VJC H2 ECONS P1

1 VICTORIA JUNIOR COLLEGE JC2 PRELIMINARY EXAMINATION 2018 HIGHER 2 H2 ECONOMICS 9757/01 Paper 1 2 hours 15 minutes Additional Materials: Answer Paper READ THESE INSTRUCTIONS FIRST Write your name and class on all the work you hand in. Write in dark blue or black pen on both sides of the paper. You may use an HB pencil for any diagram or graphs. Do not use staples, paper clips, highlighters, glue or correction fluid. DO NOT WRITE IN ANY BAR CODES. Answer all questions. Start each question on a FRESH piece of paper. At the end of the examination, fasten your work securely, by question, using the strings provided. The number of marks is given in brackets [ ] at the end of each question or part question. This document consists of 7 printed pages [Turn over

2 Answer all questions. Question 1: Infant Formula Milk Figure 1 – Singapore Infant Formula Milk Prices (S$ per 900g tin) Source: Singapore Department of Statistics Figure 2 – Volume of China’s Infant Formula Milk Import Source: Dairy Association of China Extract 1: Fear of tainted infant formula milk in China Ten years after China’s infant formula milk tragedy, parents still won’t trust their babies with local formula. The national disaster took the lives of six infants and sickened more than 300,000 babies in China. The chemical compound called melamine, used in plastic and fertilizer production, had made its way into infant formula milk; shattering the confidence of people in Chinese-made infant formula milk; and in the entire local food supply. Parents in China have been paying double to buy infant formula milk from Singapore, and are willing to pay up to S$200 to have the product couriered to their home as they believe the products from Singapore are of higher quality. Adapted from Asiaone.com, Feb 2018

3 Extract 2: Rising prices of infant formula milk Infant formula milk prices in Singapore have more than doubled over the last decade to become among the highest in the world. Parent s remain loyal to their chosen brands of milk powder even as the average price of infant formula milk continues to rise. They are willing to spend on good-quality infant form ula milk because infant formula milk constitutes the sole source of nutrients for their young child if breast milk is not available. Moreover, infant formula milk is a short-te rm spending item. As a result, they are willing to incur high expenses in the short-term to buy good quality infant formula milk. Adapted from The Straits Times, 8 Feb 2018 Extract 3: Government steps in to regula te the infant formula milk market in Singapore According to the Competition Commission of Singapore (CCS) study, new entrants into the infant formula milk market will find it extremely difficult to convince parents that they are similar or even superior to other brands within their decision pool, especially given the market power and branding that the incumbents currently enjoy. New entrants will not be able to compete with the incumbents as the latter invest heavily on research and development so that they can introduce new infant formula milk products with modified formulations or packaging. The aggressive marketing and promotion campaigns of the incumbents like Nestle, Abbott and Mead Johnson which holds 72% of Singapore market share, tend to encourage parents to make bulk purchases. In addition, they also invest a disproportionate share of their marketing expenditures on hospitals. These brands of infant formula milk being placed as the default brand in the hospital wards helps to expose the brand to new parents. Securing such customers at the very beginning of their parenting journey was critical to reinforce their brand loyalty. To encourage more competition, the Singapore government will also simplify and streamline import requirements as well as remove unnecessary barriers to entry in order to bring in more options for parents without compromising food safety. Regulations to curb excessive marketing and encourage greater price competition have also been amended to prohibit health and certain nutrition claims by infant formula milk manufacturers, as well as texts and images that idealise the use of infant formula milk in Singapore. Consumer education is also key. The Health Promotion Board (HPB) has recognised the lack of awareness around infant formula milk where some parents were unaware that infant formula milk can be stopped after the age of one. A multi-year marketing programme by HPB will also cover the nutritional composition of infant formula milk to help parents make more informed decisions. With an increase in consumer awareness and the availability of more affordable infant formula milk options, prices should become more affordable. However, it will take time for consumer behaviour to shift, and for the market to react accordingly.

4 Adapted from Competition Commission of Singapore, 10 May 2017 Extract 4: Australia to cash in on China’s infant formula milk boom Australia’s reputation as a producer of high-quality foods is a blessing for Australian infant formula milk producers. A free trade deal between Australia and China could set Australia up to take advantage of China’s addiction to Western milk powder. There are tariff savings, investment opportunities, more exports and more profit. With the trade deal, the current 15% tariff China imposes on Australian infant formula milk is set to be phased out within four years. The China infant formula milk market is potentially “a massive opportunity” for capable Australian infant formula milk companies, especially given the baby boom stemming from the relaxation of China’s one-child policy and the growing spending power of China’s growing middle class. The rise of the Internet and social media in China is also playing a role, making it easier for Chinese consumers to buy their preferred infant formula milk via e-commerce websites. But it’s not all milk and honey. There are thousands of infant formula milk companies in China so it is a very competitive space. The market is serviced by international brands with deep pockets and vast experience. The infant formula milk scandal has also prompted the Chinese government to implement stricter regulation for baby formula food. The ingredients, food additives, formula and labels of baby formula food must be recorded and registered with the China Food and Drug Administration (CFDA). Adapted from BBC, 14 January 2015 Questions (a) (i) Using Figure 1, compare the change in infant formula milk prices for the periods 2007 to 2014 and 2014 to 2017. [2] (ii) Explain whether the data in Figur e 2 is able to support the observed change in infant formula milk prices for the period 2007 to 2014. [4] (b) What can you conclude from the ev idence in Extract 2 about the price elasticity of demand for infant formula milk? [2] (c) With reference to the data, justify the market structure for the infant formula milk market in Singapore. [4] (d) Discuss the factors Australian infant formula milk companies are likely to consider when deciding whether to enter the Chinese infant formula milk market. [8] (e) To what extent can the measures adopted by the Singapore Government mentioned in Extract 3 increase the affordability of infant formula milk for Singaporeans? [10] [Total: 30]

5 Question 2: Brexit Consequences for the UK & Singapore Table 1: UK Consumer Price Index & Labour Productivity (annual % change) 2013 2014 2015 2016 2017 Consumer Price Index 2.3 1.5 0.4 1.0 2.6 Labour Productivity Growth 0.6 1.8 -0.1 1.4 0.3 Source: Office for National Statistics, UK Table 2: Economic Indicators in Singapo