RI 2023 H2 Preliminary Examination - Paper 1

9570/01/Prelims/Y6/23 © RI 2023 [Turn over RAFFLES INSTITUTION 2023 YEAR 6 TERM 3 PRELIMINARY EXAMINATION Higher 2 ECONOMICS 9570/01 Paper 1 Case Study Questions 29 August 2023 2 hours 30 minutes Additional Materials: Answer Paper READ THESE INSTRUCTIONS FIRST Write your name, index number and civics class 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 diagrams, graphs or rough working. Do not use paper clips, highlighters, glue or correction fluid. Answer all questions. The number of marks is given in brackets [ ] at the end of each question or part question. Start each Case Study on a fresh sheet of paper. At the end of the examination, fasten your answers to Case Study 1 and Case Study 2 separately. Detach this cover page and secure it in front of answers to Case Study 1. Question Marks Name: __________________________ Civics Class: _____________________ _____________________ 1 /30 Economics Tutor: ________________ 2 /30 This document consists of 10 printed pages and 1 blank page.

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3 9570/01/Prelims/Y6/23 © RI 2023 [Turn over Question 1 The Cotton Market Figure 1: World Cotton Price (US$) Source: Macrotrends, March 2023 Figure 2: Leading Cotton Producing Countries (in thousand metric tons) Source: Statistica, 2021 and 2022 Extract 1: Cotton Farmers in India and Pakistan Bear the Brunt of Unpredictable Rainfall Farmers have been growing cotton in India and Pakistan for thousands of years. But that shared history and benefit is under threat because of weather volatility. The year 2021 will remain etched in the memory of Anantha Kumar Pichaipillai, a cotton farmer from India. For the first time in eight years, he did not grow cotton. Extreme rainfall wreaked havoc on his cotton farm. “This has been unseen for 100 years,” he said. “January is a month of minimal rain. That has changed since 2021. India received 10 times more rainfall than usual, according to the Indian Meteorological Department (IMD). That deluge was a preview of what Pakistan faced in August 2022, when torrential rains damaged 80% of the cotton crop in the Sindh province and caused a damage of around $15 billion. $0.73 $0.82 $0.67 $0.93 $1.12 $0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 2018 2019 2020 2021 2022 5,879 5,334 3,815 2,678 1,306 - 1,000 2,000 3,000 4,000 5,000 6,000 7,000 China India United States Brazil Pakistan

4 9570/01/Prelims/Y6/23 © RI 2023 [Turn over While too much rain can be devastating, so can dry conditions at the wrong time. “Cotton is grown in dry weather conditions and benefits from the monsoon. The recent phenomenon of extreme heat and the extreme downpour is disrupting the situat ion,” said Y.E.A. Raj, former deputy director general at IMD. Source: The Wire, 11 February 2023 Extract 2: Cotton Subsidies in the US In the 2019-20 season, the US paid out more than $2 billion to cotton farmers, up from $1.2 billion the year before. According to the USDA, that is a significant amount of support and it begs the question of what would happen to cotton and cotton farmers if subsidies were to go away. US support for cotton growers used to be well over $3 billion a year and accounted for half or more of a grower’s cotton revenue. That is, until Brazil brought a trade dispute in 2002 to the World Trade Organisation against the US, saying its payments to cotton growers created unfair competition and depressed world prices, thereby penalising foreign producers. According to a 2007 Oxfam report, eliminating US cotton subsidies permanently could lead to millions of households in poorer developing countries being able to feed another person based on the higher prices farmers would get for their cotton. In India alon e, cotton production sustains the livelihoods of 5.8 million farmers, the majority of whom are small -scale farmers cultivating land less than 2 hectares in size. These farmers live below the poverty line. Many are deeply indebted from the high-interest loans they are forced to obtain from loan sharks to buy fertilisers. Source: Kingpins Media, 24 March, 2021 Extract 3: How Do High Cotton Prices Affect Clothing Boutique Businesses? Economic growth will affect the per capita demand for apparel in developing economies. Since the consumption of apparel is more income responsive than the consumption of food commodities, the uncertainty of how economies will emerge from the pandemic is potentially more damaging for clothing boutique businesses. The problem is compounded by spiking cotton prices that have resulted in higher expenses for boutique businesses. And cotton constitutes about 30-45% of the fabric cost. In the US, as of 2023, there are 178,366 clothing boutiques. The most likely strategy for these businesses is to pass the rise in cost along to consumers. But this is a double -edged sword: increasing cotton product prices will rapidly correlate to an increase in non -cotton clothing in retail outlets. Competition from such products as rayon and lycra will increase, as stores replace higher-priced cotton in a bid to retain their customers. However, even with other fibers, the prices are not getting any cheaper. In fact, they have increased at a significant pace as the race for sustainable products is pushing the brands to increase the quantum of such collections in their offerings. With this tough situation, there are always ways and means to mitigate the impact and retailers can focus on the following: ▪ cost reduction and productivity improvement ▪ optimising product mix, and ▪ strategic withdrawal from unprofitable areas Source: Various

5 9570/01/Prelims/Y6/23 © RI 2023 [Turn over Extract 4: Why Cotton Is Called The World’s Dirtiest Crop Bugs love cotton - from bollworms, plant bugs, and stink bugs, to aphids, thrips and spider mites. Cotton farmers' usual solution is to douse crops in $2 -3 billions worth of pesticides annually - $819 million of which is so toxic that it is classified as hazardous by the World Health Organisation. Because of the heavy irrigation required to grow cotton, chemicals are quickly washed into surrounding rivers and regional groundwater, and entering every aspect of the ecosystem from there - including rainwater. Cotton pesticides now contaminate land, air, food and drinking water in the USA, India, Pakistan, Uzbekistan, Brazil, Australia, Greece and West Africa. And cotton needs a lot of water to thrive. According to the World Wildlife Fund, it takes no less than 713 gallons of water to produce one cotton t -shirt - this is the equivalent of the water needed to sustain one person for two and a half years. Globally, cotton consumes 100 billion gallons of water every year. In order to provide this amount of irrigation, waterways in many developing countries are diverted to feed the cotton fields, often with devastating effects. A prime example of this - but far from the only one - is the Aral Sea, which is considered one of the biggest environmental disasters in human history. The Aral Sea was once the fourth largest body of inland water and vital to the surrounding communities and wildlife. But after major rivers that fed the Aral were diverted into irrigation canals to serve cotton farms, the sea turned into a desert bigger than Belgium, Luxemburg, and the Netherlands combined. Twenty of the 24 native fish species are now extinct, and many more fish and bird species are on the brink of extinction. Governments around the world used a slew of measures to counter these problems. Some introduced taxes on fertilisers and pesticides. In India, in 2017, the government fixed a 12% tax rate on fertilisers, up from the initial 4-8% rates.