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1 © SRJC 8819/01/JC2PreliminaryExam/2016 [Turn over ECONOMICS 8819/01 Higher 1 PAPER 1 14 September 2016 3 hours Additional Materials: Answer Paper SERANGOON JUNIOR COLLEGE JC2 Preliminary Examination READ THESE INSTRUCTIONS FIRST Write your name and civics group 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. Sections A Answer all questions. Section B Answer one question. Start your answers to each case study question and essay question on a new sheet of writing paper. Fasten your answers to all three questions separately. The number of marks is given in brackets [ ] at the end of each question or part question. This document consists of 8 printed pages.

2 © SRJC 8819/01/JC2PreliminaryExam/2016 Section A Answer all questions in this section. Question 1 Oil Prices Lower Amid Global Uncertainty Figure 1: Crude Oil vs Food Price Indices Source: http://materials-risk.com/crude-returns-how-low-oil-prices-have-broken-the-relationship- to-food-prices/, accessed August 2016 Figure 2: Unsettled outlook of economies Source: The Economist, 25 October 2014

3 © SRJC 8819/01/JC2PreliminaryExam/2016 [Turn over Extract 1: What’s driving the plunge in oil prices? The Organisation of Petroleum Exporting Countries (OPEC) at its latest meeting in Vienna in December decided to keep oil production at its current levels despite the recent drop in oil prices. The result is there is now n o supply discipline at a time when global demand, particularly from China, appears to be dropping. Although all producers would benefit from a higher price, no one will unilaterally cut output to make it happen. Saudi Arabia is no longer prepared to act as a lone swing producer, reasoning that it will just lose market share if it does so. Much of the growth in supply has come from the U.S., where high prices made producing oil and gas using hydraulic fracturing profitable. Between 2009 and 2014, global crude oil supply increased by almost 5 million barrels per day, of which 3.3 million barrels came from the U.S., according to the Energy Information Administration. It looks like U.S. shale production will finally ease in 2016, though perhaps not until the second half of the year, but that prospect is more than offset by the possibility of Iran returning to the market next year. On top of that, the United Nations Climate Change C onference in Paris seemed to suggest that world leaders were more committed than before to switch their economies away from oil and other fossil fu