open economy such as Singapore and whether fiscal policy is the best way to
reduce the harmful effects of this impact.

[25]

6. Despite the many risks of economic globalisation, most countries have been
choosing to globalise their economies to a greater extent. This has resulted in
significant changes in the patterns of international trade.

a) Account for the possible changes in a countrys trade pattern.

b) Discuss whether countries should globalise their economies despite the
many risks of economic globalisation.

[10]

[15]
-------- End of paper ----------

1
YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE

YISHUN JUNIOR COLLEGE


TIME: 2 hours 15mins



Write your name and CTG on all the work you hand in.
Do not use highlighters or correction fluid.


The number of marks is given in brackets [ ] at the end of each question or part
question.

This paper consists of 8 printed pages

2

Question 1 Mobile Revolution

Extract 1: Mobile marvels

My mobile phone has been my livelihood, says Mary Wokhwale. In 2003 Ms
Wokhwale was one of the first 15 women in Uganda to become village phone
operators. Ms Wokhwale prospered because being able to make and receive
phone calls is so important to people that even the very poor are prepared to pay
for it, especially in places with bad roads, unreliable postal services, few trains
and parlous landlines. Small entrepreneurs and business owners in many
developing countries are using mobiles to increase their earning power.

In recent years, with developed markets becoming saturated, mobile phone
operators are looking to the developing world. As developing-world incomes rise,
household spending on mobile phones grows faster than spending on energy,
water or indeed anything else.

The introduction of prepaid billing systems, which allow people to load up their
phones with calling credit and then talk until the credit runs out, is gaining
popularity amongst the rural population in the developing countries. Such
prepaid billing saves operators sending out bills and chasing up debts.

Adapted from The Economist: A Special Report on Telecoms in Emerging Markets
(24
th
Sep 2009)

Extract 2: The mother of invention

Operating mobile services profitably in a developing country presents a greater
challenge than in the developed world. Unlike mobile subscribers in Europe who
spend about $36 a month, a figure known in the industry as the average revenue
per user (ARPU), subscribers in China, India and some African countries spend
much less. ARPUs across the developing world are falling.

Operators in developing countries have to explore strategies to help them remain
profitable in the business.

In India, Bharti Airtel, the biggest mobile operator, has outsourced all its
information-technology (IT) operations to IBM; the running of its mobile network
is handled by Ericsson and Nokia Siemens Networks (NSN); and customer care
is outsourced to IBM and a group of Indian firms. Infrastructure-sharing is also
widely practised. Several operators share the metal towers on which network
antennae are mounted and which house their associated equipment, generators
and so forth. In 2007 three Indian operators, Bharti, Vodafone Essar and Idea
Cellular, pooled 100,000 of their towers in a single company, Indus Towers.

3

African operators have devised innovations of their own, such as dynamic
tariffing, pioneered by MTN Uganda. This involves adjusting the price of calls
every hour, depending on the level of usage. With discounts, this generates calls
when the network would otherwise be little used. Vodacom has introduced a
similar scheme in Tanzania. Call volumes increased by 20-30% in areas where
dynamic tariffing is switched on.

An option being explored is the merger being negotiated between Bharti and
MTN. The deal is driven by Bhartis and MTNs desire for long-term growth
potential outside their existing markets. But it could promote greater use of
network outsourcing in Africa, and new techniques such as dynamic tariffing in
India.

Adapted from The Economist: A Special Report on Telecoms in Emerging Markets (24
th

Sep 2009)

Extract 3: Mobile market in Singapore
Singapore's three mobile players have recorded fourth quarter net additions
figures closer together than ever, with Singtel, M1 and Starhub taking 29.6%,
39.5% and 30.9% of the new customers, respectively, between September and
December. M1, now Singapore's smallest operator, recorded the highest number
of net additions in the market, as a result of reducing overall churn* to a low for
the year of 1.3% per month.
The performance ends many quarters of net additions dominance by Starhub,
which pushed M1 from second to third position in the market at the beginning of
2005.
* Churn rate, when applied to a customer base, refers to the proportion of contractual
customers or subscribers who leave a supplier during a given time period.
Adapted from Mobile World Briefing (20
th
February 2007)

Extract 4: Full Mobile Number Portability
Come 13 J une, Singapores mobile subscribers will enjoy Full Mobile Number
Portability, which will allow anyone who wishes to keep their current number
when they switch mobile operator, to do so by the next working day.
The long-awaited move is expected to intensify competition amongst telcos. IDA
Deputy Chief Executive and Director-General (Telecoms) Leong Keng Thai said:
Full Mobile Number Portability is expected to bring about a sea-change in
Singapores mobile market. Consumers will be spared from the hassle of
updating their contacts about a new number, giving them greater flexibility to

4
choose from the offerings from mobile operators. This in turn intensifies
competition and pushes the operators to work harder to attract new customers
and retain their existing customers. We expect consumers to be the biggest
winners.
Full Mobile Number Portability is also expected to open the doors to new
business opportunities for non-traditional telecommunication service providers
like wireless broadband providers and Voice-Over-Internet Protocol (VoIP)
providers. Its centralised database infrastructure will be well-placed to facilitate
the entry of new players and evolution of new capabilities and services.
All three local carriers M1, SingTel Mobile and StarHub - have already kicked
off their promotional drives, ahead of today's announcement. M1 launched a
series of bundled subscription plans two months ago, while StarHub held a
marketing event last night aimed at attracting new subscribers. A spokesperson
from SingTel said the carrier launched a sale yesterday that will stretch over the
weekend.
However, analyst Nathan Burley cautioned Singapore operators not to overdo
their marketing drives or risk hurting their margins. In markets where operators
have opted for price wars and aggressive strategies prior to the arrival of number
portability, the results have been much more damaging.
Instead, the analyst urged operators to "refine strategies" via customer service
and investment in IT tools such as CRM (customer relationship management)
systems to reduce churn.
Currently, Singapores mobile subscription stands at more than 5.8 million. More
than nine in 10 Singaporeans already own mobile phones, making it difficult for
players to increase subscribers.
Source: Infocomm Development Authority of Singapore (IDA) website (16 April 2008)

5
Figure 1 Figure 2

Questions

(a) (i) Compare the change in mobile phone subscriptions in
developing countries with that of developed countries between
2000 and 2008.

[2]
(ii) Using demand and supply analysis, account for the change in
mobile phone subscriptions in developing countries in recent
years.

[5]
(b) (i) Comment on whether the policy of dynamic tariffing as
practised by MTN Uganda is a form of price discrimination.

[5]
(ii) With reference to the information provided, analyse the
strategies adopted by mobile service operators in developing
countries to run mobile phone networks profitably.
[8]

(c) With reference to the data provided and your own economic
knowledge, discuss the impact of the implementation of full mobile
number portability on Singapore.
[10]

[Total: 30]

6

Question 2 China US Trade Issues

Table 1: US trade with China (US$ million)

2005 2006 2007 2008
Exports 41,192 53,673 62,936 69,732
Imports 243,470 287,774 321,442 337,722
Balance -202,278 -234,101 -258506 -268,039

Table 2: US trade with the world (US$ million)

2005 2006 2007 2008
Exports 1,281,186 1,452,783 1,648,665 1,839,012
Imports 1,995,362 2,212,023 2,350,763 2,537,814
Balance -714,176 -759,240 -702,099 -698,802

Source: US Census Bureau / Foreign Trade Statistics

Table 3: China: Selected Economic Indicators 2000-2008

2000 2001 2002 2003 2004 2005 2006 2007 2008
GDP at
constant
prices
(Annual %
change)

8.4

8.3

9.1

10.0

10.1

10.4

11.6

13.0

9.0
Current
Account
Balance
(US$ billion)

20.5

17.4

35.4

45.9

68.7

160.8

253.3

371.8

426.1
Domestic
Currency per
US$

8.28

8.28

8.28

8.28

8.28

8.19

7.97

7.61

6.84

Source: IMF: World Economic Outlook Database 2009

Table 4: Chinas Foreign Exchange Reserves (US$ billion)

2000 2001 2002 2003 2004 2005 2006 2007 2008
165.6 212.2 286.4 403.3 609.9 818.9 1066.3 1528.2 1946.0

Source: State Administration of Foreign Exchange of the Peoples Republic of China

7

Extract 1: Chinas Economic Conditions

Trade and foreign investment flows have been major factors in Chinas booming
economy. In 2008, China was the worlds second largest merchandise exporter
and third largest importer. Over half of Chinas trade is conducted by foreign-
invested firms in China. In 2008, foreign direct investment (FDI) in China totaled
$92 billion, making it the destination for FDI among developing economies. The
combination of large trade surpluses, FDI flows, and large-scale purchases of
foreign currency (especially dollars) has helped make China the worlds largest
holder of foreign exchange reserves at $2.3 trillion.

The global economic crisis began to impact Chinas economy in late 2008. After
growing by 13% in 2007, Chinas real GDP growth slowed to 9.0% in 2008 and to
7.1% in the first half of 2009 (year-on-year basis). Chinas trade and inflows of
FDI diminished sharply, and millions of workers reportedly lost their jobs. Chinas
exports to the United States collapsed by more than half between September
2008 and February 2009. The slump in American consumer spending may be
causing as much pain for some Chinese exporters as it is for American
businesses.

But hard times are forcing American firms to look harder for savings, and many
are finding these in China. American firms, to stay competitive, need to buy
things from China. For American firms setting up in China, the chief attraction
these days is not just its cheap labour but its increasingly affluent consumers. In
a recent survey of American firms in China by the American Chamber of
Commerce there, 63% said they were there to sell to locals, whereas only 9%
said they were there to sell things back to America.

The Chinese government has sought to boost the economy by implementing a
$586 billion economic stimulus package (largely aimed at infrastructure projects),
establishing easy money policies to boost banking lending, and providing
assistance to various industries. Such policies have helped stabilize Chinas
economy; real GDP is expected to grow by over 8% in 2009far higher than the
expected growth of any other major economy.

Source:
Adapted from Wayne M. Morrison, Chinas Economic Conditions, Congressional
Research Service, 11 December 2009, and The Economist, 28 May 2009

Extract 2: Fare Well, free trade

Countries that have relied on exports to drive growth, from China to Germany,
will slump unless they can boost domestic demand quickly. There is a risk that in
their discomfort, governments turn to protectionism.

8
In the US there are complaints that Chinese manufacturers enjoy an unfair
advantage arising from the alleged undervaluation of the Chinese currency.
Some politicians are calling for heavy tariffs on Chinas exports to the US. In
September the White House announced it would boost tariffs on Chinese-made
tyres at least 25% for three years, in response to complaints by organized labor
about a tripling of Chinese-made imports over the last half-decade. The Chinese
have threatened to retaliate by cutting imports of U.S. auto parts and chicken
wings.
Among the losers in the spat are two Ohio-based manufacturers, Goodyear Tyre
& Rubber Co. and Cooper Tyre & Rubber Co., which have factories in China and
sell imports in the U.S. market.
Also suffering are U.S. tyre importers and, of course, U.S. consumers -- who can
often save a lot by buying the cheaper Chinese-made product.
Source: Los Angeles Times, 16 November 2009

Questions

(a) (i) Compare US trade balances with China and with the world for
the period 2005 to 2008.

[2]

(ii) How does the value of the Chinese currency in 2008 compare to
its value in 2000?

[1]

(iii) Based on the data on US trade, what evidence is there to
suggest that a revaluation of the Chinese currency against the
US dollar may not correct US trade imbalance?

[3]

(b) Explain how the trend in Chinas foreign reserves is affected by the
changes in the indicators as shown in Table 3.

[4]

(c) Discuss whether the US governments decision to boost tariffs on
Chinese-made tyres can be justified in terms of economic theory.

[8]

(d) (i) Explain the relationship between Chinas current account
balance and its economic growth rate as observed in Table 3.

[4]
(ii) With reference to the data where appropriate, assess whether
the increase in Chinas GDP is primarily due to its rising exports
to the rest of the world.

[8]

[30 marks]

1

YISHUN JUNIOR COLLEGE

PAPER 2: Essay Questions 19 August 2010
TIME: 2 hours 15 mins
Additional Materials : Answer Paper

Write your name and CTG on all the work you hand in.
Do not use highlighters or correction fluid.


The number of marks is given in brackets [ ] at the end of each question or part
question.

This paper consists of 3 printed pages
2
SECTION A
One or t wo of your three chosen questions must be from this section.

1. The recent recovery in the world economies and the deregulation of airline
markets have affected the demand for and the supply of air travel and
airplanes.

Discuss how the markets for air travel and airplanes are affected by these
events. [25]

2. (a) With the use of appropriate examples, explain why some industries
are dominated by a few large firms. [10]
(b) Discuss whether the profit maximising motive will always affect these
firms pricing and output decisions. [15]

3. (a) Explain why governments throughout the world have been involved
in the supply of electricity. [10]
(b) Discuss whether economic efficiency is likely to be improved by the
provision of such a product by a private company. [15]

SECTION B

4. (a) Explain the measures governments can implement to increase the
level of foreign direct investment in the country. [10]
(b) Do you agree that an increase in foreign direct investment will
increase the welfare of the country. [15]

3
5. Asias export-dependent economies have pledged more than US$680
billion in extra public spending over the next five years as demand for their
products diminishes amid the recession in the US, J apan and Europe.
(a) Explain how an increase in public spending can be used to close a
recessionary gap in a country. [10]
(b) Discuss whether the extra public spending is the best approach for
Asias export-dependent economies to adopt in order to deal with the
recession. [15]

6. In October 2007, Singapores inflation hit a 16-year high, due mainly to
rising prices for energy, food and commodities. The Monetary Authority of
Singapore said its policy of a modest and gradual rise in the Singapore
dollar was appropriate.
Adapted from Reuters, CNBC 23 November 2007
(a) Explain how and why Singapore uses exchange rates rather than
interest rates to control inflation. [10]
(b) Discuss whether a surge in inflation is more likely to affect the
domestic or external sectors of the Singapore economy. [15]

H2Economics 2010 JC Prelims

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