SAJC H2 Economics 2008 Prelim Question Papers

ST ANDREW’S JUNIOR COLLEGE Preliminary Examinations Higher 2 ECONOMICS 9732/01 Paper 1 10th September 2008 2 hours 15 minutes Additional Materials: Answer Paper READ THESE INSTRUCTIONS FIRST Write your name on all the work you hand in. 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. 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. This document consists of 9 printed pages and 1 blank page. © SAJC 2008 09_9732_01 [Turn over

2 Answer all questions. Question 1 The Tourism Industry Extract 1: Emerging economies are transforming the travel industry The rise of emerging economies marks the third revolution the travel industry has undergone in the past 50 years. The first came in the 1960s, in the shape of cheap air travel and package tours. Rising incomes enabled people of modest means to travel more, to farther-flung parts of the globe, and to take advantage of “all-in” offers that may have included sightseeing trips, scuba diving or camel rides. The second was the advent of the internet, which has allowed millions to book flights, hotels, hire cars and package tours without going near a high-street travel agent. Now fast-growing emerging economies—not just Dubai but also the BRICs (Brazil, Russia, India and China) and others, such as South Korea and Vietnam—are changing the world of travel once again, either as destinations or as sources of newly affluent travellers. According to McKinsey, a consul ting firm, by the middle of the next decade, almost a billion people will see their annual household incomes rise beyond $5,000— roughly the threshold for spending money on discretionary goods and services rather than simple necessities. Consumers' spending power in emerging economies will rise from $4 trillion in 2006 to more than $9 trillion—nearly the spending power of Western Europe today. For the next year or two, the travel industry is likely to find its long-standing customers in rich Western countries a less than reliable source of growth. As American families plan their holidays, many will be worrying about t he frailty of their country's economy, the rising cost of petrol and—for those venturing outside the United States—the weakness of the dollar. Some European travellers, by contrast, will at least have the benefit of a strong Euro. Even so, Europeans are likely to feel the slowdown of the economy and the impact of the high price of oil. What might stop tourism's latest revolution? Political violence is one possibility. Developed countries are no strangers to terrorism, but the dangers in emerging economies are greater. Another possible obstacle is the growing concern, especially in Western countries, with the environment. The industry, which contributes 5-6% of all carbon emissions, seems worried. Green strategies are multiplying. Source: The Economist, 15th May 2008 Extract 2: Singapore’s Tourism Sector Performance In June 2008, visitor arrivals to Singapore were at 816,000, representing a decline of 4.1% compared to June 2007. Indonesia (153,000), India (83,000), Australia (74,000), P R China (70,000) and Malaysia (53,000) were Singapore’s top five visitor-generating markets. These markets accounted for 53% of total visitor arrivals for the month. © SAJC 2008 09_9732_01

3 10 out of the top 15 markets experienced a dip in visitor arrivals in June 2008 compared to June 2007. The likely factors for this dec line in visitor arrivals include the global economic slowdown, as well as rising inflat ion and oil prices, which in turn may have impacted consumers’ discretionary spending. Singapore gazetted hotels were estimated to reap S$177 million in room revenue, representing a growth of 7.5% versus June 2007. The Average Room Rate (ARR) in June 2008 was estimated to be S$251, representing an increase of 20.1% over June 2007. The Average Occupancy Rate (AOR) for hotels was estimated to reach 82% in June 2008, posting a 5.0 percentage point decrease over June 2007. Revenue per Available Room (Revpar) grew by 13.1% to reach S$205 for June 2008. Source: Singapore Tourism Board Monthly Fact Sheet, 2008 Figure 1: Visitors’ arrivals from Asia and China -30% -20% -10% 0% 10% 20% 30% 40% 50% 60% 2002 2003 2004 2005 2006 2007 Year % change over previous year Asia China Source: Singapore Tourism Board, 2007 Extract 3: An Integrated Resort-Casino for Singapore Gaming revenues for East Asia are expected to reach US$23 billion by 2010. Singapore is not the only country in Asia that is eyeing a slice of the gaming industry. Macau has already ended the local monopoly on the casino industry, and has issued new licenses in 2002. Besides Macau, South Korea, the Philippines and Vietnam have also announced plans to expand existing operations while Japan, Taiwan and Thailand have also contemplated legalising casinos. © SAJC 2008 09_9732_01

4 The potential gains from allowing casino gambling can be grouped into three areas. First, for those individuals who gamble in moderati on and receive enjoyment from the overall entertainment experience, the gain in utility arising from the presence of an additional recreational facility is a benefit. However, this aspect of the social gain is typically discounted in the overall calculation of the social cost and benefits. A second level of economic gains is the creation of jobs, stimulation of investment and tourism development, as well as potential for urban or waterfront redevelopment. Finally, for many governments, a third benefit from t he legalisation of casino gambling is the creation of an additional source of revenue to the public sector. Evidence from economic impact studies conduct ed in other countries such as Australia and United States suggests that tourist numbers and spending do increase with the development of casino-resort. In Singapore’s case, proponents argue that having a casino might increase the average length of stay of tourists, entice them for repeat visits as well as attract a new group of high-rolling tourists to Singapore. In light of plans by Macau and South Korea to liberialise the gaming sector further, there are concerns that Singapore would see further erosion in tourist arrivals and lose out if the integrated resort-casino is not developed. A substantial amount of tax revenue is generated from casino-gambling activities. The total amount of gambling duties collected by the Inland Revenue Authority of Singapore (IRAS) in the fiscal year 2003-2004 amounted to $1.524 billion, or 9.22% of the total tax revenue. Source: Winston Koh, Institute of Policy Studies, 17 November 2004 Extract 4: Government Measures to Tackle Gambling Problem As part of the national framework to address problem gambling, a National Council on Gambling will be set up in the second half of this year which includes public education on problem gambling and working with the community to reach out to those who need help. In addition to the national framework which will apply to all forms of gambling, stringent social safeguards for casinos will be put in place. A levy of $100 per day or $2,000 a year for membership will be imposed on all citizens and permanent residents. The entry levies collected will be channeled to the Singapore Totalisator Board for charitable and worthy causes. The following provisions have been put in place to exclude local residents from casino premises: Spouses and family members w ill be empowered to exclude persons with gambling problems. Persons on publi