AndersonJuniorCollege2009JC2H2EconomicsPrelimPaper1(CaseStudy)Answers

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JC2 H2 Economics Paper 1
Preliminary Exam 2009
Suggested Answers
Question 1: The market for TV
(a)(i)

Explain the trends in TV audience shares in Britain for the five main TV channels
between 1995 and 2005.

[2]

Shares for all five main TV channels fell (except for Channel Five) [1] because of a rise in
share for Others. [1]
(ii) Describe the type of market structure operating in the British TV market in 2008.

[2]

Oligopoly [1] because a few firms/TV channels dominate the British TV market. [1]
(iii) Explain one possible economy of scale in TV broadcasting.

[2]

Technical EOS from using broadcast equipment to full capacity [1], thus LRAC falls as output
rises. [1]

(b)(i)

With reference to Table 1 and Extract 1, compare the changes in audience viewing
patterns between Britain and the US from the 1980s to 2005.

[2]

Both the shares of Britains main TV channels and USs big three fell. [1]
The fall was greater in the US. [1]
(ii) Using Extract 1, identify and explain two strategies which would enable the big three
US TV companies to remain profitable in the face of competition from pay TV.

[4]

Move into pay TV provides an additional service to increase TR through a new

revenue source. Possibly reduce AC through economies of scope. [1] Higher TR and
lower TC can lead to higher profits.
Expand their own programme production Increase TR through a new revenue
source. Possibly reduce TC through in-house production / backward integration. [1] Higher
TR and lower TC can lead to higher profits. [1]
Move into overseas markets Diversify to increase TR from new revenue sources. [1]
Higher TR can lead to higher profits. [1]

Any two points (2m per point)

(c)

Should Ofcom intervene in Sky TVs stranglehold over pay TV? Justify your answer.

[8]

Thesis: Yes, Sky TVs stranglehold is detrimental

Market dominance by Sky TV: controls 100% of the subscription movie market
(monopoly), 80% of the premium sports content (near monopoly)
Profit-maximising by monopolist meant that British consumers paid too much (300.5
compared to 73.9 in Finland)
Possibly mean P > MC allocative inefficiency, deadweight loss, loss of consumer
surplus
X-inefficiency if Sky TV becomes complacent and lax over cost controls productive

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AndersonJuniorCollege2009JC2H1EconomicsPreliminaryExaminationAnswers

inefficiency
Inequity

Antithesis: No, Sky TVs stranglehold is beneficial

Supernormal profits Innovation, range, quality of content, dynamic efficiency
Economies of scale from large scale production may lead to lower prices
Evaluation: Judge whether or not Ofcom should intervene
Weigh up both sides of the argument
Possibility of government failure
Depends on how the market is defined narrowly / broadly. Possibly a natural
monopoly?
Mark scheme:
L2
L1

Knowledge, Application, Understanding and Analysis

Response will explain market dominance and how it could either be
detrimental or beneficial to society.
Response will show understanding of market dominance but will only explain
one possible outcome in terms of impact on society.

4-6
1-3

Allow up to 2 additional marks for Evaluation

(d)

E2

Judgement substantiated with a reason.

E1

Unsubstantiated judgement on whether or not Ofcom should intervene.

In the light of the data provided and your own relevant knowledge, if you were an
economic advisor to Ofcom, discuss the measures Ofcom could adopt to reduce Sky
TVs stranglehold over pay TV.

Ofcom can adopt measures to reduce the market dominance that Sky TV has in the pay
TV market.

One possible measure is to force Sky TV to sell its TV programmes at regulated prices to
its rivals (Extract 2)
o With the sale of the premium sports and movies content to rivals at regulated
prices, these rival firms can now offer the same movies and premium sports
content as Sky TV. As a result, this reduces Sky TVs monopoly grip (stranglehold)
since consumers can choose which firm to subscribe from.
o In addition, Sky TVs sale price of such programmes/channels to its rival is
subjected to Ofcoms approval. It cannot charge unreasonably high prices to its
rivals (e.g. prices it sells to its customers). Otherwise it will be impossible for the
rival firms to sell the program to consumers at prices comparable to Sky TVs. If it
were so, the majority of consumers will still prefer to subscribe with Sky TV. Sky
TV will remain a monopoly in terms of market share.
o The advantage of this measure is that it is relatively easy to implement: pricing
information is easily available (Sky TVs subscription charges) and it is easy to find
out if Sky TV complies with the rule to sell its program to other firms since if Sky
TV does not, the rival firms can report to Ofcom.
o A possible limitation of this measure is that existing Sky TV subscribers are
unlikely to make the switch to another broadcasting firm given the possible

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AndersonJuniorCollege2009JC2H1EconomicsPreliminaryExaminationAnswers
inconvenience of doing so and especially if rivals offer the same price as Sky TVs.
In that case, Sky TVs stranglehold still persists in terms of market share (rather
than ownership rights to broadcast movies/sports).

Another measure is to break up Sky TV (Extract 2).

o Sky TV will then give up its licensing rights to the movies/sports programmes.
Probably, there will be no more exclusive rights given to a particular firm. All the
players can buy the same programmes so that no firm has a monopoly status.
o The disadvantage of this measure is that it is a bit extreme as it involves the
breaking up of a firm. And it may take a long time for it to happen as Sky TV is
likely to defend itself (Extract 4) in court against the decision.

In conclusion, although both measures will reduce Sky TVs stranglehold, the better
measure is to force Sky TV to share its programmes by selling it at a regulated price to
rival firms. It can also be implemented quickly.
Although market share may not change much in the short run, it is likely to do so in the
long run as the rival firms are likely to reduce price to try and gain more market share.

Mark Scheme for part (d)

L1

Knowledge, Application, Understanding and Analysis

Response will contain a clear discussion of the policies and their
limitations to address Sky TVs monopoly on sports/premium movies
content.
Response will contain policies with limitations. These will be considered
in the context of Sky TVs monopoly over pay TV.
Response will be one-sided, e.g. policies without limitations.

E2

Allow up to 2 additional marks for Evaluation

Judgement substantiated with a reason.

E1

Unsubstantiated judgement.

L3

L2

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7-8

4-6
1-3

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AndersonJuniorCollege2009JC2H1EconomicsPreliminaryExaminationAnswers
Question 2: Fare Well, Free Trade
(a)(i)

With reference to Figure 1, compare the changes in world trade and changes in GDP
from 1990 to 2000.

[2]

[Similarity] Both GDP and trade increased. (1)

[Difference] % Increase of world trade is greater than that of GDP. (1)

1m awarded for similarity.

1m awarded for difference.
(ii) To what extent does the data suggest that the change in GDP is the main reason for
the change in world trade from 1990 to 2000?

[6]

Thesis: Change in GDP is the reason for the increase in world trade
Higher GDP (Figure 1) higher income for the people higher purchasing power 2m
higher M higher volume of trade.
Anti-thesis: The increase in world trade is due to other factors.
Figure 3 shows that an increase in world trade may be due to a reduction in tariffs, 2m
leading to freer trade. Lower tariffs Fall in domestic prices of imported goods
Cheaper imports increase in quantity demanded for goods imported higher
volume of trade.
Furthermore, there is insufficient or no data on other possible reasons for an increase in 2m
world trade, such as data on whether more countries have signed FTAs under the auspice of
the WTO to create more open economies in the world, leading to higher volumes of trade.
(b)(i)

With reference to Extract 6, explain two ways in which countries can restrict trade.

Tariffs - These are taxes on import commodities. Tariffs raise the domestic price of
imports in the domestic economy thus reducing the quantity demanded of imports.
Subsidies - Subsidies can be given to domestic producers to lower costs of
production thus allowing the local producers to price their goods cheaper than foreign
commodities. This will increase the price competitiveness of local goods and
discourage the consumption of imported goods.

2m

With reference to the case materials, discuss whether the statement trade
protectionism shadows recession is valid.

[8]

(b)(ii)

[4]

1m
1m

Thesis: Countries adopt protectionism during recession.

2m

Extract 6 shows that a growing number of countries have protected their domestic
producers by either raising tariffs on imports or reinstating subsidies to domestic
producers during the recession.
17 of G20 members have failed to keep their promise not to implement anti-trade
policies;
Russia and India have raised tariffs on cars and steel, respectively, and
US, the EU, Switzerland and China have all given subsidies to their domestic
producers.

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AndersonJuniorCollege2009JC2H1EconomicsPreliminaryExaminationAnswers
During a recession, there is a fall in both national income & employment. By
adopting protectionist measures, like the imposition of tariffs and giving of subsidies,
governments are able to protect their domestic industries as well as their home
employment.

Figure 3 shows that, according to WTO statistics, there is increase in the number of
new trade-restricting measures between October 2008 and February 2009 when the
global recession is at its peak.

Anti-thesis: some countries adopt freer trade instead of protectionism during the recession.

Extract 6 shows that some countries have adopted freer trade during recession.
Countries, like Australia, China, Ecuador and Paraguay, have actually reduced
their import duties since the beginning of March 2009 when the global recession
is at its peak.
Freer trade increase in trade higher national incomes economies recovering
faster from recession. Also, an increase in demand for exports higher domestic
production increase in incomes & employment for people higher standard of
living.

Extract 6 also stated that the WTO reported no significant increase in protectionism
in January 2009 when recession was at its peak.

Evaluation

In conclusion, there is case study material to support, as well as case study material
to refute the statement that trade protectionism shadows recession.

However, whether the statement is valid depends on the nature of the economy.
Generally, small economies which have little resources and are more dependent on
trade tend to avoid protectionism during recession, while big countries which are rich
in resources are more likely to resort to protectionism to protect their domestic
industries and home employment.
Mark Scheme for part (b)(ii)

L2
L1

Knowledge, Application, Understanding and Analysis

Balanced argument supported with evidence from case materials or
No reference to case materials (max of 4)
One sided analysis to statement supported with some evidence from case
materials or Descriptive understanding of either side of the argument with
no support of data materials

4-6
1-3

E2

Allow up to 4 additional marks for Evaluation

Evaluative comments with justification

E1

Evaluative comments, unexplained.

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AndersonJuniorCollege2009JC2H1EconomicsPreliminaryExaminationAnswers
(c)

Assess whether the removal of trade barriers is the most appropriate measure to accelerate
the global economic recovery.

[10]

Global economic recovery means there is rising AD and hence increase in NY of the
economy.
Thesis: Removal of trade barriers can help to accelerate global economic
recovery
o The removal of trade barriers can be an appropriate measure to
accelerate global economic recovery. With the removal of trade barriers, there
will be trade creation between countries. This can substantiated by evidence
in Figure 2 which shows that world trade volume increased as average tariff
rate fell between 1990 and 2008. When countries export revenue increases,
AD will increase, resulting in the national incomes in these countries to
rise by a multiplied amount as a result of the multiplier process. As a result,
this increase in national income can help to spur the global economic
recovery.
o In this globalised world, many countries worldwide are dependent on trade as
an engine for growth. The removal of trade barriers can further stimulate the
global economic recovery by helping export-oriented industries in the
various countries gain access to a larger export market. With an increase in
production, firms will have to employ more factors of production, including
labour. The decline in demand-deficient unemployment can lead to higher
consumer expenditure and hence increase AD.

Anti-thesis: Removal of trade barriers may not help to accelerate global

economic recovery (limitations)
o On the other hand, the removal of trade barriers may not play a part in
accelerating global economic recovery. Though consumers may be able to
gain access to cheaper goods, they may not be willing to increase spending
or they may even reduce spending due to the poor global business and
consumer sentiments. Furthermore, as shown in Extract 7, unemployment
continues to rise in this current economic situation. This gloomy market
outlook and uncertainty about future employment may cause consumers to be
cautious about spending. Hence, despite the lower prices, consume
expenditure (and export revenue) may still be low. Thus, removal of trade
barriers may have limited or no effect in helping to accelerate global
economic recovery.

Anti-thesis: Other policies may be more effective in helping to accelerate

global economic recovery
o Other possible policies that the governments of all or most countries
(especially developed countries) can undertake to accelerate global economic
recovery include expansionary fiscal and monetary policies (as mentioned
in Extract 7). These expansionary demand-management policies can help to
stimulate further increase in AD.
Evaluation
Whether the removal of trade barriers can help to accelerate global economic
recovery depends on the compliance level of the governments.
It may be a better choice to have expansionary demand-management policies
first, before embarking on policies to promote free trade.

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AndersonJuniorCollege2009JC2H1EconomicsPreliminaryExaminationAnswers
Mark scheme for part (d)
Knowledge, Application, Understanding and Analysis
A thorough and well balanced answer which shows how removal of
L3
trade barriers may and may not lead to global economic recovery.
L2
L1

A balanced answer but shows descriptive understanding of how trade

barriers can and cannot help to accelerate global economic recovery.
One-sided descriptive knowledge of benefits or limitations of removal of
trade barriers to accelerate global economic recovery

7-8
4-6
1-3

E2

Allow up to 2 additional marks for Evaluation

Evaluative comments with justification

E1

Evaluative comments, unexplained.

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