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This document consists of 8 printed pages. [Turn over 1 ECONOMICS 8819/01 Paper 1 16 September 2014 3 hours Additional Materials: Answer Paper READ THESE INSTRUCTIONS FIRST Write your index number and name 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. Section A Answer all questions. Start each case study on a new sheet of paper. Section B Answer one question. Start this question on a new sheet of paper. At the end of the examination, fasten all your work securely together. Your answers for each case study in Section A and the essay in Section B are to be handed in separately. The number of marks is given in brackets [ ] at the end of each question or part question. RIVER VALLEY HIGH SCHOOL YEAR 6 Preliminary Examination in preparation for General Certificate of Education Advanced Level Higher 1

2 Section A (70%) Answer all questions in this section. Question 1 Issues on sugar and ethanol Extract 1: US sugar subsidies and the Caribbean’s sugar economies The US government heavily subsidizes its sugar sector, imposes quotas on sugar imports but yet expects developing countries to cut back on their own subsidies. Under the quota system, quantities of imports above the quota limit are subject to stiff duti es. Sugar imports that exceed set quotas are struck with “a prohibitively high duty of 16 cents per pound”. Some Caribbean countries e.g. Brazil, face the most restrictive penalties, keeping their sugar out of the US market and lead to sugar prices in the US remaining above the free market price. Many of these impoverished Caribbean countries have been producing sugar for centuries, as their tropical, naturally fertile land and perfect weather conditions make them innately suitable for growing sugar. In contrast, subsidies to US sugar farmers are transmitted via a complex system of loans and quotas. Loans are usually granted directly to sugar processors instead of farmers, so there is hardly any wealth transfer from top to bottom. This quarter, the US Depa rtment of Agriculture (USDA) plans to buy sugar from processors at an approximate cost of US$38 million in order to increase sugar prices. USDA then sells this sugar to ethanol -producing firms for a much lower price, resulting in huge losses for the government. In relative terms, producing an ounce of sugar in the US is much more expensive than producing the same ounce in the Caribbean. A report by the Commerce Department revealed that each preserved job in the US sugar industry represents three jobs lost in confectionery manufacturing due to the resulting hike in sugar costs. Source: Council on Hemispheric Affairs, 31 July 2013 Figure 1