MJC_2008 Prelim_H2 Qn Paper 1

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 [ ] at the end of each question or part question. [Turn Over] JC 2 PRELIMINARY EXAM 2008 9732/01 ECONOMICS HIGHER 2 12 September 2008 Paper 1 2 hours 15 minutes This document consists of 8 printed pages

Answer all questions. Question 1 The Airline Industry Extract 1: UK takes to the air Air travel in and around the United Kingdom (UK) has grown by over 60% since 1995. This is largely due to the ways in which low-cost airlines such as Ryanair and EasyJet have introduced new affordable services within the UK. In the main, they use airports that are not widely favoured by more established airlines, such as British Airways (BA). The overall demand for air travel is highly price elastic. The low-cost airlines are not only cheaper than their more established competitors, but also cheaper than the monopoly operator of rail services for the route between London and Edinburgh. Source: Economic Review, Feb 2005 Extract 2: Difficult Times for Industry - But Travel Set to Pick Up The last few years have been difficult for the aviation industry. September 11 was the most severe crisis the industry has faced. Nearly all airlines were unable to cope with the increased cost of added security and higher insurance premiums. Last year, East Asia was hard hit by the SARS outbreak. The airline industry in East Asia lost money for six months because people were afraid of SARS and stopped travel to SARS-affected countries. Singapore Airlines (SIA) had to drastically cut back its flights, especially those to SARS-affected areas. To stop the bleeding, management cut their own and staff salaries, got pilots and cabin crew to take compulsory unpaid leave and so was able to reduce retrenchment to 2%. Nevertheless it suffered its first-ever quarterly loss in April/Jun 2003. For the whole of 2003, passenger traffic fell 14.9 per cent from the previous year. Governments in Asia are beginning to liberalise their air transport regimes. They have seen the potential spin-offs in trade, tourism and investment flows. As has happened in the US and Europe, the winners will be those countries in Asia whose governments liberally exchange traffic rights and expose their national airlines to m