TPJC H1 Economics

TPJC / Economics / 2008 Preliminary Examination / H1 1 TAMPINES JUNIOR COLLEGE Preliminary Examination 2008 ECONOMICS 8816/01 Higher 1 Monday 18 Aug 2008 13 30 – 16 30 (3 hours) INSTRUCTIONS TO CANDIDATES Section A (Case Study) Answer all questions Section B (Essay) Answer any one question Write your name and civics class in the spaces provided on the answer paper. Write your answers on the separate answer paper provided. If you use more than one sheet of paper, fasten the sheets together. Write the question numbers of the questions you have attempted on the cover sheet. INFORMATION FOR CANDIDATES The number of marks is given in brackets [ ] at the end of each question or part question. You are reminded of the need for good English and clear presentation in your answers. For Section B, you may answer with reference to your own economy or other economies you have studied where relevant to the question. This question paper consists of 10 printed pages.

TPJC / Economics / 2008 Preliminary Examination / H1 2 Section A Answer all questions in this section Question 1 Sustainable Energy Policy Extract 1: When discoveries of new reserves fall short of demand – which may be the case in just a few years for oil, and slightly later for natural gas – energy prices will climb significantly. Owing to the gradual depletion of oil and gas reserves and the need to reduce the environmental problems of energy consumption, the energy mix of the future will contain a far lower proportion of fossil energy (oil and natural gas) than it does today. Source: Deutsche Bank Research (2004) Figure 1: Source: New York Times (2008) Extract 2: Most of the Latin American countries with sizeable oil resources engage to some extent in exporting them, notably towards North America and Europe. However, the large emerging economies such as China & India are already representing an important market for energy resources from the region and are likely to increase further in importance. Conversely, for countries such as China, India or South Africa, the Latin American region represents a diversification away from their established supplier countries. Source: Deutsche Bank Research (2007) Figure 2: Net oil export in 2006 – Latin America (million barrels per day)

TPJC / Economics / 2008 Preliminary Examination / H1 3 Extract 3: Biofuels Biofuels are any kind of fuel made from living things, or from the waste they produce. In recent years, the term "biofuel" has come to mean the last category - ethanol and diesel, made from crops including corn, sugarcane and rapeseed. In principle, biofuels are a way of reducing greenhouse gas emissions compared to conventional fossil fuels. Burning the fuels releases carbon dioxide; but growing the plants absorbs a comparable amount of the gas from the atmosphere. Biofuel rush "Europe should be open to accepting that we will import a large part of our biofuel resources. We should certainly not contemplate favouring EU production of biofuels … if we can import cheaper, cleaner biofuels," said Peter Mandelson, EU’s trade commissioner. Oilseed crops in Europe - which are mainly rapeseed - currently receive heavy subsidies, making them cheaper than imported Brazilian ethanol, which is subjected to large import tariffs of around 70%. Even in the US, ethanol production is a net economic loser as it requires staggering taxpayer subsidies to its corn farmers and ethanol producers. At around 18-19 cents/litre, Brazil's sugar cane-based ethanol is much cheaper than the 30 cent/litre corn-based ethanol in the United States. Cheap Brazilian ethanol is not of any help to US consumers since the US effectively limits Brazilian ethanol because of tariff schemes. Concerns about the use From the environmental point of the view, the big issue is biodiversity. Demand for "green" fuels could lead to developing nations tearing down rainforests to produce fuel crops. If increased proportions of food crops such as corn or soy are used for fuel, that may hit food availability and push prices up, affecting food supplies for less prosperous citizens. In addition, there are also fears over the environmental cost of making fuel from crops like corn. Scientists have said it takes so much energy to produce some biofuels that it would be cleaner overall to burn petrol in our cars. Source: BBC articles (2006/2007), Aspen Institute (2006)

TPJC / Economics / 2008 Preliminary Examination / H1 4 Extract 4: Brazil, the world’s biggest producer of ethanol, could be a significant beneficiary of increased biofuel use around the world, and the country has plentiful arable land for expanding these crops. The use of baggasse (residue left after extraction of oil or juice from commodities like olives, grapes, or sugar cane) to co-generate power for the sugar/ethanol mills results in lower energy usage in Brazilian ethanol production, a significant cost saving helping to make Brazil a major competitor. Source: United States Department of Agriculture, Foreign Agricultural Service (2008) Table 1: Annual World Ethanol Production by Country (Millions of Gallons, All Ethanol Grades) Country 2004 2005 2006 Brazil 3,989 4,227 4,491 U.S. 3,535 4.264 4,855 China 964 1,004 1,017 India 462 449 502 France 219 240 251 Source: Renewable Fuels Association

TPJC / Economics / 2008 Preliminary Examination / H1 5 Questions (a) (i) Describe the trends in real oil prices between 1980 and 2006. [2] (ii) Describe and account for the relationship between real oil prices and ethanol production. [4] (iii) Account for Brazil’s share of the world’s ethanol production. [2] (iv) Evaluate the impact of the oil trade on the economies of the Latin American countries “when oil prices soar”. [8] (b) (i) Using economic analysis, explain the environmental problems of using fossil fuels. [4] (ii) Compare the policy of subsidising corn and ethanol production in US to an alternative policy such as a tax on petrol to solve this environmental problem. [10] [30 marks]

TPJC / Economics / 2008 Preliminary Examination / H1 6 Question 2 The Japanese Economy Extract 5: Japan’s Internal Economy The year has been marked by the sustained recovery of Japan's economy. Although Japan's economy still faces further structural changes going forward, the year 2006 can be regarded as a year of steady progress towards normalisation after the long adjustment phase since the bursting of the bubble. One main factor behind Japan’s sustained recovery is Japanese firms are succeeding in utilising the strong growth of overseas economies to realise good business performance. This is seen in steady growth of profits and increases in business fixed investment. With this development, for the first time in more than a decade, the number of firms that reported a shortage of production capacity outnumbered those reporting an excess, and it has become clear that firms are increasingly feeling a shortage of labour. Source: Extracted from Summary of a Speech Given by Toshihiko Fukui, Governor of the Bank of Japan, to the Board of Councillors of Nippon Keidanren (Japan Business Federation) in Tokyo on December 25, 2006 Extract 6: China vs. Japan: A Phony Trade War In recent months, Tokyo and Beijing have been lobbying tit-for-tat import tariffs. Since April, the Japanese government slapped tariffs on Chinese mushrooms, leeks, and the reeds used in tatami mats. In late June, Beijing imposed tariffs on Japanese cars, mobile phones, and air conditioners. From all appearances, the trade battle is causing irreparable harm to the two giants' relationship. But appearances can be deceiving. In fact, the two economies already