2022 JC2 H2 Prelims P1 QP

1 © ASRJC Economics Department 9757/01/JC2 Prelim /2022 [Turn Over ECONOMICS 9757/01 Paper 1 30 August 2022 Additional Materials: Answer Booklet 2 hours 15 mins READ THESE INSTRUCTIONS FIRST 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 booklet ask the invigilator for a continuation booklet. Please start your answer to each question on a fresh page of the answer booklet. Answer all questions. The number of marks is given in brackets [ ] at the end of each question or part question. This document consists of 8 printed pages. ANDERSON SERANGOON JUNIOR COLLEGE JC2 PRELIMINARY EXAMINATION Higher 2

2 © ASRJC Economics Department 9757/01/JC2 Prelim /2022 [Turn Over Answer all questions Question 1: Retail troubles Figure 1: Restaurant prices relative to retail prices in the United States, 1929 to 2014 Restaurant prices of food products relative to grocery retail prices, where grocery retail prices are equal to 100 (i.e. 150 would represent a 50% margin on retail prices). Source: https://ourworldindata.org Extract 1: Cost of government regulation will mean higher food prices for consumers The Food and Drink Federation (FDF) has today warned that consumers will inevitably face higher food and drink prices if manufacturers are forced to absorb the cost of proposed government policies during the next few years. The FDF has estimated that if the cost of forthcoming government policies were passed on directly to consumers, it would increase the price of food and drink per household. According to estimates, the government’s proposals could lead to an increase in food and drink spending of nearly 7%. The FDF calculates that the cost to the food and drink industry of proposed UK government policies around public health and sustainability is at least £8 billion. The FDF is calling on the government to reconsider these policies and their unintended consequences, as well as fundamental reforms to the UK’s regulatory architecture, in order to ensure future policy is effective and well-targeted. It also argues that in the long -term any additional costs will likely increase indebtedness, reduce competitiveness, and see investment decline, particularly at a time when businesses are seeking to recover from a difficult period of economic uncertainty. Source: Food and Drink Federation, 20 July 2021 Extract 2: Aldi may drop prices to compete with Tesco’s new budget venture Jack’s Low-cost supermarket chain Aldi "will never be beaten on price” and could even drop them in response to Tesco's new low-cost venture Jack's, it said today. UK and Ireland chief executive Giles Hurley said Aldi welcomes competition from new players such as Jack's, adding: "If we need to reduce retail prices we will." Aldi, he said, is not worried about its new competitor, as "imitation is the highest form of flattery" and "it has taken us 25 years to perfect our business model." Tesco boss Dave Lewis opened the first two Jack's stores in Chatteris, Cambridgeshire and Immingham, Lincolnshire, last month, with a focus on budget British produce. But its plan to open 10 t o 15 stores over the next six months, often next to existing

3 © ASRJC Economics Department 9757/01/JC2 Prelim /2022 [Turn Over Tesco stores, pales in comparison to Aldi's decision today to add 400 new stores by 2025, bringing its total to 1,200. "Customers will always pay the lowest price at Aldi," Hurley said, stressing a mix between quality and affordability. That expansion could grow even bigger, with Hurley admitting that Aldi may consider buying Asda or Sainsbury's stores, should the two be forced to divest in some areas following their planned merger. Aldi said it will hire 20,000 new members of staff to fuel its expansion, with 225 of its new stores set to open by 2022. Britain's fifth largest supermarket grew sales by 16.4% year-on-year to £10.2bn in the UK and Ireland last year, it revealed today, an increase from 13.5 per cent growth in 2016. This means Aldi is growing more than five times faster than the overall grocery market, the company said. It also attracted 1.1m new customers, and operating profit grew 26% to £266m. Source: CityA.M, August Graham, 01 October 2018 Extract 3: The retail’s evolution great acceleration If we’ve learned anything from previous recessions, it’s that they expose existing weaknesses, accelerate emerging trends, and force organi sations to make structural changes faster than they had planned. This is particularly true in retail. During the grea t recession of 2008–2009, e-commerce grew, and brick-and-mortar retail declined. As the economic recovery took hold, that trend continued while off-price, discount, and emerging players succeeded by appealing to new consumer demands. There has been an acc eleration of digital retail and online shopping. R etailers with strong platforms and sophisticated data analysis have succeeded in connecting with consumers and offering them additional services and value. Consumers are willing to embrace and explore new digital experiences due to public health concerns - telemedicine, online learning, virtual payments, and online grocery ordering and delivery. As the convenience of these experiences increases, we expect these trends to accelerate. What is clear: Retail or thodoxies will be challenged, and the industry will likely look much different than when we entered this crisis. For now, the picture may appear bleak. But retailers who grasp the challenge and join the gathering trends could well emerge stronger and provide a brighter future for employees, customers, and stakeholders alike. Source: Deloitte, accessed 10 August 2022 Extract 4: Government intervention in the retail sector The retail sector is of paramount importance across OECD countries. It operates as a gateway to consumers from upstream sectors, accounts for almost 5% of GDP, and employs about 1 in 12 workers. COVID -19 has dramatically disrupted the sector, with the shock differing massively between brick -and-mortar versus online shops, essential versu s non -essential stores, and small versus large retailers. Government subsidies to struggling firms may be particularly important in the current economic climate. Examples of these subsidies include wage subsidies to companies for part of the monthly wages paid to employees and rental subsidies and waivers. Such subsidies provide aid for struggling firms to reduce their costs in order to survive in the longer term a s well as to preserve jobs in the sector. Their survival and continued operations will also ensure that competition in the sector remains sufficient. But there are also significant risks to competition from this type of intervention. Recessions allow the economy to scale down or cease inefficient and wasteful activities and allow

4 © ASRJC Economics Department 9757/01/JC2 Prelim /2022 [Turn Over resources and skills to be redirected to other activities that have greater potential for growth . By not allowing this process to take place, Government may be rewarding inefficient firms and dampening competition. Financially sound firms are not rewarded for their efficiency and are likely to perform worse than if the failing firms were allowed to exit the market. Unsubsidi sed market participants will find it hard to compete with the inefficiently low prices supported by a subsidy. Source: OECD 16 June 2020 and Office of Fair Trading, accessed 13 August 2022 Questions (a) With reference to Figure 1: (i) Compare restaurant prices relative to grocery retail prices in the United