CJC H2 ECONS P1 Mark Scheme

1 © Catholic Junior College 973 2/01/Prelims /2016 Mark Scheme 2016 Catholic Junior College H2 Economics / 9732 Preliminary Examination Mark Scheme Paper 1

2 © Catholic Junior College 973 2/01/Prelims /2016 Mark Scheme Paper 1 – Case Study Questions Question 1 Globalisation and the Economy Extract 1: Too many immigrants, too quickly The story of Brexit is a complex one, but one thread may be familiar to some developed countries today, including Singapore: too many immigrants, too quickly. As the European Union (EU) expanded in 2004 from 15 member states to include 10 more countries - mostly poorer ones from Eastern Europe - then Prime Minister Tony Blair opened Britain's doors to job seekers from these countries. Free to move to Britain to work, many from the new EU countries did, attracted by the prospect of better jobs or higher pay than back home. Some parts of Britain’s working class felt the competition and the squeeze. Much of the fury of the ‘Leave’ campaigners focused around accusations that EU migrants were taking British jobs and depressing wages. Meanwhile, the big businesses and their consumers are gaining from this flow of cheap labour. Perhaps Britain had not fully considered the evolving ramifications of EU membership and the allowing of sudden mass movement of populations to an island nation. One pressure from mass movement is how immigration is changing the identity of the country and putting pressure on services like the National Health Service. The undoubtable truth is that developed countries need to find better strategies to manage the impacts of migration and promote integration. Source: The Straits Times, July 2016 Figure 1: Labour flow into the United Kingdom (UK), 2006 – 2015p (provisional) Source: Office for National Statistics 0 50 100 150 200 250 300 350 400 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015p Legend: Labour Flows from Non-EU countries Labour Flows from EU countries

3 © Catholic Junior College 973 2/01/Prelims /2016 Mark Scheme Extract 2: Will globalisation make everyone better off? Globalisation has made the planet more equal. As communication gets cheaper and transport gets faster, developing countries have closed the gap with their rich-world counterparts. Basic theory predicts that inequality falls when developing countries enter global markets, especially in the exchange of goods and services. With a larger proportion of their labour force being unskilled, this means that developing countries tend to produce goods that require labour-intensive processes. This increases their trade and thus, increases their wages. But the high inequality seen today in poor countries is prompting new theories. One emphasizes the recent pattern of outsourci ng which deviates from the usual practice of creating low-value jobs overseas — rich countries are increasingly shifting parts of the high- value production process to poor countries, creating a larger demand for skilled labour as compared to unskilled labour in the developing countries. Similarly, in developed countries the heavy costs to industries exposed to cheaper foreign imports offset most of the benefits to consumers and to firms in less vulnerable industries. Economists’ assumption that workers would easily adjust to the upheaval of globalisation seems to have been misplaced. Manufacturing activity tends to be geographically concentrated. So the disruption caused by cheaper imports from developing countries was similarly concentrated, in certain hubs of the developed countries. The displaced workers were neither absorbed in the region due to a lack of growing industries, nor were they willing to look for jobs in other prosperous regions. Immigration and jobs were hot-button issues in Singapore's general election in 2011. The public anger seen then was partly a response to the surge in foreign workers, due to a generous foreign worker policy in the boom years of 2004 to 2007. Deputy Prime Minister Tharman said: "The politics of the centre must stay connected to the challenges that ordinary people face - and address their need for jobs and security, and a balance in immigration that preserves a sense of identity." Tackling this without turning inward, and weakening jobs and society further, is the central challenge everywhere. Sources: Adapted from The Economist, 2014 and The Straits Times, 2016 Extract 3: The economic impact of sharing economy platforms The ‘sharing economy’ matches people who want to share assets online. Such convenience may come at cost for the traditional economy. Providers of traditional economy might see profits shrink due to the drop in demand and may even be driven out of the market. However the costs and benefits associated with sharing economy platforms depend on the business models in place. One such ‘sharing economy’ platform is Uber which is one of the fastest growing start-ups worldwide. Taxi industries tend to be heavily regulated by the governments in order to ensure safety and quality standards. Uber, founded in the United States, used the sharing economy platform to circumvent these regulatio ns by allowing private car owners to become ad-hoc taxi drivers. Furthermore, with countries becoming increasingly connected, Uber has found it easy to succeed commercially in many other countries as well, reducing the market share of the traditional taxi drivers. Uber’s success can be attributed to the passengers who prefer diversity in payment options and for lowering their transportation cost. As a result, the incumbent taxi service providers are facing a crisis. Some taxi drivers in Canada complained losing business to the relatively cheap Uber services. Additionally, the government is concerned about drivers not declaring or paying taxes on their income.

4 © Catholic Junior College 973 2/01/Prelims /2016 Mark Scheme In other businesses, homeowners international ly have earned extra cash by using another popular sharing service, Airbnb. Since the recession, more and more people have been looking for economical alternatives, increasing the demand for Airbnb. Likewise, the recession pushed significantly more segments of the American workforce into positions where they must string together part-time gigs and find alternative ways to bring in income. The leading businesses that are advancing the concept of the “sharing economy” are in many aspects no longer insurgents and newcomers. The ‘sharing economy’ has managed to capture the market through great apps, social media marketing and aggressive links to the asset owners who are attracted by the minimal requirements to work for the likes of Uber and Airbnb. With the economic power of these technology-driven firms growing, there needs to be considerations as to whether regulation is needed. Source: Adapted from Time, November 2014 Questions (a) Describe the trend of labour flow from EU countries into the UK between 2006 and 2014. [2] (b) (i) Explain why poor countries tend to specialise in and export goods that require large amounts of unskilled labour. [2] (ii) Discuss if globalisation will always be beneficial for workers in different countries. [8] c (i) What can you conclude about the income elasticity of demand for the services offered by Airbnb? [2] (ii) Using economic analysis, explain the impact of the recession on the market for Airbnb. [4] d) Explain one possible impact of globalisation on the level of competition in the market for transport. [2] e) Discuss the factors that determine the need for regulation of the growing technology-driven firms in the ‘sharing economy’. [10] [Total: 30]

5 © Catholic Junior College 973 2/01/Prelims /2016 Mark Scheme Suggested Answers a) Describe the trend of labour flow into from EU countries to the UK between 2004 and 2014.