NJC 2008 Prelim - H1 Qn Paper

This document consists of 8 printed pages. © NJC 2008 NATIONAL JUNIOR COLLEGE Humanities Department [Turn Over National Junior College Humanities Department JC 2 Preliminary Examinations for General Certificate of Education Advanced Level 2008 JC2 H1 Economics (Syllabus 8816) ECONOMICS 8816 Higher 1 Section A: Case Study Section B: Essay August 2008 3 hours Additional Materials: Answer Paper READ THESE INSTRUCTIONS FIRST Do not open this booklet until you are told to do so. Write your name and subject 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. Section A: Answer ALL questions Section B: Answer ONE question. The number of marks is given in brackets [ ] at the end of each question or part question. At the end of the examination, fasten all your work securely with the cover page given. Fill in the necessary information on the cover sheet and circle the essay question chosen. You are reminded of the need for good English and clear presentation in your answers.

2 © NJC 2008 8816/Aug 2008 Section A Answer all questions in this section. Question 1 Figure 1: Price of Oil (US$ per barrel) source : OPEC website www.opec.org Table 1 : Price of Rice (Thai A1 super grade) Year 2002 2003 2004 2005 2006 2007 Price of rice per tonne (US$) 150 151 207 219 217 275 Source: International Rice Institute Research website www.irri.org Extract 1: Don’t Panic, Don’t Hoard And Don’t Overbuy “Don’t Panic, Don’t Hoard And Don’t Overbuy.” This message comes from Ms Sopan Manathanya, the vice-president of one of Thailand’s top rice exporters. She is in Singapore on a 3-day visit to assure rice distributors here that Thai rice conglomerates like hers are taking steps to increase the number of crops harvested in a year and are also negotiating prices with farmers. According to Ms Sopan, factors pushing up the price of rice include the growing number of farmers switching from producing rice to biofuels, weather conditions and higher overheads. Source: Adapted from The New Paper, 29 Apr 2008

3 © NJC 2008 8816/Aug 2008 Table 2: Tax as a percentage of petrol price in G7 countries Country Tax* as a percentage of petrol price (%) France 50 Britain 61 Germany 58 Italy 52 Japan 37 Canada 27 USA 21 *Includes value added tax and fuel tax Adapted from : www.opec.org Extract 2: Targeted Price Controls in United Arab Emirates A black market for rice has emerged in inflation-hit United Arab Emirates. An Abu Dhabi-based food trader said: "The price you pay a black market dealer could be as much as 20% more than what you pay normally." The United Arab Emirates (UAE) government has reportedly tried to limit inflation through targeted price controls. This measure has pushed rice supplies off store shelves. As a result of this, people took to panic buying, thereby causing Thai rice prices to nearly treble. According to traders, the UAE will continue to enc ounter a shortfall in rice supplies. A rice trader said: "The number of trader s who stopped importing rice in the last couple of months is scary. They want subsidies and compensation and the government is not giving any. We cannot import and make losses, if the countries we are importing from like Pakistan, demand higher prices and sell their output to other destination." With the implementation of price controls, food and commodity inflation is likely to come down. Nevertheless, prices may still remain high due to global trends. UAE is a member of the Organization of the Pe troleum Exporting Countries, OPEC, which is the source of about a third of the globe's oil supply. OPEC is widely regarded as the greatest beneficiary of the global oil price hike. Source : Adapted from Reuters, Jun 2008

4 © NJC 2008 8816/Aug 2008 Questions (a) (i) With reference to Figure 1 and Table 1, compare the trend of prices of rice and oil in the period 2004 to 2007. [2] (ii) With reference to Extract 1, provide a possible explanation for the relationship between the price of rice and that of oil between 2004 and 2007. [2] (b) With reference to Extract 2, explain the UAE government’s choice of using price controls over subsidy in the rice market. [6] (c) Using economic analysis, discuss the possible impact on the Singapore economy as a result of persistent increases in the price of oil worldwide. [6] (d) With reference to Table 2, explain 2 possible economic reasons for the government intervention in the petrol market. [4] (e) With reference to Extract 3, critically comment on the proposal of a tax on any “unreasonable” profits of the five largest US oil companies to correct the market failure present. [10] [30m] Extract 3: Proposed Tax on Windfall Profits of Oil Companies At a time when Americans are finding they’re having to give up a host of things just to fill their gas tanks, they read news stories about record oil company profits. To address America’s anger over $4 a gallon gasoline, Democratic leaders have proposed a tax on the “unreasonable” profits of the five largest U.S. oil companies. Exxon Mobil, one of the five largest oil companies, fired back at the call to counteract skyrocketing energy costs by hiking levies on producers. Exxon Mobil said that U.S. energy companies already pay record taxes and that the high oil price is due to speculation in the oil market. “Proposals to increase taxes on the industry would discourage the sustained investments needed to safeguard U.S. energy security and are not in the interests of American consumers,” Exxon Mobil said. Other market analysts interviewed also urged for long-term solutions to protect consumers’ welfare. Adapted from Reuters, Jun 2008

5 © NJC 2008 8816/Aug 2008 Question 2 EXTRACT 1 - Inflation in Singapore may hit 6.5% this month Consumer prices in Singapore may surge a staggering 6.5% this month, bringing full-year average inflation to an equally eye-popping 5%, according to Citigroup. A lethal combination of surging food and oil prices worldwide, coupled with higher housing and transport costs at home are likely to cause the spike in price levels this month, while lower interest rates may stimulate property prices later in the year, said Citigroup economist, Kit Wei Zheng yesterday. Mr Kit said his higher estimate stems from “ pent-up price pressure from the strong economic growth of the past two years”. According to another source quoted by Mr Mirza Baig, a strategist at Deutsche Bank in Singapore, annual inflation is expected to peak around the middle of this year as oil prices continue to rise despite the talk of a slump in global growth and as bottlenecks persist in food supplies. The prospect of a recession in the United States has barely stopped the run-up in oil prices, which are at record levels above US$100 a barrel and are still rising. Across Asia, there is no let-up in rents or food prices, which are feeding into a general inflation – at a 26-year high in Singapore and an 11-year high in China – and are pushing up wages. Among the soft commodities, wheat prices are at record highs after a 120% surge in 14 months. Some analysts argue that the spike in prices is seasonal. They believe food supplies will improve in the summer as China’s disruptive winter storms abate and oil demand in the northern hemisphere weakens when heating becom es unnecessary. Nomura economist Tomo Kinoshita said exported inflation from China’s double-digit expansion would add to pressures, particularly next year, as rises in wages and materials such as steel generate higher prices in the rest of Asia. Another inflationary factor that will not simply dis