DHS H1 ECON P1 MARK SCHEMES

1 © DHS 2011  Name: Index Number: Class: DUNMAN HIGH SCHOOL Preliminary Examination Year 6 Economics 8819/1 Higher 1 Section A Case Study Section B Essay 19 September 2011 3 hours Additional Materials: Writing Papers 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. Section A Answer all questions. Section B Answer one question. At the end of the examination, fasten all your wo rk securely into two separate bundles for Section A and Section B. The number of marks is given in brackets [ ] at the end of each question or part question. Circle the question number you have attempted. Section A Section B Q1 Q2 Q3 Q4 This document consists of 8 printed pages including this cover page. [Turn over

© DHS 2011  Section A Answer all questions in this section Question 1 The Tobacco Industry Extract 1: The ills of smoking Smoking causes disabling and fatal diseas es, including cancers of the lung and other organs. Not all consumers have full knowledge of the healt h risks while others underestimate the risk of addiction to tobacco. In addition, smoking imposes financial as well as other costs on nonsmokers, in cluding health damage and irritation from exposure to environmental tobacco smoke. Discarded cigarette ends not only add to the cost of cleaning public places but are fire hazards. Extract 2: Tobacco farming in Europe Tobacco products are products made entirely or partly of leaf tobacco. Tobacco is the most labour-intensive crop in Europe, requiring an average of 40 workers per hectare, as opposed to most other crops, which have just one worker per 100 hectares. In many ways tobacco farming is a throwback to an earlier era. Modern day farm equipment such as the combined harvester cannot be used. Tobacco subsidies were once an important par t of the European Union’s agricultural policy. In the interest of public health, there will be a gradual phase-out of such subsidies. Source: EU Observer, euobserver.com,19 Nov 2008 Table 1: Average World Tobacco Production Quantity Per Annum (tonnes dry leaf equivalent) 1970-1979 1980-1989 1990-1999 2000-2006 World 5,256,991 6,387,084 7, 429,717 6,419,411 Developed countries 1,556,782 1,412,750 1, 313,559 865,391 Developing countries 3,700,209 4,974,334 6, 116,158 5,554,020 Extract 3: The Great Tobacco Debate in Indonesia In Indonesia, it is estimated that more than 62 percent of its citizens smoke, including children. Every year, the country spends more than Rp 100 trillion on tobacco-related health problems. To discourage smoking, the government has introduced a series of measures that include setting a limit on the production of cigarettes for sale in the domestic market and increasing taxes on cigarettes.

© DHS 2011  Opponents argue that the regul ation on tobacco has to take into account the interests of tobacco farmers, cigare tte companies, traders and workers. The country’s cigarette companies employ about 600,000 people and t he taxes they pay amounts to nine percent of the country’s GNP. For the farmers, they worry about the loss of a source of income. Upon enteri ng the dry season, for instance, after harvesting vegetables farmers will begin planting tobacco – the only crop that can offer profitable yields in the dry period. Source: The Jakarta Post, www.thejakartapost.com, various, 2010 Figure 1: Export and Import value of Tobacco, Indonesia, 2000-2006 (US$’000) Source (Table 1 and Chart 1): Prajogo U. Hadi, Reni Kustiari, Iwan S. Anugrah, Case Study of Tobacco Cultivation and Alternate Crops in Indonesia, Jakarta: Indonesian Centre for Agricultural Socio-Economic and Policy Studies, 2008 Extract 4: The Economics of Tobacco in India Tremendous economic growth has spurred a vi sible rise in disposable incomes. As international and domestic tobacco com panies apply improved effective tobacco marketing strategies, the risk of an in crease in tobacco consumption remains significant. Taxes on tobacco products are lo w. The result is that tobacco products have become increasingly affordable in India over the past decade. Unlike the rest of the world where cigarettes is the preferred form of tobacco product, bidis are the overwhelming favourite am ong Indians. Research shows that a 10% rise in bidi prices would reduce bidi co nsumption by 9.2% and 8.5% in rural and urban India, respectively. As opposed to raises taxes alone, experi ences in countries like Australia have shown that improvements in health are greater when some of the tax revenues are dedicated to comprehensive tobacco cont rol and other social and public health programmes.

© DHS 2011  Source: John RM, Rao RK, Rao MG, Moore J, Deshpande RS, Sengupta J, Selvaraj S, Chaloupka FJ, Jha P. The Economics of Tobacco and Tobacco Taxation in India. Paris: International Union Against Tuberculosis and Lung Disease; 2010. Extract 5: Indian government passes new regulation Tobacco firms must carry a graphic image of a mouth with cancer on all their packs in India. The country has very high sa les of cigarettes purchased singly, which reduces the impact of pictoria l warnings as many smoker s never actually see them. Anti-smoking activists say sales of cigare ttes are more affected by price rises and taxation than by pictorial health warnings. In the past few years, India has come up with stringent rules to curb the use of tobacco. Tobacco-related advertisements are banned and the sale of tobacco products to young people is also an offence. A countrywide ban on smoking in public places came into effect two years ago - although correspondents say it is blatantly flouted and poorly enforced. Source: BBC News,www.bbc.co.uk,3 Dec 2010 Questions a. With reference to Table 1, (i) compare the trends in tobacco production in de veloped and developing countries between 1970 and 2010. [2] (ii) account for the differences observed. [4] b. (i) With reference to Figure 1, summarise Indonesia’s trade balance in tobacco between 2000 and 2006. [2] (ii) Discuss whether you support the Indonesian government taking a tougher stand on smoking. [8] c. From Extract 4, (i) deduce the price elasticity of demand for bidis among the rual and urban populations in India, [2] (ii) explain, with the use of demand-suppl y diagram, whether consumers or producers will bear the greater burden of an excise tax on bidis. [4] d. As an economic consultant, what opt ions would you present to the India government to better tackle the problem of smoking? Justify your answer. [8]

© DHS 2011  Question 2 The Global Economy: A Rebalancing Act Indicators of the Chinese Economy Figure 2: Private consumption, investment and exports (% of GDP) Figure 3: Domestic Saving (% of GDP) Source: The Economist, Jul 2009 Extract 6: China is Urged to Rebalance its Economy The country’s leaders are looking to rebalan ce the economy by shifting away from investment and export-driven growth towards an economy where domestic consumption plays a bigger part. China began an economic expansion of unprecedented pac e driven by investment and exports. But consumption growth, in particular, could not keep pace with the capacity created by rapid investment. As a re sult, much of the capacity was directed towards producing goods for the export sector and this has meant rising trade surpluses. The concern is that as the global economy enters into recession and competition from countries like Viet Nam intensifies, Chinese firms would find it much more difficult to sell their prod