Documente Academic
Documente Profesional
Documente Cultură
9732/01
ECONOMICS
Higher 2
Paper 1
25 August 2009
2 hours 15 minutes
READ THESE INSTRUCTIONS FIRST
Additional Materials:
Writing paper
Write down your name and civics group 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.
At the end of the examination, fasten all your work securely together.
The number of marks is given in brackets [ ] at the end of each question or part question.
2
Answer all questions.
Question 1
The Pharmaceutical Industry
Extract 1
In the fight for a larger pie, pharmaceutical companies have moved from being a mature industry
making billions, to one that is finding it increasingly difficult to sustain performance. Today, the
industry faces numerous challenges like lengthy and risky initiatives in R&D, negotiating a diverse
and stringent set of regulatory frameworks in new markets and creating new intellectual property
in view of increasing competition and declining sales in developed markets. Pharmaceutical
companies have tried to address this by massive consolidation to achieve greater economies of
scale and a rapid scale up in sales and marketing activity to broaden reach.
Source: outsourcing notes.com, August 2008
Extract 2
Recently, the President of Brazil issued a compulsory license to the producers of a lower-cost,
generic version of Mercks antiretroviral drug, Efavirenz. And in March, Thailands new
government also issued compulsory licenses for a clutch of innovative medications, including
three for cancer.
The World Trade Organisation allows national governments to revoke patents for use in urgent
and emergency situations without consulting the foreign patent owner.
Compulsory licenses have triggered a spate of challenges to pharmaceuticals intellectual
property in emerging economies like those of India, Thailand and Brazil. Now those challenges
are starting to extend to biotech patents.
Sources: various
Extract 3
The UK National Health Service (NHS) spends about 11 billion a year on treatments, 8 billion
of which is on branded drugs. One of the main instruments employed by the UK Health
Departments to control NHS expenditure on these branded drugs is the Pharmaceutical Price
Regulation Scheme.
The workings of the scheme are complex, but at a broad level it comprises the following:
profit controls, which set a maximum level of profits that a company may earn from the
supply of branded drugs to the NHS and
price controls, which impose restrictions on price of drugs.
Source: Department of Health, UK
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9732/01/Prelim/2009
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Extract 4
Developing Asian economies have maintained high levels of economic growth in recent years,
particularly since the late 1980s. Before then, these economies were unable to mobilize enough
domestic savings to fulfill their huge investment requirements and sustain growth. Even though
their savings rates were relatively high, the amount of capital needed was enormous. Also,
financial intermediation was limited because domestic financial and capital markets were not
developed enough to supply sufficient long-term capital to domestic firms. To overcome the
shortage of capital and sustain growth, Asian governments actively and successfully promoted
inward foreign direct investment (FDI). Despite the economic stagnation and other severe effects
of the 1997 financial crisis, the growth potential of the developing economies of Asia is still
considered high compared to most other developing countries. The capital requirements to
sustain developing Asias robust growth continue to be very high.
A key factor that enabled Asian economies to sustain high growth rates was foreign demand for
manufactured goods produced by these countries. Accordingly, Asian economic growth often
has been characterised as export-led development. Multinational corporations (MNCs) in
developed countries invested in developing Asian economies to profit from factor endowments
that account for the regions comparative advantage, particularly low labor costs. This was
instrumental in promoting the export of manufactured goods from developing Asian economies.
Initially, FDI concentrated on relatively low value-added and labor-intensive industries, such as
textiles and food processing. Subsequently, however, high value-added industries such as those
for electronic components and pharmaceuticals benefited from considerable FDI.
Source: adb.org, 2007
Table 1:
Country
France
Germany
Italy
2000
80
91
79
2001
81
94
82
2002
81
95
86
2003
91
102
90
USA
UK
209
100
217
100
201
100
190
176
198
100
100
100
Source: Department of Health, UK
Table 2:
2005
96
108
84
Corporation
Pfitzer
GlaxoSmithKline
Novartis
Sanofi Aventis
Top 4 corporations
Top 10 corporations
SRJC/JC2
2004
84
106
78
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Figure 1:
Per
cent
100
80
60
Pharmaceutical
Manufactured Goods
40
Others
20
0
2001
2008
Questions
(a)
(i)
Compare the changes in the relative prices of drugs among the different countries
shown in Table 1.
[2]
(ii)
Suggest two possible reasons for the difference in prices of drugs in Italy and
Germany in 2005.
[3]
(b)
Using the information available, account for the degree of market concentration in the
pharmaceutical industry.
[4]
(c)
Using economic analysis and with the aid of a diagram, explain the possible impact of
compulsory licenses on the profits of the manufacturers of patented drugs.
[5]
(d)
(e)
With reference to the data and your own knowledge, discuss the extent to which rising foreign
direct investment is of benefit to Singapore and other recipient countries.
[10]
[Total: 30]
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Question 2
The Global Recession
Extract 5: Houses of cards
Record-low interest rates in the past such as in 2001, 2002 and 2003 did not lead Americans to
invest more. Instead, easy money stimulated the economy by inducing households to increase
their borrowing as rising house prices allow them to get loans more easily from banks. Much of
the borrowed funds were used for consumption and speculation in property. As a result,
America's household savings rate was at levels not seen since the Great Depression, either
negative or zero.
But with higher interest rates depressing housing prices, the game is over. As America moves to,
say, a 4% savings rate (still small by normal standards), aggregate demand will weaken, and with
it, the economy.
Adapted from guardian.co.uk, 9 October 2007
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Extract 8: Going green makes sound sense
The Singapore government in its attempt to cushion the impact of the financial crisis has brought
forward its plans to invest in the environment. Investing in the environment is an economically
sound decision during a financial crisis. The government plans to spend S$1 billion over the next
five years on sustainable development initiatives. These include promoting energy efficiency in
industries and households in the form of subsidies and tax rebates, and investing in green
transport, clean energy and the greening of our living spaces. The government has also allocated
S$695 million to transform Singapore into a City in a Garden, thus providing leisure and reducing
urban heat. People may now have more time to spend on leisurely pursuits.
Adapted from The Straits Times, 24 March 2009
Year
2005
2006
2007
2008
GDP Growth
Rate (%)
2.9
2.7
2.0
1.1
Unemployment
Rate (%)
5.0
4.6
4.2
5.8
Budget Balance
US$ billions
% of GDP
-318.3
-248.1
-162
-410
2.6
1.9
1.2
2.9
Source: various
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Questions
(a)
(b)
Using the information available, discuss the extent to which a near-zero interest rate is desirable. [6]
(c)
(i)
With reference to Table 3, describe the trend of the US budgetary position between 2005 and
2008.
[2]
(ii)
[3]
(iii)
[4]
(d)
[1]
During the current economic downturn, the Singapore government implemented a slew of policy
measures.
(i)
With reference to Extract 8, examine the view that investing in the environment during a
financial crisis is an economically sound decision for the society.
[6]
(ii)
End of Paper
SRJC/JC2
9732/01/Prelim/2009