JJC H2 Prelims P1 Qus

JURONG JUNIOR COLLEGE PRELIMINARY EXAMINATION 2008 ECONOMICS 9732/01 Higher 2 13 August 2008 Paper 1 2 hours 15 minutes Additional Material: Writing Paper / Cover Page READ THESE INSTRUCTIONS FIRST Write your name and class 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 or glue. Answer all questions. At the end of the test, place the cover page on top of your answer scripts and fasten all your work securely together. The number of marks is given in brackets [ ] at the end of each question or part question. JJ Economics This document consists of 7 printed pages. [Turn over

Question 1 Unfolding Power Play Extract 1: GM launches its last-chance saloon in family car market The biggest test of General Motor’s ability to regain the loyalty of North American car buyers has begun to unfold at dealerships across the US and Canada with the arrival of the 2008 Chevrolet Malibu family saloon. The history of the Malibu epitomizes how GM and the other two Detroit-based carmakers, Ford Motor and Chrysler, have ceded control of the huge family car market to their foreign rivals, notably Toyota and Honda. After producing the Malibu from 1964 to 1983, GM dropped the name, only to bring it back 14 years later. But the revived Malibu, with its bland styling and cheap-looking interior, failed to staunch buyers’ stampede to the Toyota Camry and Honda Accord. But the 2008 model has won a level of enthusiasm from motoring writers seldom seen for a Detroit-built vehicle over the past decade. Features that have won praise include bold design, a powerful engine, two-tone upholstery and a spacious boot. However, some have complained about cheap looking plastic fittings. Source: Financial Times, 15 November 2007 Extract 2: SABMiller and Coors join forces for profit pool dip When South African Breweries bought Miller Brewing from Philip Morris in 2002 and changed its name to SABMiller, it reckoned it was obtaining a solid foot hold in what it described as the “brewing industry’s largest profit pool.” But although SABMiller became the second-biggest brewer in the US after Anheuser-Busch, it had found making money in the US more difficult than it thought. Its entry into the US beer market coincided with a dramatic shift in fortunes of North American brewers as consumers started to di scover the pleasures of wine and spirits. Since 2000, servings of spirits in the US have risen more than 5 per cent, while servings of wine have risen nearly 10 per cent. Beer servings, meanwhile, have fallen by more than 5 per cent. All brewers have been affected by the changes, leading them to focus more intensely upon developing new kinds of malt-based drinks as well as imports and craft beers. But SABMiller and Molson Coors, with whom SABMiller announced a joint venture, have found it tougher than Anheuser. Anheuser’s core brand, Budweiser, increased sales volumes between 2000 and 2005, while sales of SABMiller and Coors declined. Analysts say Anheuser has benefited from better marketing, more investment flexibility (which has allowed it to develop new products like Michelob Ultra and Bud Sele ct) and its strong network of wholesalers, most of which carry only Anheuser drinks. SABMiller and Coors distribute their beers from what they call “shared houses”, which sell both the Miller and Coors brands. Anheuser’s size also gives it greater economies of scale, allowing it to generate stronger profit margins. [Turn over 2

SABMiller has made no secret of its desire to enter into a business venture with Coors in order to form a stronger competitor to Anheuser. Although SABMiller spent three years between 2003 and 2006 trying to improve SABMiller’s profitability, it has fought to raise margins amid strong competition from Anheuser, which heavily discounted the price of its beers to try to improve sales volumes. Coors and SABMiller estimate they can sa ve about $500m annually by combining operations. Transportation – an expensive undertaking in a country as large as the US – will be one of the biggest sources of cost savings. At present Coors distributes beer throughout the US from only two breweries; once the venture is effective, it will be able to ship beer from eight breweries countrywide. Executives say they will invest some of the money they save as a result of combining their distribution and marketing operations into the development of new products and packaging. Source: Financial Times, 10 October 2007 Extract 3: Government to offer brewers a sporting chance Carlsberg, the owner of Russia’s biggest br and, is considering directing more of its sports sponsorship budget to Russia as the country’s government moves to lift a ban on beer advertising during sports events. Sp onsorship of sporting events is a boon as sporting events can improve social cohesion and produce social recognition especially among the ethnic minorities and young people from disadvantaged areas. This is because sport is a carrier of universal values, which, thanks to the media, can be disseminated on a large scale. Russia has in recent years tightened restrictions on alcohol advertising to try to reduce the number of people that die each year from alcohol poisoning. There is also concern with the increase in the number of teens who died from alcohol related crashes as well as alcohol related crime. In 2006 the country banned the sale of alcohol in sports, educational and cultural facilities. Brewers are also only allowed to advertise on television between 10 pm and 6 am. The aim of such measures is to reduce the need to use more resources to treat those who are alcohol dependent as well as other problems created by drinking. However, the government is considering allowing brewers to market their drinks inside sports facilities for both Russian sports events and international competitions ahead of the 2014 Winter Olympics. Source: Adapted from the Financial Times, 11 June 2008 3

Figure 1: World’s Largest Brewers Market Share 2006 (%) Figure 2: Light Vehicle Sales US Market Share (%) Source: Financial Times, 13 June 2008 Source: Financial Times, 20 June 2008 Questions (a) (i) Compare the changes in market share of light vehicle sales between the Japanese and American carmakers in the US between 2002 and 2008. [2] (ii) With reference to the extracts, explain how the auto industry is similar to the brewery industry. [4] (b) (i) Suggest two reasons why SABMiller wants to increase its market share. [2] (ii) With reference to Extract 2, explain why SABMiller finds “making money in the US more difficult than it thought.” [4] (c) To what extent is the entry of SABMiller into the US brewery market beneficial? [8] (d) Discuss whether the Russian government should lift its ban on beer advertising and sale of beer and alcohol during sports events. [10] Total: 30 marks [Turn over 4

Question 2 The India Economy Extract 4: India’s Central Bank is ready for a fight The Reserve Bank of Ind