NJC_H1_ECONS_P1_ANS

National Junior College Economics Department Preliminary Examination 2015 Answer Booklet Senior High 2 H1 Economics (Syllabus 8819)

2015 SH2 H1 Economics Preliminary Examinations National Junior College Economics Department 2 Section A: Case Study Questions Suggested Answer Scheme Question 1: (a) (i) Using Table 1, compare the overall change in global palm oil prices between 2009 and 2011 with that between 2012 and 2015. [2] Similarity: • The price of palm oil fluctuates for both periods of time. Differences: • The price of the palm oil has increased between 2009 and 2011, but decreased between 2012 and 2015. • The increase in the price of palm oil between 2009 and 2011 is more significant than the decrease in its price from 2012 to 2015. 1m each, 2 comparisons. (a) (ii) Using demand and supply analysis, account for the change identified in (a)(i). [4] The increase in the price of the palm oil between 2009 and 2011 is due to the rising demand for palm oil in EU. [Extract 2] By 2010, EU members need to replace 5.75 percent of all transportation fuels with biofuel. This increases the demand for biofuel. The demand for palm oil is derived from the demand for biofuel (palm oil is used to produce biofuel and it is cheaper to produce than other vegetable oils). Therefore, this leads to the increase in the demand for palm oil, which drives the global prices of palm oil upwards between 2009 and 2011. [Extract 1] The price of palm oil has decreased between 2012 to 2015 due to the record high output in Southeast Asia and the weakening of demand in China and India who are the top buyers of palm oil. India may set higher tax imports on edible oil imports and China launches strict quality curbs for imports on 1st Jan 2013. These regulations will decrease the demand for palm oil. On the other hand, there is a record high supply of palm oil in the palm oil producing countries. Therefore this leads to a surplus of palm oil at the existing price level, which will have a downward pressure on the price of palm oil. 2m each for explaining the reasons for the direction of the price changes. 1m for using the data and 1m for explanation using dd-ss analysis. (b) Explain why the government in India may want to set a higher tax on edible oil imports from Indonesia. [2] This is to protect the oilseed farmers in India. It may be cheaper for the producers of edible oil in India to import the products from Indonesia instead of producing it in India. This will decrease the demand for oil as a raw material. As such, this decreases the revenue of the oilseed farmers.

2015 SH2 H1 Economics Preliminary Examinations National Junior College Economics Department 3 Marks to be awarded to students if they are able to link to the revenue or profits of the oilseed farmers. (c) (i) With reference to Extract 2, explain how negative externalities arise in the palm oil production. [4] Define negative exter