SAJC 2023 JC2 H2 Econs Prelims P1 QP MS-XC

This document consists of 8 printed pages © SAJC 2023 ST ANDREWS JUNIOR COLLEGE Economics Department [Turn Over 9570/01/Aug/23 ECONOMICS 9570/01 Paper 1 28 August 2023 2 hours 30 minutes READ THESE INSTRUCTIONS FIRST Write your name 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 or graphs. Do not use staples, paper clips, highlighters, glue or correction fluid. DO NOT WRITE IN ANY OF THE MARGINS. An answer booklet will be provided with this question paper. You should follow the instructions on the front cover of the answer booklet. If you need additional answer paper, ask the invigilator for a continuation booklet. Answer all questions. The number of marks is given in brackets [ ] at the end of each question or part question. St Andrews Junior College JC2 Preliminary Examinations for General Certificate of Education Advanced Level Higher 2

2 © SAJC 2023 9570/01/Aug/23 Answer all questions. Question 1: Taking to the Skies Again Table 1: International tourist arrivals by region (in millions) 2019 2020 2021 2022 World 1,466 409 455 917 Europe 745 242 305 585 Asia Pacific 360 59 25 84 Source: Statista Research Department, Feb 2023 Extract 1: Continued upward trajectory for tourism with Europe leading the way An estimated 700 million tourists travelled internationally between January and September, more than double the number recorded for the same period in 2021. This equates to 63% of 2019 levels and puts the sector on course to reach 65% of its pre- pandemic levels this year, in line with United Nations World Tourism Organisation (UNWTO) scenarios. Results were boosted by strong pent -up demand, improved confidence levels and the lifting of restrictions in an increasing number of destinations. Europe continues to lead the rebound of international tourism . The region welcomed 477 million international arrivals in January-September 2022, more than double that of 2021 with results boosted by strong intra-regional demand and travel from the United States. In Asia and the Pacific , arrivals more than tripled in the first nine months of 2022, reflecting the opening of many destinations, including Japan, a popular tourist destination. However, arrivals in Asia and the Pacific remained 83% below 2019 levels as the Chinese are still unable to travel due to government restrictions. Adapted from UNWTO, Nov 2022 Extract 2: Competition for control of the skies Air Traffic Management ( ATM) services such as flight radar information to pilots and co-ordination of take-offs and landing to prevent collisions using complex monitoring systems have traditionally been provided by national monopolies, partly because of the high infrastructure costs and essential natu re of its services. However, this has also brought about inefficiencies in the market. While a single ATM agency could leverage on economies of scale, others believe that opening the market to competition would lead to greater efficiencies. One recommendation was for these ATM providers to compete on a per -flight or per- airline basis, instead of regionally. Such a model means that ATM providers have to tender for the right to manage each flight. This would compel ATM providers to offer cheaper and better s ervices, employing the latest technologies and best practices in the industry. However, airports are concerned over how the use of different systems and procedures may prove confusing to the airlines and that the lack of scale may result in higher costs for airlines, which get passed on to passengers. Adapted from Cordis Europa, Aug 2022

3 © SAJC 2023 9570/01/Aug/23 Extract 3: Can COMAC compete with Airbus and Boeing? China’s home-grown passenger jet, the C919, could break the duopoly of Boeing and Airbus in the domestic market and beyond despite its reliance on foreign parts. China Eastern Airlines ordered four of the aircraft in May at a cost of US$99 million each, about 20% less than what an Airbus A320 or Boeing 737 would cost. The first aircraft was delivered in early 2023, after more than 14 years of development. COMAC, the producer of C919 aircraft, has said it plans to deliver the rest of the orders within the next two years. By late 2022, COMAC had received 305 orders for the C919 in China, while Boeing had only received 116 for its 737 series. Airbus led the pack with 565 orders for its A320 in China, suggesting the duopoly is becoming a triopoly to the detriment of Boeing, according to a report from the Mercator Institute for China Studies (Merics), a Berlin-based think tank. The size of China’s aviation market, strong industrial policy and a sector dominated by state-owned companies give the C919 an edge to advance the country’s “strategic objectives” in aviation, Merics said. China has strong ambition in the commercial aviation market and the central government has laid out plans for the C919 to gain 10 per cent domestic market share by 2025. Boeing’s China business, meanwhile, has been entangled in souring relations between Beijing and Washington. Its 737 MAX was grounded in China for more than four years following two fatal crashes in Indonesia and Ethiopia, before returning to service in January. But because China’s airlines are accustomed to operating Western passenger jets, the move to include C919 in their fleet is going to be gradual, Merics added. This is because pilots and ground crew need to be trained to operate and service this new aircraft. In the meantime, flying the C919 may mean higher costs and lower margins for airlines due to the lack of suitable manpower and parts to support the aircraft. This slow uptake is reflected in the orders placed by China’s three big state-owned airlines – China Southern, Air China, China Eastern – a combined 294 orders for Airbus’ A320 and Boeing’s 737, but only 20 each for the C919. China has high hopes that the C919 will reduce dependence on foreign technology as ties with Western countries deteriorate. However, most parts used for the C919 are currently imported from foreign manufacturers, including the engine, avionics, control systems, communications and landing gear. COMAC has been working to replace some of the foreign parts, including an alternative for its engine. Aviation is among the sectors in advanced technology negati vely affected by deteriorating China -US relations. Several subsidiaries of the Aviation Industry Corporation of China, which is a shareholder in COMAC, have been added to the US Commerce Department’s list of Chinese companies with alleged military ties. This would have impact on COMA C’s ability to get the parts it needs to keep up with the growing list of orders. Adapted from South China Morning Post, Feb 2023 [Turn Over

4 © SAJC 2023 9570/01/Aug/23 Questions (a) (i) Compare the trend in tourist arrivals for Europe and Asia Pacific from 2020-2022. [2] (ii) With reference to Extract 1, account for the general trend observed. [4] (b) (i) With reference to Extract 2 and the use of a diagram, explain why the market for air traffic management services fails. [4] (ii) Discuss whether introducing competition in the air traffic management (ATM) services market is the best way to deal with the market failure in that market. [8] (c) (i) Explain one barrier to entry into the airplane manufacturing industry. [2] (ii) Discuss the impact of the entry of COMAC on its competitors and airlines.