VJC_H2_Econ_P1_QN

1    VICTORIA JUNIOR COLLEGE 2014 JC2 PRELIMINARY EXAM H2 ECONOMICS – PAPER NO. 9732/01 17 September 2014 8:00 – 10:15 am Wednesday 2 hours 15 mins Additional Materials: Answer Paper _________________________________________________________________________ READ THESE INSTRUCTIONS FIRST Write your name and 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 any diagram, graphs or rough working. Do not use staples, paper clips, highlighters, glue or correction fluid. Answer all questions. At the end of the examination, fasten your wo rk securely, by question, using the strings provided. The number of marks is given in [ ] at the end of each question or part question. ___________________________________________________________________ This document consists of 8 printed pages.

2    Answer all questions. Question 1 US Natural Gas Boom Extract 1: America’s bounty - Gas works At the turn of the millennium, America’s conventional gas fields were in decline. Natural gas from shale rock was known to geologists but had never been worth extracting. Now shale contributes a third of America’s gas supplies. By 2035, the country’s share of total world supplies could be nearly half. A key reason for this rise is the improvement in hydraulic fracturing (or fracking) to obtain the gas, which caused the cost of producing natural gas to tumble down. Figure 1: USA natural gas price, US$* Source: The Economist, 2 June 2012 Cheap gas is helping various parts of America’s economy. The country’s industry uses around a third of its gas output. The biggest winner might be the petrochemicals industry. It uses gas as feedstock to make chemicals such as methanol and ammonia, a vital ingredient of fertiliser. These chemicals in turn pr ovide cheaper raw materials for carmakers, agriculture, household goods and builders, or go for export at prices to compete with the world’s lowest-cost producers, the state-owned petrochemicals firms in the Middle East. Dow Chemical and others have announced a raft of new investments in America to take advantage of low gas prices. The United States might export fewer cheap raw materials to countries with low labour costs to be made into goods to export back to America. The country could do the job itself, shortening the supply chain and returning manufacturing jobs to America in industries where petrochemicals are a large part of the cost base. There are non-industrial