IJC_2008_H2Econ_Prelim_Paper 1 (Question Paper)

INNOVA JUNIOR COLLEGE JC2 PRELIMINARY EXAMINATIONS 2 in preparation for General Certificate of Education Advanced Level Higher 2 ECONOMICS Paper 1 Additional Materials: Answer Paper 9732/01 15 September 2008 2 hour 15 minutes

READ THESE INSTRUCTIONS FIRST Write your index number and 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 question. You are advised to spend no longer than 1 hour 15 minutes on this paper. 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. You are advised to spend several minutes reading through the data before you begin writing your answers. You are reminded of the need for good English and clear presentation in your answers. This document consists of 9 printed pages and 1 blank page. Innova Junior College [Turn over

9732/01/IJC/Sep 08 2 Answer all questions Question 1 Hollywood and the Internet Extract 1: DVDs or Online Downloads? For the moment, most people are still happy with DVDs, so the studios have had little incentive to switch to an unproven new format. The DVD business is huge, bringing in $23.4 billion in America last year, against $9.6 billion from the box office. The studios are terrified of damaging that source of revenue. In 2006, when Disney made a deal with Apple to sell movies via iTunes, Wal-Mart, America's biggest retailer, reportedly threatened to retaliate: the internet, after all, bypasses it. Wal- Mart accounts for about 40% of DVD sales in the United States and if it sharply cut shelf-space for DVDs, the lost sales would far outweigh new digital sales in the near term. Not everyone agrees, however. Wal-Mart and other big retailers rely heavily on DVDs to bring higher-income people into their stores, says a studio executive. “So they don't have a leg to stand on threatening to pull shelf-space.” For this reason, he believes that Hollywood should be able to cultivate online revenues without greatly disrupting its existing businesses. In any case, there are now signs that the DVD boom has come to an end (see Figure 1) — which should also encourage the studios to worry less about Wal-Mart and to move faster online. Moreover, as well as boosting sales overall, the internet will make it easier for the studios to make money from their libraries— bricks-and-mortar retailers, after all, have limited shelf-space, and mostly stock new releases. Digital sales yield a higher profit margin too. Virtual distribution does away with manufacturing, packaging, transport and inventory costs. At the moment, the studios get $18 per film from a Wal-Mart or