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Pioneer Junior College JC1 H1 Economics 2011 Mid-year Revision Package Essays 1. 2.

Analyse the factors that would affect the price of Starbucks coffee. Analyse the factors that would affect the price of personal computer. [12] [12]

Case Studies 1. 2. 3. 2009 GCE A Level Exam for H1, P1 Section A, Q1 The Growth of Air Travel 2010 ACJC Preliminary Exam for H1, P1 Section A, Q1 Ukraines Steel Industry 2010 NYJC Preliminary Exam for H1, P1 Section A, Q1 Alcohol consumption

Instructions to students: Revision Lecture in Term 2 Week 10 (23 May 11 to 26 May 11) - All lecture groups would be discussing the 1st case study above ie 2009 GCE A Level Exam for H1, The Growth of Air Travel Please make good use of these 2 weeks to revise this H1 subject, in preparation for the Mid-yr Exam. This Revision Package is meant to help you consolidate your content and skills needed for this exam. Hence attempt/practise these questions before referring to the answers provided in the E-portal on a later date.


2009 GCE A Level Exam for H1, P1 Section A, Q1 The Growth of Air Travel
Section A Answer all questions in this section. Quest i on 1 The Growt h of Air Travel Extract 1: Growth in air passenger numbers In 2005 the International Air Transport Association (IATA) reported as follows. Current situation 2004 has seen a 30-year high in global GDP growth, and international air passenger traffic in that year increased by 15.6%. This growth continues to be driven by a combination of above-trend global economic growth and strong price competition - the latter an enduring feature resulting from further deregulation and new entry of low-cost airlines, With substantially higher fuel costs, however, 2005 will be the fifth consecutive year of heavy financial losses for the airline industry worldwide. Outlook The International Monetary Fund (IMF) expects global economic growth to be close to, or above, its long-run trend over the period 2005-2009. Higher oil prices are expected, as well as continuing deregulation in the airline industry, and greater competition from low-cost carriers. The forecasts, based on the airlines' own expectations, show an annual average growth rate of 5.6% for international air passenger traffic between 2005 and 2009, with the profile of growth very gradually declining over the period. Growth is expected to be greatest in Asia and the Middle East, in line with strong regional economic growth, and lower in the more mature North American and European markets. Source: IATA Passenger Forecast 2005-2009,, October 2005 Figure 1: World Economic Growth and International Air Passenger Growth, 1994-2009 World Economic Growth vs International Air Passenger Growth, 1994-2004 (actual) and 2005-2009 (forecast)

Source: IATA Passenger Forecast 2005-2009,, October 2005 Extract 2: Asian budget airlines set for huge growth Asia's budget airlines are poised for huge growth as cheap fares and new planes attract millions of passengers who have more money to spend on travel and leisure. Budget flights have multiplied in the region, following a similar trend in the US and Europe, as firms such as

@ UCLES & MOE 2009 8819/01/0/N/09

Malaysia's AirAsia, Australia's Virgin Blue and Singapore's Tiger Airways aim to exploit Asia's growing wealth. Such carriers undercut prices at major airlines by using aircraft more frequently, packing in more seats, selling tickets directly via websites rather than travel agents and cutting inflight services. Passenger traffic in Asia-Pacific now accounts for 32% of the global market. Source: Bahrain Tribune, 8 October 2007 Extract 3: The Big Green Dilemma Never before has flying been so controversial. The environmental damage done by planes is now a headline-grabbing issue. Furthermore, aviation is booming. Today there are around 17 700 commercial aircraft in the world, and manufacturers expect to deliver 25 600 new ones in the next twenty years, with massive growth coming from China, India and Russia as economies develop and flying is deregulated. This year there will be 2.2 billion air passengers worldwide, and the total is currently growing by 4% a year, according to industry forecasts. No one disputes that flying causes carbon emissions, as well as other consequences such as noise pollution for those who live near airports. According to the 2006 Stern Report, flying accounts for 1.7% of all global greenhouse gas emissions - but power stations account for a massive 24% and other forms of transportation (shipping, train and road) for 12.3%. At the same time, there are benefits from flying - for example, tourism worldwide employs around 230 million peo pl e and gener at es 8- 1 0% of wo rld GDP. Fl yi ng is not al way s the wo rs t choi ce environmentally, and it is very complex to analyse how different forms of transport compare, though it is suggested that flying is generally about nine times worse than taking the train and three times worse than a car with two passengers. So should we stop flying? If no one set foot on a plane again, it would undoubtedly help to stop climate change - though at the expense of killing off the tourism-based economies of many of the world's poorest countries. But in the real world, we have to take a more sophisticated approach to how we as consumers can help the environment. We can encourage aircraft makers to prioritise environmental performance by choosing to fly with airlines that use less polluting aircraft. We can travel to destinations that help local communities rather than destroy them, take the train where possible, reduce carbon'emissions at home, and, above all, persuade politicians to tackle issues such as deforestation and switching to greener forms of energy. Source: The Observer, 1 July 2007 Questions (a) Using Figure 1: (i) (ii) summarise the trends in international air passenger growth 2000-2004; compare these trends with the forecast trends for 2005-2009. [2] [2]

(b) With the help of a supply and demand diagram, explain the likely impact of both global economic growth and the entry of low-cost airlines on the market for international air passenger travel. [6]

@ U CL E S & M O E 2009 8819/01/0/N/09

[Turn over


(i) What is meant by price elasticity of demand?


(ii) How far does the concept of price elasticity of demand help to explain the success of low-cost airlines such as AirAsia, Virgin Blue and Tiger Airways? [6] (c) (i) With reference to the data, explain how the existence of a negative externality can lead to market failure. [4] (ii) As a consultant economist, what options would you present to the Singapore government for responding to the alleged negative externalities of air travel, and what would you recommend? Justify your answer. [8] [Total: 30 marks]

@ U C L E S & MOE 2009 8819/01/0/N/09


2010 ACJC Preliminary Exam for H1, P1 Section A, Q1 Ukraines Steel Industry
Section A Answer all questions in this section.

Question 1 Ukraines Steel Industry Extract 1: Ukraines economy World steel prices are highly sensitive to global economic downturns. The earnings of major steel exporters such as Ukraine are therefore closely linked to trends in the world economy. As global car manufacturing and construction activitiesand hence steel priceshave sunk in the deepening world slowdown, Ukraines fortunes have been dragged down too. The steel industry accounts for about 12 percent of Ukraines national income, and for more than one-third of total exports of goods. Many other economic activities depend on the steel sector. A surge in steel prices from 2000 to 2008 underpinned Ukraines largely favourable export performance and impressive GDP growth: between 2001 and 2007, the Ukrainian economy grew by an average of 7.5 percent a year in real terms. Amid the global economic crisis, the commodity boom of recent years ended abruptly, and with global car sales slumping and a sharp contraction in construction activity, steel was particularly badly affected. The collapse of steel prices has hit Ukraine hard. Source: Finance And Development, Vol 46 No.1, 2009 Figure 1: World steel prices Figure 2: Ukraine Real GDP
% change YOY

Source: Inside Council; Summit Business Media

Source: World Steel, WSD, Macquarie Research

Extract 2: The primary steel production methods, accounting for about three-quarters of total steel, reduce iron ores to hot metal in the first step and then refining it to steel. This production of steel from ore is the most energy intensive and emits CO2 the most. The main production routes for primary steel are blast furnace (about 66% of total), direct reduction (6% of total), and open hearth furnace (3% of total). Steel is also produced by recycling scrap steel, often in combination with a form of iron. While it is true that every steel company and every steel-producing country is at a different point of maturity and development, the steel products manufactured and traded around the world are highly interchangeable. Today, 40% of the worlds steel is traded internationally and over 50% of total production is in developing countries. Source: American Iron and Steel Institute, 2008 Extract 3: Japan, seeking to meet a 2012 cap on greenhouse-gas emissions, agreed to purchase carbon dioxide credits from Ukraine in its first such overseas deal. The two countries signed a contract for the sale of credits under the United Nations-sponsored Kyoto Protocol today in Kiev. The sale comes under a so-called green investments plan, which will allow Ukraine to boost spending on environmental projects and energy-saving technologies. Japan, seeking to avoid a shortage of emission permits, plans to buy credits for as much as 100 million tons of carbon dioxide equivalent, and is holding talks with the Czech Republic, Hungary, Poland and Russia. Japan is in a tough situation, said a senior climate-change researcher at Mitsubishi Research Institute Inc. in Tokyo. Rather than buying more credits from other nations, the country needs actions to cut its domestic output. Japans emissions rose 8.7 percent in the year through 2008 from 1990 levels. Under the Kyoto accord, Japan pledged to cut greenhouse gases by 6 percent in the five years through 2012, according to the Environment Ministry. The country has so far bought 23 million tons worth of certified emission reduction credits, the Trade Ministry has said. Ukraine plans to spend the revenue from credit sales solely on emission-reduction projects, Igor Lupaltsov, head of the Environment Investment Agency, said in November. Source: Bloomberg, 18 March 2009 Figure 3


Source: US Dept of Energy, *GHG greenhouse gas

Questions (a) (i) Describe the trend of world steel prices between 2003 and 2008. (ii) With reference to the data and with the aid of a diagram, account for this trend. (b) (i) What is meant by price elasticity of demand? [2] [3] [2]

(ii) Explain what the data suggests about the price elasticity of demand for Ukraine's steel. [3] (c) Discuss the measures the Ukraine government can adopt to stabilise the country's domestic steel prices. Explain why steel production is inefficient from society's point of view.

[6] [4]

(d) (e)

Evaluate the effects of Japan's offer to buy emission permits from Ukraine on the global level of carbon emission. [10] [Total: 30 marks]


2010 NYJC Preliminary Exam for H1, P1 Section A, Q1 Alcohol consumption Section A Answer all questions in this section

Question 1: Alcohol consumption

Extract 1

Binge drinking an "emerging issue in Singapore", says Health Promotion Board

By Alicia Wong and Sufian Suderman, TODAY (Singapore) | Posted: 17 December 2008 0940 hrs (Adapted)

SINGAPORE: Binge drinking consuming five drinks or more for males, or four drinks or more for females, within two hours is an emerging issue in Singapore, said HPB in a tender document posted on the GeBIZ website. The 2006 Student Health Survey showed that one in two students aged 12 to 17 has tried alcohol, even though it is illegal for them to buy it. This is a worrying trend, said HPB, as those who start drinking before age 15 are four times more likely to become alcohol-dependent than those who start at 21. One problem: Clubs closing later these days. The longer (people) are out clubbing, the more they drink, said Ms Sheena Jebal, the chief executive of NuLife Care and Counselling. Before hitting the nightspots, young clubbers may buy and chug alcohol from a convenience store first as it is cheaper, to get high. Many turn to cheap chinese wine, which has 40 to 50 per cent alcohol content, compared to four per cent for beer. Parents unwittingly aid in such dangerous behaviour, warned Ms Jebal, who has conducted research on this area. Family members tend to trivialise the issue as a one-time thing, so the youth keep doing it. Some mothers even give their children more allowance to support the habit, out of fear their children would end up stealing or prostituting themselves, she said. Then there is peer acceptance of binge drinking as a social norm. Mr Yusof Ismail, chief executive of the Ain Society, said: When there are so many people doing this, the guilt mechanism doesnt work. He added that the rebellious factor in binge-drinking was, in itself, addictive to the young. Last year, Asia Pacific Breweries Singapore spearheaded a youth-led moderate drinking campaign, Get Your Sexy Back. This year, it became a full-fledged programme driven by youth volunteers. Extract 2

Rolling away the barrel

The Economist (April 10th 2010) Adapted

Across Europe, economies are stagnating and unemployment is climbing. Reason enough, you might think, to hit the bottle. Europeans put away over 9 litres of alcohol a year per person, twice the global average. The European commission has declared that alcohol is a key public-health and social concern. Yet in most big EU countries drinking is in decline. In France and Italy the average adult drinks over a third less than he or she did 30 years ago. What explains the great sobering-up? In part, the drivers appear to be socially responsible. Rising numbers of urban workers and the insidious spread of Anglo-Saxon fast food habits are working against the old traditions of a glass with breakfast followed by a long lunch fuelled by a bottle or two. These countries also had a lot further to fall. In 1980 France, Italy and Spain were the booziest nations in Europe.

Figure 1
S INGAP ORE P e r ca pita Consum ption (litre s of pure a lcohol) a ge 15yrs+
3 2.5 2 1.5 1 0.5 0
19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01

Figure 2
(EUROPE) Litr e s of p ur e alcohol con s um e d pe r pe r s on (Adult 15yr s +)

20 18 16 14 12 10 8 6 4 2 0

Wine Spirits Beer Total

Britain Franc e Italy Germany 1996 1999 1990 1991 1992 1993 1994 1995 1997 1998 2000 2001 2002 2003

Extract 3

Hello beer! Bye wine!

Christopher Lim | The Business Times | Singapore, March 5, 2010

MOVE over, wine bars. The art of wine appreciation and food to match may well be losing its appeal if the recent activity in the beer scene is anything to go by. Restaurants which feature beer prominently on their menus are increasing in number, while local breweries are starting to quench thirsts overseas, getting a foothold even in beer-obsessed countries such as Australia. Some are still considering local expansion, but are far more confident of regional expansion. For example, after 13 years in Singapore, Brewerkz is planning to expand to Hong Kong in the fourth quarter of this year. One factor that doesnt seem to be an issue for beer restaurants in Singapore is the amount of time it takes for initial investments to turn a profit. Oosters the latest beer restaurant to close a branch took only half a year for its flagship branch at Far East Square to recover initial investments when it first opened.

Table1: Price of a pint of beer around Singapore Location Clarke Quay Suntec Orchard China Town Tampines Punggol Price $13.12 USD $8.20 USD $6.72 USD $4.43 USD $2.95 USD $2.48 USD

We have been around for seven years; that says a lot, says Irwin Pang, general manager of the Belgian brasserie. Business has been great so far despite the economic downturn in 2009. Things are picking up and I hope for things to get better, he says. The dining scene in Singapore is hotting up as more players enter the fray. The challenges lie in the availability of trained F&B workers from the kitchen and from the service sides. And the challenges mainly come from the lack of manpower, the rental costs and rising of raw material costs," says Ang Kiam Meng, President of the Restaurant Association of Singapore.

a) i Compare the trends in alcohol consumption in Europe with that of Singapore from 1993 to 2001. Using demand and supply analysis, explain the likely reasons for the above trends. (2m)




From figure 1, describe the changes in the composition of total alcohol consumption in Singapore from 1993 to 2001. Using examples, account for the differences in the price of a pint of beer at various locations around Singapore. Singapore brewers should target regional rather than domestic growth for their own benefit. Do you agree? Explain clearly why alcohol could be considered a demerit good and evaluate the measures that governments can take to alleviate the key public-health and social concern of alcohol consumption.








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