GCE 'A' LEVEL H2 ECONOMICS (9732) 2007

Questions
Suggested Answers:
In response to this question candidates simply needed to make comparative statements on the
changes in retail sales by type of outlet. Candidates did not do well if they simply observed the
changes rather than making comparative comments. A surprising number of candidates
misinterpreted the data here. Many thought that sales were highest in supermarkets, others that
the data showed price changes in some way.

(a) Sales had risen in all types of outlet over the period.
Sales had increased most in supermarkets and sales had increased least in
departmental stores.
There was a steady increase in provision and sundry shops while supermarkets and
department stores saw dips in the same time period. (Any 2 will do)
(TREND ANALYSIS)
This question was well answered by most candidates. Few were unable to identify and then
explain the reasons for the development of supermarkets in China since the reasons were so
clearly signposted in the text.
Most candidates scored well, although the Examiners are less impressed by those who
paraphrased the text extensively or quoted the text. They preferred answers that were succinct
and to the point, whilst at the same time answering the question in sufficient depth.

(b) DD: Chinas growing middle income population who likes foreign goods.
SS : China Govts policy to encourage more players, even from abroad.
(DD-SS FACTOR)

This question was also answered very well. Most candidates identified the market structure as
oligopolistic and justified this in terms of the small number of firms controlling the large share of
the market as shown in the data.

C(i) Oligopolistic. 4 firms controlling over 70% of total market share.

(CONCEPT/THEORY)
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In response to this question candidates showed knowledge of the ways in which firms compete
in oligopoly, but these were often described rather than explained. The kinked demand curve
was often introduced together with the statement that it deterred firms from competing on price.
What was often lacking here was the underlying explanation of why these types of competition
arose in this type of market. Although this could be inferred from the kinked demand curve
diagrams that were usually provided, it was very often only implied rather than explained.

C(ii) From c(i), we see that only 4 firms control the bulk of the market share, so these
firms have an incentive to monitor what the other firms are doing.
For eg, if Tesco lowers her prices of goods, Asda and others have the incentive to
monitor and similarly lowers prices, to negate the price advantage that Tesco tried to
carve out.
This element of mutual interdependence or rival consciousness caused by the fewness
of the firms in the market suggest that instead of price competition, non-price
competition in an oligopoly is more sustainable.
An example is to undertake advertising, say to inform consumers of a new range of goods that
only their stores carry, and no one else.

Or Tesco can product differentiate according to location or incomes. For eg, in London
they can carry a more sophisticated range of goods like more foreign goods from US,
Middle East, etc, while in the more rural/suburban areas, they can carry a simpler or
locally produced range.
They can even brand themselves differently from the rest. From possible themes such
as the friendliest family store to the widest range of goods to exotic range, etc,
Such branding can lead to more consumer loyalty, which is even stronger if their
consumers are rewarded with loyalty discounts and free stuff.
Ant 1-2 egs will do.
(CONCEPT/THEORY)

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Divestment is a policy proposed in the UK to introduce more competition into the retailing
sector.
To score in Level 2 on this question it was necessary to show an appreciation of both possible
outcomes in terms of the impact of divestment upon consumer welfare. The mark awarded
within the band was dependent upon the quality of the answer in terms of technical grasp and
the range of issues considered.

(c) Step 1:
Cause: divestment
Effects: improve consumer welfare.
Step 4:
Divestment (eg of selling of stores to who?) more competition prices, output
improve consumer welfare
Step 5:
Divestment scale of production , size of Tesco EOS (eg of EOS in
supermarkets) prices , output lower consumer welfare (Extract 6: buying
power)
Also, Divestment scale of production , size of Tesco EOS profits
R&D (eg of R&D or innovation in supermarkets?) quality , product
improvement less over time lower consumer welfare
Other answers:
Divestment effects also depends on selling of stores to which party
If to (i) govt inefficiency may lower consumer welfare!
(ii) to Asda no change in consumer welfare
(iii) foreign players improve in SR; worsen in LR, as foreign suppliers may aim
to dominate industry lower consumer welfare in LR
(iv) sell to local non top-4 firms unlikely as they lack funds in the 1st place, to
break into the top rung.
(How much to write: for 8m, you hv max 20mins. Always write as much as poss for
H.O.T.qns; write just what the marks indicate for DRQs)

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This question gave candidates the opportunity to consider the arguments for and against
supermarkets in the Singaporean context. The data provided two examples of different
government policies towards supermarket development. In China, government policy has been
to encourage supermarket development in a variety of ways. In the UK, the government is
considering a policy to reduce the market power of supermarkets. Candidates were questioned
on these opposing approaches in the earlier questions.
The reasons for the differing approaches to policy are clearly related to the differing conditions
in China and the UK. Clearly whether further supermarket development was appropriate for
Singapore depended on the circumstances in Singapore. An appreciation of this was essential
for a successful answer here.
Some candidates did very well. They considered the data provided as a whole and recognised
the underlying themes and issues. For example, it was clear from the data that the reason that
the Chinese government encouraged supermarket development was that the distribution of
goods in China is inefficient. This was because of the fragmented market. This could hardly be
applied to Singapore.
Successful answers considered such issues in an analytical framework. Good candidates
provided a thoughtful conclusion after summarising the issues from a Singaporean context.
The less successful approaches simply provided a few arguments for and against supermarkets
with little reference to Singapore. These approaches were usually descriptive and failed to grasp
the relevant themes inherent in the data. They tended to focus upon a limited section of the data
and failed to consider the data as a whole. These tended to be awarded a mark in the lower
level and often they scored few marks for evaluation.

Step 1: Causes: Encourage supermarket development

/ Effect: not given. (Either in extract or need to brainstorm) impacts are on
consumers, producers or on society
(Recall that the ways to analyse micro effects are found in the summary for market
structure.)
Selected effects:

consumers: price, quantity, quality, variety (from entire case)

Producers: productive efficiency (brainstorm)
Society: distributive efficiency (from extract 1)

Step 4: How encouraging supermarket development improves the chose effects

Encouraging supermarket development more competition consumers gain,
producers have incentive to be more efficient. Singapore stores can become a one-stop
centre better distribution of goods
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Encouraging supermarket development more competition local producers can

grow in size. able to compete beyond Spore, for eg, can begin to compete regionally.
A potential source of growth for Spore
Step 5:
How encouraging supermarket development may not improve the chose effects.
Theres little need to improve distributive efficiency in Spore. Unlike China who is big,
mountainous and probably less efficient transport infrastructure, Spore is physically
very small, has satellite towns with almost full range of amenities and service providers,
the efficient public transport system also makes it easy to commute across the island for
purchasing goods and services. Hence, no need to encourage supermarket
development.
Next, context says the wet markets appear to complement other retail outlets like
supermarkets. In China, they encourage supermarket development by closing street
markets (Extract 4).
That means we have to close down our wet markets, provision and sundry shops, in the
attempt to encourage supermarket development. Apparently its not a good idea,
because:
i)

Some minimarts cater to the expatriate population (Extract 7). For eg, they cater
to the small Korean population, who prefer to still be able to access their home
foodstuff. Its not cost effective for NTUC or Carrefour to carry such a small range
of goods and occupy a few shelves in the stores. This is a case of niche market,
whereby it justifies the existence of small firms.

ii)

Some foodstuff (Extract 7) are fresh produce and highly perishable. Consumers
would prefer to buy it within close proximity of their homes. This is a case of local
demand, whereby small firms can serve better than large supermarkets. For eg,
kampong chicken, and quail eggs only appeal to a small % of the population. Not
cost effective for NTUC to again carry this range.

iii)

Again, not cost effective for NTUC to carry full range of goods to satisfy all the
races (Extract 7) in Spore. For eg, its not profitable for NTUC to source, locate
and carry the full range of Indian herbs and spices. Moreover, the staff must be
knowledgeable enough to educate on the range of herbs and spices. This is a
case of a specialised and personalized goods and service, whereby it is easier
for the Indian community to serve their own races needs for foodstuff.

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