2024 DHS Prelims H1 Econs (Q) (A)

© DHS 2024 8843/01/2024 Name: Centre/Index Number: Class: DUNMAN HIGH SCHOOL Preliminary Examination Year 6 Economics (Higher 1) 8843/01 Paper 1 Case Study Questions 16 September 2024 3 hours No Additional Materials are required. READ THESE INSTRUCTIONS FIRST An answer booklet will be provided with this question paper. You should follow the instructions on the front cover of the answer booklet. If you need additional paper ask the invigilator for a continuation booklet. Answer all questions. The number of marks is given in brackets [ ] at the end of each question or part question. This document consists of 8 printed pages including this cover page. [Turn over

2 Question 1: Food (Supply) Chain Extract 1: A fertilizer shortage, worsened by war in Ukraine, is driving up global food prices and scarcity Russia and Ukraine are key agricultural players and major providers of basic agr icultural- commodities, including wheat, maize and sunflower oil. The two countries are also key players in the world fertilizer market -- Russia and Ukraine together export 28% of fertilizers made from nitrogen and phosphorous, as well as potassium. As 70% of Ukrainian exports were carried by sea, the massive blockade imposed by Russian forces on all ports in the Black and Azov Seas following the war between the two countries are the main cause of the export crisis. At the same time, c ountries, particularly those in the West, have imposed sanctions against Russia including restrictions on imports from Russia. Together, disruptions of shipments due to sanctions and war ha ve sent fertilizer and grain prices skyrocketing. “Agriculture is absolutely going to get hit. Farmers are going to get hurt because they’re going to pay a lot more (for fertilizer),” said Bart Melek, an economist . “They’re going to get lower yield simply because they’re economising, particularly in emerging markets.” Grain shortages will drive up the cost of basic foods and other commodities. “That’s going to lead to higher input costs for producing everything from grains, wheat and corn. The input costs are higher now because you’re going to have scarcity that bids the price up as well,” Melek said. “We are absolutely facing a problem of catastrophic proportion here,” said CEO Tony Will, a fertilizer manufacturer. Farmers are likely to consider rotating in less fertilizer-intensive corps and will economise on the amount of nutrients they use. In turn, yields could be lower. “Consumers are going to make choices too,” he said. Sources: (1) CNBC, 6 April 2022, (2) European Parliamentary Research Service, June 2022

3 © DHS 2024 8843/01/2024 Figure 1: Price Indices of Grains and Fertilizer Source: USDA, Economic Research Service, 18 September, 2023 Extract 2: Urea use in agriculture and transport Exposure to exhaust from diesel engines can lead to serious health conditions like asthma and respiratory illnesses. These conditions can result in hospital admissions, absences from work and school, and premature deaths. Emissions from diesel engines also contribute to the production of ground-level ozone which damages crops, trees and other vegetation. Besides its use in the manufacture of agricultural fertilizer, urea is also used in the production of diesel exhaust fluid (DEF). DEF is a liquid used to reduce the amount of air pollution created by a diesel engine, specifically lowering the concentration of nitrogen oxides (NOx). South Korea has made it mandatory for diesel vehicles and some manufacturers to use DEF to control emissions or face penalties. When the Chinese government ordered the country’s major fertilizer companies to stop exporting urea to boost supplies to its domestic market, diesel vehicle drivers in South Korea began panic buying DEF. Korea imports almost all of its DEF needs from China. The low industrial urea inventory in South Korea at the time of the ban added to concerns. A number of states in the US have also banded together to reduce region-wide NOx emissions through a NOx cap-and-trade programme. Source: various

4 © DHS 2024 8843/01/2024 Extract 3: What's causing Malaysia's chicken shortage? Farmers cite higher feed costs, weakening ringgit "The price increase in poultry products is due to the global price increases in its main input feed - which is grain -based, mainly corn, soya bean and wheat - because two of the world's major producers of grains (Ukraine and Russia) are at war with each other," explained a Malay sian economist. Poultry farming costs have increased by about 70 per cent since the war started. The retail price of chicken is currently capped at RM8.90 per kg but traders have hiked their prices recently despite the risk of being fined, with prices having reportedly soared to as high as RM13 per kg. Dr Nungsari, a researcher, argued that "the imposition of a ceiling price below cost requires a subsidy to cover the difference to sustain supply at capacity, for farms to continue their operations. It's an industry that was never subsidised before (until recently), so when the government imposed a ceiling price below actual costs, you naturally get supply shortages as firms exit production." Malaysia on Monday announced a ban on chicken exports from June 1 until supply and prices stabilise. Source: Straits Times, 25 May 2022 Extract 4: Malaysian farms rushing to send chickens to Singapore before export ban Chicken suppliers in Malaysia are working overtime and rushing to send as many chickens as they can across the Causeway before the export ban kicks in on June 1. The rush comes amid a surge in demand for fresh chickens in Singapore, with supermarket shelves wiped clean. The Singapore Food Agency (SFA) is working closely with the industry to manage the chicken supply situation in Singapore. “The industry has activated its supply chains to increase the import of chickens,” it said. Last year, Singapore imported about 34 per cent of its chicken supply from Malaysia. The other major sources of the poultry last year were Brazil (48 per cent) and the United States (8 per cent), but these were frozen meat. Source: Straits Times, 28 May 2022

5 © DHS 2024 8843/01/2024 Questions (a) (i) With reference to Figure 1, compare the fertilizer price and grain price in the first two months of Russia’s invasion of Ukraine. [2] (ii) Explain one possible reason for the difference in the above trends. [2] (b) “Consumers are going to make choices too.” (Extract 1) Explain the decision-making process of food consumers facing the fallout of the war in Ukraine. [4] (c) “Agriculture is absolutely going to get hit. Farmers are going to get hurt because they’re going to pay a lot more (for fertilizer).” (Extract 1) Using the case evidence and a demand and supply diagram, explain and comment on how the development would impact consumer expenditure on food. [6] (d) With reference to Extract 2, and using an elasticity concept, explain the influence of expectations on the price of DEF in South Korea. [4] (e) (i) With reference to Extract 2, explain the difference between private cost and social cost. [4] (ii) Discuss whether DEF mandate is the best policy to achieve allocative efficiency when private and social costs diverge. [8] (f) Discuss the desirability of the Malaysian government’s policies of price ceiling and export ban in stabilising chicken prices. [10] [Total: 40]

6 © DHS 2024 8843/01/2024 Question 2: Challenges Facing the Asian Economies Extract 5: Asia sails into headwinds from rate hikes, war, and China slowdown “Asia is extremely reliant on China. Its zero -Covid policy continues to disrupt supply chains and keep Chinese travellers from returning to Asian tourist destinations. It’s