RI H1 ECONS P1

1 RAFFLES INSTITUTION 2018 YEAR 6 PRELIMARY EXAMINATION Higher 1 ECONOMICS 8823/1 Paper 1 28 August 2018 3 hours Additional Materials: Answer Paper READ THESE INSTRUCTIONS FIRST Write your name, index number and CT 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. At the end of the examination, fasten answer script for question 1 and 2 separately. Securely fasten cover sheets to each answer script. The number of marks is given in brackets [ ] at the end of each part question. Name: _______________________ ( ) Civics Class: ___________________ Economics Tutor: ___________________ Marks Q1 This document consists of 9 printed pages. © RI 2018 8823/01/Prelim/18 [Turn over

2 Answer all questions Question 1: The Food Industry Table 1: Madagascan exports of vanilla to the US Price of Vanilla (USD$/kg) Volume (kg) 2007 19 1,650,000 2008 21.5 1,300,000 2009 23 - 2010 21 - 2011 21 - Source: Datamyne Extract 1: Background knowledge of vanilla Vanilla is an essential ingredient used in sweets, food, alcohol, as well as scented perfumes and cosmetics. It is a difficult spice to cultivate, extracted from the delicate vanilla orchid flower. A vine takes three to four years to mature. Harvest in Madagascar, the main exporter in the world , is from May to August, after the rainy season has brought the usual cyclones. Thus, one of the world’s most popular spices , vanilla is the second most expensive spice in the world. T oday, vanilla represents 20% of Madagascan exports, worth $600m at current prices and is a significant contributor to the country’s GDP. Madagascar's vanilla policy since independence is in many ways typical of a pattern common to low income countries. Throughout history, the vanilla market had been marred by price instability and low incomes. Right after independence in 1960, the Government of Madagascar intervened in a bid to bring more stability and equity in the distribution of the gains from vanilla farming. A vanilla stabilis ation fund was created and a fixed price was guaranteed . The government intervened in the market to stab ilise the price of vanilla through a buyback programme that ensured the surplus stocks during good harvests were purchased and kept as inventory while releasing stock during poor harvests. Price fixing succeeded in keeping the price stabilised and high and brought about positive results for the farmers for a limited period. However, in the end, declining revenues meant that the cost of keeping exploding inventories (as the country’s high prices discouraged demand) escalated beyond what could be financed. Three quarters of the stock of inventories, which by 1990 exceeded four years’ worth of export under good times, were ultimately burnt, an extr aordinary waste given the high unit value of vanilla and the extreme poverty of the farmers whose output was thus destroyed. Madagascar’s agriculture performance after independence has been insufficient to cope with demographic pressures , characterised by low productivity and high vulnerability to climatic conditions. In addition, several periods of civil unrest and political uncertainties have disrupted the economy and made investment scarce. The emphasis on the agriculture sector – dominated by vanilla crops – has resulted in major threats such as deforestation and soil erosion, and this, together with the lack of investments in new farming practices and diversification to other crops, had in turn compromised the productivity levels in farming. Subsequently, structural market reforms were introduced and government intervention in the vanilla market stopped in 1995. Source: Adapted from various sources © RI 2018 8823/01/Prelim/18 [Turn over

3 Extract 2: Soaring vanilla prices cause ice cream makers to struggle Your artisanal vanilla ice cream is under threat. Vanilla prices have rocketed to a record peak of $600 a kilo , 30 times more for the ingredient than what artisanal ice cream maker Ruby Violet have paid for in the past. A cyclone in March 2017 destroyed a number of vanilla plantations and dented supplies from Madagascar. The storm accelerated an upswing caused by food manufacturers promising to use real vanilla rather than synthetic flavourings, while speculative hoarding by traders in Madagascar also raised prices. Vanilla pod producers are now frantically planting more, but it could be several years before harvesting can take place and prices subside to historical norms. Source: https://moneyweek.com/chart-of-the-week-vanilla-could-soon-be-off-the-menu/ Extract 3: Healthy ice cream Imagine a world where ice-cream was healthy. One researcher at the University of Copenhagen is close to replacing saturated fat with unsaturated fat in our favourite summer treat. Saturated fat - abundant in ice-cream - raises cholesterol, which is linked to heart disease and strokes. But when researcher Merete Munk perfects her newest creation, these health issues will no longer be associated with ice-cream. According to Munk, her goal is to make ice-cream with unsaturated fats. Once Munk is successful in switching out saturated fats in ice cream both you and the earth will be grateful. Currently saturated fats, like those found in palm oil, have to be shipped from the tropics - and the environmental harm of producing palm oil, including the burning of large tropical forests, destruction of habitat for endangered species and releasing carbon emissions into the environment is well-known. With Munk’s ice -cream, manufacturers would be able to choose oil grown locally, meaning more options for them and less harmful effects on the environment. And ice-cream you can eat guilt-free. Source: Adapted from https://www.independent.co.uk/life-style/ Extract 4: Tax sugary drinks by 20%, say doctors The British Medical Association (BMA) has published a new report lobbying for a new 20% tax on high-sugar foods and drinks. It estimates poor diets are causing around 70,000 premature deaths each year and it want the extra tax revenue raised and used to subsidise fresh fruit and vegetables. A recent study found that poor health and obesity costs the UK economy at least £21.5bn a year. The current World Health Organisation guidelines recommend no more than seven teaspoons of added sugar (30g) a day. A single teaspoon of sugar is roughly 4g. Dr Shree Datta, from the British Medical Association, told the BBC: "We're looking at 30% of the UK population being obese by the year 2030, a large extent of that is due to the amount of sugar we're actually consuming without realising. The biggest problem is a lot of us are unaware of the amount of sugar we are consuming on a day-to-day basis." Speaking to the BBC, public health minister Anne Milton insisted that taxation was not the key to solving the issue and that an element of "personal responsibility" was necessary. She said the UK had a "major problem" with obesity, citing better education and working with the food industry as key parts of the government's anti-obesity strategy. Source: Adapted, BBC, 13 July 2015 © RI 2018 8823/01/Prelim/18 [Turn over

4 Extract 5: Body blow for butter-loving Danes as “fat tax” kicks in The government in Denmark has introduced additional taxes on foods which contain more t