2013_SRJC_H2_Econs_P1

© SRJC 9732/01/JC 2 Prelim Exam H2 Econs/2013/Suggested Answer Outline ECONOMICS 9732/01 Higher 2 Paper 1 Case Study Questions 2013 2 hours 15 minutes Additional Materials: Writing paper SERANGOON JUNIOR COLLEGE JC 2 Preliminary Examination READ THESE INSTRUCTIONS FIRST Write down your name and civics group 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. At the end of the examination, fasten all your work securely together. The number of marks is given in brackets [ ] at the end of each question or part question.

© SRJC 9732/01/JC 2 Prelim Exam/2013 2 Answer all questions. Question 1 Globalisation and inequity Extract 1: Car industry running harder Battered by the European sovereign debt crisis and recession in countries from Italy to Britain, car sales within the EU are on track fo r a fifth consecutive year of decline. The car industry was also affected by the rising cost of several important inputs such as steel and metals that have further narrowed the profit margins on car production. Excess capacity problems are rampant in Europe. According to AlixPartners, a business consulting firm, about 30 of the 98 assembly pl ants in Europe are operating below 70 per cent of capacity. Excess capacities force manufacturers to engage in price-cutting to protect their market shares, resulting in a vicious circle leading to even lower profits. The worst affected markets were France, Spain and Italy where almost 85% of the cars sold are small- and medium-sized cars which already have lower (profit) margins. The risk of excess capacity, and thus of fierce pr ice competition, is emerging at a time when carmakers are having to invest heavily in new technology. Fortunately they still have plenty of scope to cut costs by standardising both their “platforms” -- the underpinnings onto which the rest of the car is assembled -- and other components under the bonnet that drivers do not see. One reason why Volkswagen has done so well in recent years is that it has taken such standardisation further than most. This has allowed it to offer a broader range of vehicles across its many brands. AlixPartners predicts that most of the growth in car sales in the coming years will come from such “megaplatforms”, each of which will underpin more than one million cars of all sorts every year. Flexible production lines will be able to tu rn out cars to fit every niche in the market, enabling makers to offer buyers “mass customisation” of vehicles. Cars are becoming more like smartphones: expensive to develop and market, and with some pricey parts, but cheap to assemble in t