QP 2022 H2 Prelims Paper 1

©ACJC2022 Preliminary Exam 9757/01 ANGLO-CHINESE JUNIOR COLLEGE 2022 JC2 PRELIMINARY EXAMINATIONS ECONOMICS 9757/01 Higher 2 Paper 1 23 August 2022 2 hours 15 minutes Additional materials: Writing papers and 2 cover sheets READ THESE INSTRUCTIONS FIRST Write your exam index number and name on all the answers you hand in. Write in dark blue or black ink 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 / tape in your answers. Answer all questions. Begin Question 2 on a fresh sheet of writing paper. At the end of the examination, arrange your answers in order. Fasten your answers for Question 1 and Question 2 separately using the cover sheets provided. The number of marks is given in brackets [ ] at the end of each question or part question. This document consists of 6 printed pages (including this page). Please check that your question paper is complete.

2 ©ACJC2022 Preliminary Exam 9757/01 Answer all questions. Question 1: The Nitrogen Fertilizers Crisis Table 1: Employment and consumption data on fertilisers 2015 2016 2017 2018 2019 Number of workers employed in US fertilizers industry 19 133 19 580 20 058 20 837 22 179 Fertilizers consumed in US (in million tons) 22.46 23.14 23.44 21.68 22.40 Fertilizers consumed globally (in million tons) 213.27 215.13 217.42 213.77 215.37 Sources: IBISWorld and ourworldindata.org Extract 1: The US fertilizer production industry Fertilizers are critical input for crop production and represent a major variable cost for several US crops. Farmers represent the end users in the fertilizers’ supply chain, and the prices they pay for fertilizer s depend on several factors including local demand, product type, retailer mark-ups, and transportation costs. The US fertilizers sector has undergone substantial changes. Between the 1980s and mid - 2000s, the combination of lower fertilizer s demand and higher input costs for fertilizers production caused the fertilizers sector to contract from 59 to 22 production facilities. The assumption is that highly concentrated industries are synonymous with market power , which can be detrimental to the society. Whether that will happen in reality rely on many factors, one of which is the level of government regulation in the fertilizers market. Source: Choices and the Agricultural & Applied Economics Association, 2020 Extract 2: USDA announces plan to support US farmers The US Department of Agriculture (USDA) will support American farmers by increasing the fertilizers production so as to address its rising costs. It is offering a $250 million new grant to encourage greater production of fertilizers. Additionally, to address growing competition concerns in the agricultural supply chain, USDA will launch a public inquiry, seeking information regarding agricultural fertilizers and the impact of concentration and market power on agriculture farmers. The inquiry aims to enhance fairness and competition across America’s economy. “Concentrated market structures and potentially anti -competitive practices leave America’s farmers, businesses, and consumers facing higher costs, fewer choices and less control about where to buy and sell, and reduced innovation—ultimately making it harder for those who grow our food to survive,” said Agriculture Secretary of the United States. Source: US Department of Agriculture, 11 March 2022

3 ©ACJC2022 Preliminary Exam 9757/01 Extract 3: Fertilizer costs: what is driving the increase? Significant increase in the cost of fertilizer s over the past year has caused a lot of concern among farmers in the United States. Given that the cost of fertilizers now account for approximately 15-20% of total costs for corn production, fertilizer prices and its availability are a major concern for farmers planning for the 2022 growing season. Farmers in some areas are reporting prices more than 300% higher than last winter, and delivery times seems to be anyone’s guess. The price increase was driven by strong domestic and global demand for crops, low fertilizers inventories, and very slow adjustments in production by the US fertilizers industry. As fertilizers are global commodity, it s prices can be influenced by various market factors beyond the control of US producers. Countries that import fertilisers are also exporters of the raw materials needed to produce these fertilisers. Hence, this means that fertilizers prices are more volatile as it is subjected to both the cost of factor inputs as well as the production costs of the country producing it. Another factor is that two -thirds of global fertilizer s demand is driven primarily by the production of crops, of which corn, wheat, and soybeans constitute about 36% of that total demand. So, as large producers of corn, soybeans, and wheat, the US is a large consumer of fertilizers. Trades disputes and disruptions have also played a big role in fertilizers availability and cost. The US have restricted imports of selected factor inputs such as potash from Belarus. Potash is an essential raw material used to produce fertilisers, and Bel arus is a country which contributes to about 20% of the global production of potash. T he uncertainty of Russian actions against Ukraine creates further volatility since Russia is also one of the top global exporters of all three fertilizers raw materials — nitrogen, phosphate, and potash. Price of fertilizers in the US can also be influenced by internal factors such as increased domestic transport costs due to labour shortages in th e freight industry which the fertilizer s industry relies on for transportation. Domestic weather conditions like hurricanes, ice storms, as well as infrastructure breakdowns, have caused several production and distribution disruptions. Source: Institute of Agriculture and Natural Resources, 8 February 2022 Questions (a) With reference to Table 1, identify the difference in the trend of number of workers employed in the US fertilizers industry and the consumption of fertilizers in the US from 2016 to 2019. State one possible reason for the difference. [2] (b) (i) With reference to Extract 1, explain how the lower demand for fertilizers and higher input costs could cause firms to exit the US fertilizers industry. [4] (ii) Explain how market dominance could lead to an inefficient allocation of resources in the US fertilizers market. [6] (c) Discuss how improving the level of competition in the US market for fertilizers can affect dynamic efficiency. [8] (d) Discuss whether demand or supply factors have a greater impact on the price of fertilizers in the US. [10] [Total: 30]

4 ©ACJC2022 Preliminary Exam 9757/01 Question 2: The Impact of a Global Pandemic on Globalisation Figure 1: Global Trade Volume as a Percentage of GDP, 2011 - 2020 Source: World Bank Extract 4: MAS eases monetary policy as economy reels from impact of COVID-19 Singapore's central bank eased monetary policy as the economy reels from the impact of a novel coronavirus pandemic. In its statement, it said the COVID -19 pandemic has led to a severe contraction in economic activities in Singapore and globally, due to the combination of supply chain disruptions, travel restrictions imposed in many countries and a sudden decline in demand. In its half-yearly monetary policy statement, the Monetary Authority of Singapore (MAS) said the Singapore dollar nominal effective exchange rate policy band has “depreciated to a level slightly below the mid-point of the policy band”. It added that MAS will adopt a zero per cent per annum rate of appreciation of the policy band. Research firm Capital Economics described the central b