HCI H2 ECON ESSAYS (QUES)19SEP

© Hwa Chong Institution 2011 9732 /02/S/JC2 Prelim 2011 HWA CHONG INSTITUTION JC2 Preliminary Examinations Higher 2 CANDIDATE NAME CT GROUP 10A/S CENTRE NUMBER INDEX NUMBER ECONOMICS Paper 2 Additional Materials: Answer Paper 9732/02 19 September 2011 2 hours 15 minutes INSTRUCTIONS TO CANDIDATES Write your name and CT class clearly in the spaces at the top of this page and on every page 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 and tape. 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. You are to fasten the answer sheets to essay questions separately together with the cover pages provided. 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 questions before you begin writing your answers. You are reminded of the need for good English and clear presentation in your answers. Start each question on a fresh sheet of writing paper. This document consists of 2 printed pages. [Turn over

© Hwa Chong Institution 2011 9732 /02/S/JC2 Prelim 2011 2 Answer three questions in total. Section A One or two of your three chosen questions must be from this section. 1 In recent years, many countries have seen a stronger surge in trade, foreign direct investment, technology transfer and labour mobility. Assess the impact of these recent developments on expenditure by consumers on luxury and non-luxury goods and services. [25] 2 With growing environmental awareness, large cosmetic companies advertise they have invested in research to ensure their products are environmentally friendly. The aim is to increase demand and profits. (a) Explain what might happen to the fixed and variable costs in the above companies and how any changes might affect their profit maximising prices and output. [10] (b) Discuss whether the profits of such companies will in crease, and whether in the real world they will set prices and output at profit maximising levels. [15] 3 Discuss the effectiveness of government intervention in resource allocation in the provision of merit goods and when market dominance exists. [25] Section B One or two of your three chosen questions must be from this section. 4 In 2009, Singapore experienced a negative growth of 1.3% and a current account surplus of US$32 billion while the United States had a negative growth of 2.6% and a current account deficit of US$378 billion. Discuss to what extent such economic data indicate that the standard of living for the average person in both countries had declined. [25] 5 (a) Using examples, explain why the size of the national income multiplier for different countries may differ. [10] (b) Assess the role of the multiplier in influencing the policies used by the Singapore government in managing unemployment in recent years. [15] 6 (a) Explain how globalisation has affected Singapore’s pattern of trade with the rest of the world. [12] (b) Singapore should not continue to rely on an export-led growth strategy as it causes much volatility to economic growth. To what extent do you agree with the above statement. [13] Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared w here possible. Every reasonable effort has been made to the publisher to trace copyright holders, but if any items requiring clearance have unwittin gly been included, the publisher will be pleased to make amends at the earliest possible opportunity.

© Hwa Chong Institution 2011 9732 /02/S/JC2 Prelim 2011 3 Suggested Essay outline 1 In recent years, many countries have seen a strong er surge in trade, foreign direct investment, technology transfer and labour mobility. Assess the impact of these recent developments on expenditure by consumers on luxury and non- luxury goods and services. [25] Concepts to be tested: demand, supply, PED, PES and YED Surge in trade and FDI – increase in national income and thus affect demand Outsourcing, offshoring, technological transfer and labour mobility – increase productivity, reduce cost of production and increase supply. Types of goods ∆ in Demand when Y↑ Consider YED & PES ∆ in Supply Consider PED Final impact on expenditure (Evaluation in the form of judgment – what outcome is likely) Luxury goods Give examples and justify why YED>1 As income rises, people usually prefer to spend a bigger percentage of their extra incomes on luxury goods to improve their quality of life once these basic necessities are more or less satisfied. Demand↑ more than proportionate PES < 1 assuming luxury goods are of top quality and take longer production period + relatively smaller number of producers When demand increases, both price and output increase but price increases more significantly than output – TE↑ PED>1 due to the nature of the good + higher proportion to income A rise in supply means fall in price with a more than proportionate increase in Qd and thus TE↑. TE↑ Illustrate with diagram to show simultaneous shifts and TE↑ Necessities Give examples and justify why 0<YED<1 YED is relatively low because the desire for increased consumption usually does not grow in direct proportion to increased incomes for such basic goods which are meant to provide for a minimum decent living standard. Demand↑ less than proportionate PES < 1 assuming necessities such as agricultural produce have specific planting and harvesting time and also lack of spare capacity and difficult to accumulate stocks. When demand increases, both price and output increase but price increases more than output – TE↑ Evaluation: BUT TE ↑ will not be as significant as in luxury goods where demand increases more than proportionate. PED<1 as they are basic goods + smaller proportion to income A rise in supply means fall in price with a less than proportionate increase in Qd and thus TE↓. TE is indeterminate. It will increase if the impact on TE by the rise in demand outweighs the increase in supply and vice versa Illustrate with diagram. Inferior goods Give examples and