MI_2008 MI Prelims H2 Econs P1

Class Index No Candidate Name: This question paper consists of 7 printed pages and 1 blank page. Preliminary Examination 2008 Pre-university 3 ECONOMICS 9732 PAPER 1 9732/01 Monday 15 September 2h 15m Additional materials: Answer paper READ THESE INSTRUCTIONS FIRST Write your name, class and index number in the spaces at the top of this page and 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 or graphs. Do not use staples, paper clips, highlighters, glue or correction fluid. Answer all the questions. At the end of the examination, fasten your answers to the two questions separately. The number of marks is given in brackets [ ] at the end of each question or part question. You are reminded of the need for clear presentation in your answers. [Turn over]

Answer all questions Question 1 Extract 1: Battle brewing in the drug store business Longs Drug stores with its 520 branches is a key player in the drug retail business in California. Another key player in this region is Walgreens, a national drugstore chain. But the Longs Drug store chain is to be taken over by Walgreens’ main rival, CVS Caremark, later this year. For CVS, which has no stores in California, the proposed $2.9bn deal for Longs is the latest stage in a national battle being waged neighbourhood by neighbourhood with Walgreens to drive nationwide market share. CVS, based in Rhode Island, and Walgreens, from the Midwest, are now running neck and neck in the push to achieve national leadership through local dominance, with about 6,800 drugstores each. Pennsylvania-based Rite Aid, the third largest national chain, has about 5,800 stores. Source: Adapted from The Financial Times, August 15, 2008. Extract 2: Mergers vs. Organic Growth A retail analyst at Citigroup, says the purchase of Longs “is excellent and is one that would take a decade or more for CVS to replicate through organic growth”. CVS is confident about its ability to integrate the Longs stores, pointing to the successful integration of the Savon and Osco stores it acquired two years ago and the 1,800 Eckerd stores in Texas and the south that it bought from JC Penney in 2004. Walgreens, in contrast, continues to focus on expanding organically by opening its own new stores. Rite Aid has been less successful in its efforts to keep pace, struggling to integrate 1,800 Brooks and Eckerd brand stores that it acquired in 2006 in an attempt to build scale. As they have grown, all three chains hav e used their scale to reduce overheads and to market higher-margin private label products such as over-the-counter medications. They have also sought to reinforce their retail business by expanding into new areas, such as “walk-in” in-store clinics, operated by nurse s who dispense basic medical treatment, and developing their specia