CJC_2008 H2 Economics Prelim Paper 1

CJC Prelim 2008 CATHOLIC JUNIOR COLLEGE JC 2 PRELIMINARY EXAMINATIONS 2008 HIGHER 2 ECONOMICS 9732/01 Paper 1 9 th September 2008 2 hours 15 minutes DO NOT OPEN THIS BOOKLET UNTIL YOU ARE TOLD TO DO SO INSTRUCTIONS TO CANDIDATES 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. Answer all questions. Begin each question on a separate sheet of paper. Remember to write your name and class on every sheet of paper submitted. This question paper consists of 7 printed pages.

CJC Prelim 2008 2 Answer all questions. Question 1 The Illegal Drug Market Extract 1: The Drug Market in the USA In the United States, as in most other countries, markets for drugs are heavily regulated. Drugs intended for medicinal purposes must be approved by the Food and Drug Administration, and psychotropic drugs with questionable medical benefit are often banned. Drugs like methamphetamine, cocaine, heroin, marijuana and LSD are deemed by the government so dangerous to users and society that their possession, use or sale is a criminal offense. Making a product illegal does not eliminate the market for it. The Office of National Drug Control Policy estimates that Americans spent about $65 billion on illegal drugs in 2000, more than the amount spent on cigarettes. www.minneapolisfed.org Extract 2: The Cost of Cocaine in Europe and the USA Despite being much nearer to the main coca-producing countries in South America, the price paid by American consumers for a gram of cocaine, at $86.40, is pretty close to the $94 paid in Europe. Stricter anti-drug policing in America may be a factor in keeping the cost high. The margin between the wholesale and retail price in America is higher than that in Europe. www.economist.com, 14 July 2008 Table 1: Cocaine – Wholesale & Street prices Europe 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Retail Price (US$) 180 170 169 145 152 157 135 116 113 106 82 85 80 92 94 89 Wholesale Price (US$) 105 77 82 61 64 64 61 55 54 47 42 41 40 46 50 49 USA 1990 1991 1992 1993 1994 1995 1996 1997 1998 19 99 2000 2001 2002 2003 2004 2005 Retail Price (US$) 284 262 245 205 186 174 162 159 154 142 151 111 96 82 93 107 Wholesale Price (US$) 70 71 69 62 57 51 46 43 40 37 35 24 26 24 24 21 Source: World Drug Report 2007 Extract 3: The Social Herbicide – The Use of Subsidies to Reduce Supply of Coca The government of the United States has adopted policies aimed at decreasing the quantity of illegal drugs bought and sold in the United States with both programs that reduce supply and those that reduce demand. In 2000, the United States gave $1.3 billion in aid to finance Plan Colombia, (“Plan Colombia”) an operation that would seek to reduce the supply of cocaine a