CJC H1 ECONS P1

CATHOLIC JUNIOR COLLEGE JC2 Preliminary Examinations Higher 1 ECONOMICS 8823/01 Paper 1 20 Aug 2018 Additional Materials: Writing Paper 3 hours READ THESE INSTRUCTIONS FIRST Write your name, class and question number 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 highlighters, glue or correction fluid. Begin each case study question on a new sheet of paper. Answer ALL questions. At the end of the examination, fasten your work securely together. Submit each case study question separately. The number of marks is given in brackets [ ] at the end of each question or part question. This document consists of 7 printed pages and 1 blank page

2 Answer all questions Question 1 Sugar – The Sweet Factor Extract 1: Global sugar production goes into deficit for first time in five years Sugar is one of the few bright sparks on the global commodity stage at the moment as demand outstrips supply for the first time in five years. Globally, the crop is forecast to fall into deficit, down by 5.2 million tonnes of sugar on last season to 177.5 million tonnes, a deficit of 4.1 million tonnes. It is expected to deliver more sustainable profits to growers. Analysts are predicting a deficit over the next two seasons which will boost values, just months after the raw sugar price fell to about 10 cents a pound for the first time in almost a decade, a value below the cost of production. Tom McNeill from Green Pool Commodities said weather conditions and poor investment in major growing regions were bringing down the global crop. "We saw far too much rain in Brazil and that slowed the harvest and also reduced the sugar content." Brazil is the world’s largest sugar producer and exporter. Now, the global deficit was expected to push sugar prices to sustainable levels for farmers and millers. Analysts are also predicting a jump in sugar consumption, predominantly from the rising middle class in emerging economies, but Mr. McNeil assured the sugar shortfall would not lead to a shortage for shoppers. Source: Adapted from Australian Broadcasting Corporation, 1 February 2016 Table 1: Sugar Historical Quarterly Price Index (Base year = Jan 2015) Mar-15 85.29 Mar-16 100.00 Jun-15 79.41 Jun-16 126.47 Sep-15 76.47 Sep-16 138.24 Dec-15 94.12 Dec-16 120.59 Source: International Sugar Agreement (ISA), accessed 10 July 2018 Extract 2: Global sugar deficit to squeeze Brazil ethanol output Brazil’s ethanol production should fall in the next three years if projections for growing global sugar deficits are confirmed, said analysts. Analysts estimate ethanol production will fall to as low as 23.1 billion litres in the 2019/20 crop year, while sugar output would climb to 43.5 million tonnes, as more farmers switch their production from ethanol to sugar. “The difference in earnings for mills between ethanol and sugar is big and in favour of sugar, and it seems that it will only get bigger,” said Willian Hernandes, head of analysis. Mr Hernandes estimates that sugar offers mills more than 30 percent bigger returns compared with ethanol. This is fueled by the global sugar supply deficits which vary greatly among analysts’ estimates, but most see shortages between 4 million and 8 million tonnes for the next two years at least, depending on the reaction from producing countries going forward. Source: Adapted from Reuters, 29 June 2016

3 Extract 3: Price ceiling on sugar To keep food prices and the inflation rate under control, the Thai government has been maintaining a price ceiling for sugar, with the retail price fixed at 23.50 baht per kilogram. The price ceiling results in sugar shortages as profiteers normally smuggle domestic sugar to sell in neighbouring countries, especially when global sugar prices rise above the fixed domestic retail price. It is also important to never forget the basic concepts of economics that tell us why price controls often do not work as an economic policy. The basic economics of supply and demand predicts "excess demand" which is another way of saying "shortage" when the price is set artificially below the "market clearing price" where supply equals demand. Source: Bangkok Post, 19 September 2016 Extract 4: Can eating too much sugar cause type 2 diabetes? New research by scientists suggests that consuming too much dietary sugar could set off a process in the body that leads to prediabetes and type 2 diabetes. Study author Dr. Mark Herman said that the study, conducted in mice and human liver samples, revealed a specific mechanism that shows that consuming large amounts of sugar, especially fructose, appears to be a trigger. Fructose is commonly used as a sweetener but it also occurs naturally in fruits, vegetables and honey. Diabetes is a chronic condition that affects the way the body metabolizes sugar (glucose), a key source of fuel for the body. In type 2 diabetes, the body resists the effects of insulin – a hormone that regulates the movement of sugar into cells – and it doesn’t make enough insulin, causing glucose levels to go awry. This ill-effect often leads to a fall in work productivity in diabetic patients, and even disability and death in serious cases. Source: Adapted from CBS News, 29 September 2016 Extract 5: Sugar tax would cut childhood obesity "Sugary drinks tax will benefit children most," BBC News reports. A new study, where researchers tried to estimate the impact of a sugar tax on soft drinks, found that it would help combat child obesity as well as tooth decay. A proposed UK sugar tax on soft drinks is expected to be introduced in 2018. By modelling three scenarios, the researchers found that the maximum health benefits would be seen if products were changed to contain less sugar. This option was estimated to help reduce obesity cases in the UK by around 150,000 per year, as well as reducing cases of tooth decay by 250,000. However, these are estimates only, not certain effects. And changing the sugar content of sweetened drinks could only have such an effect on those who continue to consume high amounts of sugar through other dietary sources. Mr. Gavin Partington of the British Soft Drinks Association said, "The problem with this modelling is that it is based on the flawed concept that obesity can simply be attributed to calorie or sugar intake per se and consumption of one product in particular, rather than overall lifestyle and diet." He went on to say: "This error is plain to see given that sugar intake from soft drinks has been declining for several years now, down 17% since 2012. There is no evidence worldwide that a tax on soft drinks has had an impact on levels of obesity." Source: National Health Service, 16 December 2016

4 Questions (a) (i) With reference to Table 1, describe the trend in the price of sugar between January 2015 and December 2016. [2] (ii) With reference to Extract 1 and using a demand and supply diagram, explain the changes in the price of sugar in 2016. [5] (b) To what extent is the global deficit in sugar likely to lead to an improvement in standard of living of sugar growers in Brazil? [7] (c) (i) With reference to Extract 2, explain the relationship between sugar and ethanol. [2] (ii) Using the marginalist principle, explain why a grower may decide to switch from ethanol to sugar production. [4] (d) Using Extract 3, discuss if the benefits of implementing the price ceiling on sugar outweigh the costs. [8] (e) (i) With reference to Extract 4 and using a diagram, explain the economic case for the imposition of a sugar tax to curb obesity. [5] (ii) Using evidence from the case study and/or your own knowledge, discuss the factors that a g