SAJC H2 ECON P2 W SUGGESTED ANSWERS AND MARK SCHEME

ST ANDREW’S JUNIOR COLLEGE PRELIMINARY EXAMINATIONS – 2011 General Certificate of Education Advanced Level Higher 2 ECONOMICS 9732/02 Paper 2: Essay Questions 19 Sep 2011 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 a soft pencil for any diagrams, graphs or rough working. Do not use staples, paper clips, highlighters, glue or correction fluid. Answer three questions in total, of which one must be from Section A, one from Section B and one from either Section A or Section B. 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. Content Question 1 – Pg 3 Question 2 – Pg 5 Question 3 – Pg 13 Question 4 – Pg 18 Question 5 – Pg 23 Question 6 – Pg 27 This document consists of 32 printed pages. [Turn Over © SAJC 2011 Suggested Answers and Mark Schemes

© SAJC 2011 9732/02/PRELIM Suggested Answers/Mark Schemes 2 Answer three questions in total. Section A One or two of your three chosen questions must be from this section. 1 China’s economy grew at an average of 10% ov er the past decade. Under the terms of the EU-China WTO accession agreement, China has also agreed to substantial reductions on import tariffs for over 150 leading European exports, ranging from machinery to wines and spirits. Assess the likely impact of the rising income in China and her reduction of import tariffs on the sales of various types of EU’s exports to China and China’s domestic sales. [25] 2 Proton, Malaysia’s largest car producer, continues to struggle with high production costs that make local cars relatively more expensive than many foreign cars. Source: AsiaTimes Aug 2003 (a) Explain how a firm like Proton can enjoy economies of scale. [10] (b) Discuss the relevance of achieving cost savings in determining the welfare of consumers. [15] 3 The wonders of free market often disappear when the assumptions are relaxed. (a) Explain how the free market could bring ‘wonders’ to the economy. [10] (b) Discuss the view that the government would often fare better than the free market when the assumptions are relaxed. [15] Section B One or two of your three chosen questions must be from this section. 4 The relative importance of aggregate expenditure components in influencing the outcome of the economy differ among economies, depending on their size, openness and the government policies. (a) Explain the above statement. [10] (b) Assess the policies which the Singapore gover nment could adopt to achieve sustainable growth for its economy. [15] 5 Discuss whether maintaining low unemployment rate will lead to an improvement in the standard of living in an economy. [25] 6 Globalisation is a double-edged sword, as the increased interconnectedness not only creates opportunities but also presents risks. Speech by Mrs. Lim Hwee Hua, Minister Of State For Finance And Transport At The CPA Forum, Aug 2007 (a) Explain how globalisation could bring opportunities and risks to an economy. [12] (b) Discuss whether the Singapore government currently adopts appropriate policies to reduce the risks of globalisation. [13]

© SAJC 2011 9732/02/PRELIM Suggested Answers/Mark Schemes 3 SUGGESTED ANSWERS AND MARK SCHEMES 1 China’s economy grew at an average of 10% ov er the past decade. Under the terms of the EU-China WTO accession agreement, China has also agreed to substantial reductions on import tariffs for over 150 leading European exports, ranging from machinery to wines and spirits. Assess the likely impact of the rising income in China and her reduction of import tariffs on the sales of various types of EU’s exports to China and China’s domestic sales. [25] Q1 Students to discuss the question based on simple demand and supply framework; need to show how equilibrium price and quantity being determined for a good; Students to define sales as price * quantity, show the area in diagram; Identify the demand factors: income, taste and preferences  Analyse how changes in income will affect the various goods imported from EU;  Compared to domestic good, imported goods like EU cars, wines and fashion wears etc, should have an YED>1 (luxury), thus dd will increase for imported goods as income increased;  Taste and preferences should also shift towards imported goods as compared to domestic goods;  Thus DD for import will shift to the right while DD for the domestic goods should shift to the left cp; Identify the supply factors: reducing tariff (cost of import)  Reducing tariff will lower the cost of imported goods => SS curve will shift to the right;  Thus, PED is important in determining the impacts on import expenditure;  For most imported consumers durables, PED should be > 1 as imported goods are viewed as more luxurious and proportion of income spend is relatively higher;  Given a fall in price, import expenditure should increase;  On the other hand, demand for domestic goods will fall as imported goods are substitutes for the domestic goods, example imported cars and domestic produced cars; the extend of the fall in domestic demand depends on the degree of substitutability between the imports and domestic goods;

© SAJC 2011 9732/02/PRELIM Suggested Answers/Mark Schemes 4 The students need to divide the goods into various categories for a detail analysis: Case 1: Imported luxury goods  Y ↑ => DD ↑ (YED > 1), also T&P will increase DD further  SS ↑ as tariff ↓  PED > 1, PES > 1 (manufacturing products)  Sales (import expenditure) should ↑ Case 2: imported necessity  Y ↑ => DD ↑ (YED < 1)  SS ↑ as tariff ↓  PED < 1, PES < 1 (manufacturing products)  Sales depends on the relative shift of DD and SS Case 3: imported FOP  Derived demand, with increasing production, DD should ↑  SS ↑ as tariff ↓  PED < 1, PES > 1 (manufacturing products)  Sales should increase Case 4: China’s domestic products  Y ↑ => DD ↓ (view as inferior as compared to YED < 1)  T&P shift towards imported luxury goods  SS ↑ as tariff ↓ (Pm ↓) XED between local and imports  PED > 1, PES > 1 (manufacturing products)  Sales should fall Students must be able to use correctly drawn diagrams to illustrate changes in each market; Evaluations: other factors may affect the overall demand and supply, such as China’s domestic goods may be luxury as well, depending on the range; also depends on the absolute price difference;

© SAJC 2011 9732/02/PRELIM Suggested Answers/Mark Schemes 5 2 Proton, Malaysia’s largest car producer, continues to struggle with high production costs that make local cars relatively more expensive than many foreign cars. Source: AsiaTimes Aug 2003 (a) Explain how a firm like Proton can enjoy economies of scale. [