TEMASEK JUNIOR COLLEGE

JC1 Promotional Examination 2016

General Certificate of Education Advanced Level
Higher 1

ECONOMICS 8819
Friday 30 September 2016
1 hour 55 minutes

Additional Materials: Answer Paper

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Economics
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Answer all questions.

Section A

Question 1

Alcohol Consumption in the World

Table 1: UK Alcohol Consumption (litres of alcohol per head)

Year Beer Spirits1

2008 3.47 1.79
2009 3.14 1.70
2010 3.08 1.77
2011 2.98 1.71
2012 2.82 1.71
2013 2.74 1.63
Source: British Beer and Pub Association

Extract 1: Why is alcohol consumption falling?

Britons have been drinking less and less every year since 2002. Men and women of all ages are
slowly curbing their excesses and drinking in moderation, according to the annual survey from the
Office for National Statistics. It suggests that heavy drinking is falling, abstinence is rising, and
young people are leading the drive towards healthier drinking.

There may be multiple reasons. Historically, sales of alcohol rose and fell with the economy and
the current downturn caused a fall in alcohol consumption from 2008-2009. Moreover, around that
time, the UK did see the launch of some alcohol health warning campaigns. The health dangers of
heavy drinking were also increasingly highlighted by the media. News stories were peppered with
health warnings from groups like Alcohol Concern and Drinkaware.

Source: BBC News, 15 February 2011

Extract 2: Malted barley shortage could be a problem for brewers

Bad weather in Alberta and parts of the United States last year is causing a shortage of a key
ingredient in beer making, which is forcing breweries here to dip into their reserves. Beer is one of
the oldest beverages humans have produced. In its most basic form, beer requires water, hops
and malted barley. Halifax’s Garrison Brewing Company goes through 300 tonnes of malted barley
in a year. Its president, Brian Titus, says the grain is in short supply, forcing its suppliers to dip into
their reserves. The shortage is driving the price up for breweries, by about five per cent. As more
breweries pop up, there's more pressure on suppliers.

Source: CBC News, 9 January 2015

Extract 3: When social drinking becomes a problem

Alcohol-related health issues among baby boomers are on the rise. Daily drinking can start off as a
social event but turn into dependency, addiction experts say. Since the 1950s, alcohol
consumption in the UK has gradually increased. The National Health Service now spends more on
alcohol-related illness among baby boomers than any other age group. Estimates also suggest
about nine per cent of men and three per cent of women in the UK show signs of alcohol
dependence. But it is the functioning alcoholic that can slip under the radar - before their health
issues are severe enough to need treatment. Prof Sir Ian Gilmore, a liver specialist and chair of the
Alcohol Health Alliance, believes the number of people dying from liver disease will keep rising.
1
Spirits refer to alcoholic drinks with a minimum alcoholic strength of 15%.

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The majority of people who have alcohol-related health problems are middle-aged, which Sir Ian
says is a consequence of chronic alcohol misuse - many years of frequent heavy drinking, rather
than binge drinking - a session of drinking large amounts of alcohol in a small space of time.

Source: BBC News, 15 December 2012

Extract 4: Should liquor in Indonesia be banned?

The alcohol industry has called on the House of Representatives to draft a bill that would become
the legal basis to regulate the distribution of alcoholic beverages in society. If such a bill was
passed into law, it would allow regulators to control and monitor the distribution of such beverages,
rather than totally banning the commodity, said Indonesian Malt Beverage Producers Association
(GIMMI) member Bambang Britono.

What Indonesia needed was comprehensive regulations on the chain of production and the
marketing of alcoholic beverages instead of total prohibition because there was no reason to
completely ban liquor, Bambang added. "Research findings from the Health Ministry's research
and the development agency as well as the World Health Organization (WHO) have indicated that
there is no alcohol emergency issue in Indonesia," Bambang said, adding that the results had
shown low levels of alcoholic consumption in the country. Indonesia Spirit and Wine Alliance
(ISWA) spokesman Ipung Nimpuno added that the US Volstead Act, which prohibited the
production, importation, distribution and sale of alcohol between 1920 and 1933 was an example of
how such a law failed to reduce alcohol consumption." What actually happened was a rise in crime
and the growth of mafia organisations who smuggled alcoholic drinks," Ipung said. According to
him, proper control and monitoring would provide greater certainty in regulating the alcoholic drinks
sector in Indonesia.

Source: The Jakarta Post, 12 February 2016

Extract 5: Alcohol Taxation

Taxation is the mechanism most often used by governments to deal with alcohol-related social,
economic, and health issues. Influencing the prices paid for alcoholic beverages usually involves
increasing taxes paid by producers and retailers on the cost of production, which are often passed
on to the consumer. In the UK, the price of alcohol is largely influenced by an Excise Duty. Excise
Duty is a tax on certain goods such as alcohol and tobacco, payable once the alcohol product is
released for consumption onto the UK market. The rate for alcohol products like spirits, wines, and
beers is based on their alcohol content and volume.

However, taxation does not effectively target those who abuse after alcohol consumption or who
have risky drinking patterns. The question of the external cost of alcohol use, as contrasted to
alcohol abuse, is complex and paradoxical. It is complex because societal cost of alcohol
consumption is associated mainly with abusers but both abusers and moderate drinkers pay the
tax because it is impossible to differentiate between the two at the point of sale. It is paradoxical
because it is well known that moderate drinkers have above-average health, as compared to the
abusers. Research has provided increasing evidence that moderate alcohol consumption is
associated with a decreased occurrence of coronary artery disease and increased longevity. Thus,
the health problems associated with abusers increase the medical insurance premium, an
additional cost borne by moderate drinkers.

Source: Adapted from www.ias.org.uk and CATO Journal, Vol 15

© TJC 2016 [Turn Over

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Questions

(a) (i) Compare the trends in consumption of beer and spirits in the UK between 2008 and
2013. [2]

(ii) With reference to Extract 1, account for the trends in consumption of beer and spirits. [2]

(b) (i) Using a demand and supply diagram, explain why there is an increase in the price of
barley in US. [4]

(ii) With the aid of a diagram, assess how an increase in price of barley would likely
affect the expenditure on beer by different types of consumers. [8]

(c) Explain how market failure arises from alcohol consumption. [6]

(d) Discuss whether an alcohol ban or alcohol tax is a better policy to address the market
failure arising from alcohol consumption. [8]

[Total: 30]

Section B

Question 2

Milton Friedman, an economist once said that ‘Inflation is always and everywhere a monetary
phenomenon’.

(a) Explain how monetary factors can cause inflation. [10]

(b) Assess the problems of using GDP to measure living standard when a country is facing
high inflation. [15]

© TJC 2016