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ECONOMICS Higher 2
Paper 1

9732/01

2007 JC 2 PRELIMINARY EXAM 2 hours 15 minutes


Additional materials: Answer Booklet/Paper READ THESE INSTRUCTIONS FIRST 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. 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. At the end of the examination, fasten all your work securely together. The number of marks is given in brackets [ ] the end of each question or part question. 14 September 2007

This document consists of 8 printed pages [Turn Over

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Answer all questions. Question 1 The Supermarkets War in UK

Extract 1: Sainsbury catching up Last week Tesco and Asda kicked off a fresh price war and Wm Morrison followed suit this week by announcing price cuts on 2,000 products. Sainsbury's has cut prices on 4,500 products since April. Lower costs, perhaps through experience of being in the market for some time, and the exploitation of economies of scale, may enable existing food retailers to cut prices and win price wars. Last night Sainsbury suggested it was not keen to get drawn into a full scale price war. A spokesman said: "Ensuring we remain competitive on price is fundamental to making sure our brand appeals to the widest range of people but what makes Sainsbury's different for our customers is our quality. In April, Sir Terry Leahy, chief executive of Tesco, said shoppers' increasing awareness of healthy eating, sustainability and higher quality food had prompted a sea of change for supermarkets: "The long-term trend of declining spending on food has stopped." He pointed to the fact that sales of organics had now reached almost 1bn a year. The biggest grocer has also embarked on a high profile campaign to improve its green credentials. Leahy added that there are four main benefits which Tesco have brought: food affordability, greater choice, high standards of food safety and convenience. Tesco has gained effective monopoly in a number of communities, and it is opening small convenience stores at the rate of two a week. It also has by far the largest land bank in the industry. Sainsbury's chief executive, said he was "intentionally" trying to outpace Tesco, the market leader, in the areas of healthy eating and the environment, which have become the latest battleground in supermarkets' fight for customers' loyalty. Sainsbury will double the number of products that carry its traffic light food labelling system. With traffic light colours, customers can see at a glance if the food they are looking at has high,(RED) medium (AMBER) or low (GREEN) amounts of fat, saturated fat, sugars and salt. It will also remove all hydrogenated fat from its own-brand products over the same period. The retailer's move to use biodegradable "compostable" packaging, announced last week, could be extended to 20 per cent of its products.
Source: The Guardian, Thursday June 21, 2007

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Extract 2: Tesco's dominance prompts concern Regulators have expressed concern that Tesco's position as the UK's dominant supermarket chain could thwart competition in the future. With a current market share of 31%, Tesco has provoked particular concern among critics. Earlier this year the retailer posted profits of 2bn. The Competition Commission, which published its initial findings of a study of the grocery market this morning, said: "We are concerned with whether Tesco, or any other supermarket, can get into such a strong position, either nationally or locally, that no other retailer can compete." Led by Competition Commission chairman Peter Freeman, the report found that many suppliers felt they were operating in a "climate of fear" because of the power wielded by the chains. Farmers, and particularly dairy farmers, were singled out as some of the biggest losers from the retailers' strength. Increases in the price of milk have not been passed down the supply chain and a number of producers have been forced out of business, the report said. In its response to today's report, Tesco chief executive Sir Terry Leahy complained that "consumers barely get a mention in today's report and I urge the Commission to ensure that they are top of the list for the remainder of the inquiry". Tesco, which takes 1 in every 8 spent in the high street, pointed out the benefits its size brings to consumers. Sir Terry Leahy said: "All of the evidence suggests that customers are very satisfied with the choice available to them and new stores continue to open all the time." Although running a public company is primarily about making money for shareholders and satisfying customers, which Tesco has done in spades, Leahy argues that the company's success has had a wider impact, helping to alleviate poverty and improve health and social conditions in deprived areas of Britain. The investigation is also looking at the expansion of Asda, Sainsbury's and Morrisons. If it believes there is a problem, the commission has the power to impose restrictions on all four supermarkets, and could force them to sell land they have earmarked for new stores. According to the Association of Convenience Stores, in the last 12 months, 2000 independent convenience stores closed down as supermarkets moved in. This is of particular interest as Britons spent half of their shopping bill in supermarkets.
Source: adapted from BBC News, 24/01/2007

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Chart 1: Market shares of UK grocery retailers

Others 25%

Tesco 31%

Morrisons 11% Asda 17%

Sainsbury 16%

Source: TNS WorldPanel, UK, June 2007 Table 1 Sainsbury company operations Sales ( including value added tax) Profit before tax Profit after tax 2006 2005 17 317 m 16 364 m 104 m 238 m 58 m 187 m Source: Annual Review 2006

(a)

Using demand and supply analysis, explain why Tescos market share has expanded over the years. Comment on the strategies used by the supermarkets to compete in the industry. Sainsbury's chief executive, said he was "intentionally" trying to outpace Tesco, the market leader, in the areas of healthy eating and the environment. Comment on the impact of Sainsbury strategy on its profit.

[4] [5]

(b)

(c)

[5] [8] [8]

(d) (e)

Is the supermarket industry economically efficient? Justify your answer. Discuss whether the Competition Commission's concern that 'Tesco, or any other supermarket, can get into such a strong position, either nationally or locally, that no other retailer can compete' is justified.

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Question 2 Ageing Population

Extract 1 Japan: A country in crisis?


Japan is ageing inexorably. Its population peaked last year just short of 130 million. It has just passed Italy to become the country with the highest proportion of over-65s anywhere and the lowest ratio of children under 15. If the more extreme projections are to be believed, by the turn of the next century, there could be fewer than 50 million Japanese. The country faces a decline in its population on a scale unprecedented in the developed world. While Japanese are living longer, its women are producing too few children. The gravity of the situation became apparent this spring, when official figures for 2005 showed another fall in the average number of children a Japanese woman bears in her lifetime from 1.29 in 2004 to 1.25 last year - the fifth straight year of decline. Whole areas of government and business are slowly coming around to the reality of an ageing population - and the financial sector senses opportunity along with risk. Dormant for the past decade, Japan's economy is awakening. And who is driving the tentative recovery but Japan's flourishing band of pensioners. Tetsuro Sugiura, chief economist at the Mizuho research institute in Tokyo, describes it as the "grey boom". It used to be, he said, that the elderly were anxious about the future and saved even into their dotage. This is no longer true. Japan's pensioners are spend, spend, spending. They are buying luxury goods, travelling, and indulging their taste for expensive foods. One of Japan's most innovative financiers, Yoshitaka Kitao said that Japan's low birth rate will mean a slow growth rate and continuing ultra-low interest rates. He believes that those with savings will look beyond conventional deposit accounts to increase their returns. He sees the future in share-owning and e-trading for small investors. The skill will be to make such financial instruments attractive and accessible to this generation. It is inevitably the state pension system that will be the first to feel the negative effects of the declining population. Prudently, the government of Junichiro Koizumi introduced a pension reform two years ago, with later retirement and higher contributions from employers, employees and the government. But the calculations, which derived from the most conservative demographic projections available, were not conservative enough. Unless the birth-rate rises - which looks unlikely - either pensions will have to fall, or a new round of reforms will be needed. The more immediate worry, though, is not the pension system but economic growth and employment. Businesses already face difficulties finding new recruits. The unemployment rate is below 4 per cent across much of Japan, and at its highest - on the island of Okinawa - is still less than 8 per cent. It has plunged since the recession ended two years ago, even though some companies are still slimming down. Younger workers are already at a premium, and things will only become more difficult from now on. The labour force in the 15-24 age bracket, which stood at more than 8 million in 1990, will have shrunk to 5.3 million by 2015. Search and recruitment agencies are growth businesses in Japan these days. One solution is for manufacturers to set up affiliates in China, but the results have often been disappointing. It's no good, one analyst said, staffing a factory with Chinese workers at one-tenth of the cost of Japanese, if the end product is substandard.Migrant labour is
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another option. While the assumption abroad has been that Japan is culturally ill-disposed to migration, resistance is shrinking. There are in fact two million foreigners living in Japan. Software engineers have been recruited in India, and Japanese companies have set up training schools in Beijing and Ulan Bator (Mongolia) as a prelude to bringing the graduates as staff to Japan. And while some employers fear the intrusion of new ideas and practices into Japan's hierarchical working ways, others welcome the foreigners - often other Asians as not only eager and hard-working, but bearers of a more mobile and energetic work culture. Japan, it seems, is not as immune to globalising tendencies as many assumed. There is another - more obvious and perhaps less controversial - remedy: encouraging men to work post-retirement and mobilising the supposedly under-used resource that is Japanese women. Source: Independent Online Edition, 26 August 2006

Extract 2 The Challenge of the Widening Income Gap The disparity in household income had widened in 2000, reflecting the faster income growth for the higher-income households. Although our economy is growing well, incomes are only increasing slowly at the lower end, or not at all, and income gaps are widening. This is a problem for those at the bottom, but it is also a problem for the rest of society if those at the bottom feel left out. The solution is not to grow more slowly, or to focus less on growth and more on redistribution although some people think we should do that. If we do that, it will only hurt the people we are trying to help. Slow growth will make everybody worse off, but it will have the greatest impact on those at the bottom. Jobs will be lost and incomes will fall through the floor for those at the lower end of the workforce, while at the top end, talented Singaporeans and those with the ability to seize opportunities elsewhere will up and go. Slow growth will not assure us of a more equal society, as long as we live in a globalised world. To facilitate the hiring of older low-wage workers, the employers CPF contribution rate will remain at 13% or be reduced for employees aged 35 and above who are earning $1,200 or less. To make up for the reductions in the CPF contributions, the government will give topups to these workers under the new Workfare Income Supplement Scheme (WIS). The tripartite Committee on Employability of Older Workers is also considering a re-employment law under which workers can continue to work even after retirement.
Source: The Budget Speech 2007

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7 Table 1:
Types of Taxes Chargea ble Income ($) 20 000 10 000 30 000 10 000 40 000 40 000 80 000 80 000 160 000 160 000 320 000 320 000 2003

Tax Rates in Singapore from 2003 2007


Tax Rates (%) 2004 2005 2006 2007

Year On the first On the next On the first On the next On the first On the next On the first On the next On the first On the next On the first Above Personal Income Tax

0 4 6 9 15 19 22 22 4

0 4 6 9 15 19 22 22 4

0 4 6 9 15 19 22 20 5

0 3.75 5.75 8.75 14.5 18 21 20 5

0 3.50 5.50 8.50 14 17 20 20 7 Source: http://mytax.iras.gov.sg

Corporate Tax Goods and Services Tax

Table 2:

Gini coefficient in Singapore 2000 2005

Source: Key findings of general household survey

9732/01/JC2 PRELIM EXAM /MJC/2007

(a)

Compare the trend of direct taxes and indirect taxes from the period of 2003-2007. Account for the trends. Explain why Japans population is ageing so rapidly. Assess the impact of ageing population on the labour market. Discuss how an ageing population would affect economic growth . With reference to the data where relevant, discuss the ability of the Singapore government in achieving a more equal income distribution.

[4] [4] [6] [8] [8]

(b) (c) (d) (e)

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END OF PAPER

MERIDIAN JUNIOR COLLEGE JC2 PRELIMINARY EXAM 2007

9732/01

COVER SHEET
ECONOMICS HIGHER 2 CASE STUDY Q1
Name : ______________________ Register Number : _____________ Civics Group: _______________ Economics Tutor : ___________

September 2007
READ THESE INSTRUCTIONS FIRST 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 Case Study Question 1 with the string provided before submission.

QUESTIONS ATTEMPTED 1a 1b 1c 1d 1e TOTAL

MARKS

9732/01/JC2 PRELIM EXAM /MJC/2007

10

MERIDIAN JUNIOR COLLEGE JC2 PRELIMINARY EXAM 2007

9732/01
COVER SHEET
ECONOMICS HIGHER 2 CASE STUDY Q2
Name : ______________________ Register Number : _____________ Civics Group: _______________ Economics Tutor : ___________

September 2007
READ THESE INSTRUCTIONS FIRST 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 case study Question 2 with the string provided before submission.

QUESTIONS ATTEMPTED 2a 2b 2c 2d 2e TOTAL

MARKS

9732/01/JC2 PRELIM EXAM /MJC/2007

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