SAJC H2 ECONS P1 (Answers)

St. Andrew’s Junior College Economics Department JC 2 Preliminary Examinations (2014) Suggested Answers H2 Economics Paper 1 (Syllabus 9732)

Question 1 (a) (i) With reference to Table 1, compare the prices of Premium tickets to Fencing and Swimming events. [2] Similarity: The preliminary ticket prices were lower than the tickets for the finals.[1] Difference:  The ticket prices for Swimming event were higher than for Fencing [1]  The percentage difference between preliminary round and final round is higher for swimming than fencing. [1] {do not award marks if students merely state that the difference is greater for swimming compared to fencing, because this shows absolute and not relative comparison of prices} (ii) Explain two possible reasons to account for your observations in part (a)(i). [4] Justification for the similarity Similarity: Higher demand for tickets to finals as compared to the demand for the tickets to preliminary events. Reason: [Taste and Preferences] Spectators would prefer to attend and watch the final events as final events are usually more exciting and they would be able to witness their favourite idols winning the championship during the event. Or Similarity: Higher supply of tickets to preliminary events compared to the supply of tickets to Final events Reason: The number or preliminary events is greater than the final events of each sport. Justification for the difference Difference: Higher demand for tickets to Swimming events compared to the demand for tickets to Fencing events Evidence in Extract 1 “demand was greatest for ….as well as the popular sports of … swimming and artistic gymnastics” Reason: [Taste and Preferences] Due to the popularity of the swimming event, spectators would prefer to attend and watch swimming events. Or Difference: Lower supply of tickets to Swimming events compared to the supply of tickets to Fencing events Evidence in Extract 1 “costs of maintaining of these pools were rather high.” Reason: Due to higher cost of holding the Swimming event, supply of swimming tickets would be lower than that of the Fencing event. This lower supply would in turn result in higher ticket prices for Swimming event. This shows that LOCOG had passed on the high er cost in terms of higher prices to the consumers. Mark Scheme 2 marks – For any one well-explained factor for the similarity 2 marks – For any one well-explained factor for the difference

(b) With reference to Table 1, explain whether the differences in price charged for the same session of each sport event could be considered to be an example of price discrimination. [4] Yes [2 marks] 1. The cost of hosting the event (e.g. ushers, ticket managers) does not vary for different spectators. 2. There might also be no perceived difference as all spectators are entitled to view the same sporting event. Thus, it can be viewed as an act of third degree price discrimination. No [1 mark] There could be cost differences e.g. differences in quality of seats such as different materials, well-spaced out seats. Furthermore, consumers perceived the different categories of seats to be different example Premium seats offered better views of the games compared to Standard seats. Hence, in this case if there i s a difference in cost and perceived differences, then the possible reason for the higher price could be the higher cost involved. Conclusion [1 mark] The price differential could be considered to be an example of price discrimination depends on whether there is indeed cost differences and perceived/real differences. In this case , there is insufficient evidence to conclude due to lacking evidence on the nature of the seats. Mark scheme 1 mark: Stating of reasons for both sides 2 - 3 marks: Explanation of reason for both sides 1 mark: Conclusion No marks awarded for definition of price discrimination One-sided explanation: max. 2 marks (c) (i) What can you conclude from the information contained in Figure 1 about the impact of the 2012 London Olympic Games on London’s daily hotel occupancy rate? [2] During the Olympic period, there was a general increase in daily hotel occupancy rate compared to pre-Olympic period. [1] However, this increase was not sustained as the daily occupancy rate during the post-Olympic period was generally lower than pre -Olympic and Olympic period. [1] (ii) Using the data where appropriate, discuss the short term and long term impact of the London Olympics on a dominant hotelier in the oligopolistic luxury hotel industry in London. [8] Impact on profits in the SR TR increased  Due to increase in demand for luxury hotels The increase in DD is due to the 1. projected increase in visitors o Evidence: Extract 2, Para1 “  "international visitors are expected to spend a total of £709 million in the UK, an 18% increase on what would be expected if the Olympics Games were not taking place" 2. ability of luxury hotels (e.g. The Hempel hotel) to secure deals for

exclusive bookings. Only bigger firms within the oligopolisy industry would be able to enjoy such deals o Evidence: Extract 4, Para 2:  "The Hempel Hotel, had secured a booking for exclusiv e use of the hotel during the Game" TR might not increase in the SR  DD for luxury hotel might not increase The demand for luxury hotels might not increase because 1. the dominant luxury hotel (e.g. Intercontinental Hotel Group) might forgo potential demand and hence revenue due to sponsorship of the Games in exchange for certain privileges. o Evidence: Extract 2, para 5 “Intercontinental Hotel Group`s Holiday Inn brand has been signed up as main hotel sponsor and the official hotel services provider to London 2012 … the company will be able to use the 2012 logo in its advertising in exchange for help and accommodation for the athletes as well as for (LOCOG)” 2. the fall in DD for hotel rooms for events and weddings dampened the increase in DD due to the inc rease in international visitors who came to London for the Olympics. o Evidence: Extract 3, para 2 “Business had been good in terms of occupancy and average room rate, as was to be expected with the proximity to the Olympic Park, but the events and weddings bookings have disappeared” 3. there was lower travellers’ interest during the Games because of travel warnings to avoid the Olympics -sized hassles. Some large luxury hotels were located further away from the Olympic venues and might not be popular with the Olympic international visitors. o Evidence: Extract 3, para 2 “other luxury hoteliers suffered from lower travellers’ interest because of travel warnings to avoid the Olympics -sized hassles and not being so close to the capital” TC increased in the SR  construction of new hotels and refurbishment of rooms o Evidence: Extract 2, para 3 “Hoteliers have taken the view that if they have a good business case for building, operating or refurbishing in London” Assuming the increase in TR > than the increase in TC  profits increased in the SR. Overall increase in revenue might be small while potential revenue was forgone due to sponsorship of rooms and cost incurred for refurbishment. Hence, profits might not increase in the short run. Impact on profits in the LR TR increases in the LR  due to an increase in DD in the LR The demand for luxury hotels increased in the LR because 1. Publicity generated via sponsorship  DD increases  TR continue to increases in LR.

2. Backed by aggressive advertising, aided by availability of funds for dominant oligopolistic luxury hoteliers. o Evidence: Extract 2, para 5 “Intercontinental Hotel Group`s Holiday Inn brand has been signed up as main hotel sponsor and the official hotel services provider to London 2012 … the company will be able to use the 2012