DHS 2008 Prelim - H2 Econs Paper 1

DUNMAN HIGH SCHOOL Year 6 Preliminary Examinations 2008 ECONOMICS 9732/1 Higher 2 Paper 1 Case Study 18 September 2008 2 hours 15 minutes Additional Materials: Paper READ THESE INSTRUCTIONS FIRST W rite your name and class on all the work you hand in. W rite in dark blue or black pen on both sides of the paper. Y ou may use a soft pencil for diagrams, graphs or rough working. Answer ALL questions 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 page. You are reminded of the need for good English and clear presentation in your answers. This document consists of 7 printed pages. DUNMAN HIGH SCHOOL Humanities Department (Senior High Section) [Turn Over © DHS 2008

2 Question 1: Land Transport Policies in Singapore and the UK Extract 1: FY2002 Budget Speech – Motor Vehicle Taxes Fiscal disincentives have been a very effect ive means of controlling car ownership and usage in Singapore. They have kept our roads smoo th-flowing and congestion free. However, our current vehicle taxes are excessively skewed towards ownership costs rather than usage charges. High ownership cost is a blunt tool for controlling traffic congestion and has distorted us age patterns by encouraging car owners to drive frequently, since the car has already been paid for. The Government aims to strike a better balance between the owner ship and usage costs of a car. The additional registration fee, excise duty and road tax which are payable regardless whether or not the car is actually used will be lowered. Car Park charges will be revised to ensure proper costing in l and-scarce Singapore. The Electronic Road Pricing (ERP) system will also be expanded to keep our roads free flowing. More Certificates of Entitlement (COE) will be issued if the ER P system proved effective in managing congestion. Source: Adapted, MOF Website Figure 1: Cost of Motoring for a Typical Medium-Sized Car Source: Land Transport Authority, Statistics in Brief 2005 Extract 2: Off the Road onto Rail The ERP system was launched in April 1998 to replace the former Area licensing Scheme that was introduced in the Restri cted Zone in 1975, and the manual Road Pricing Scheme that was im plemented on major expressways in the 1990s. The Land Transport Authority undoubtedly has refined the ERP system to a science after a decade of data evaluati on and tinkering with ch arges, operating hours and studying which new problem roads require gantries to be planted on. What these standardised processes cannot measure is the Singaporean motorist's mindset: the entrenched thinking that cars bought at great cost should be used to the maximum. Success is not to be measured solely by improved journey speeds, but also by how many car owners are convert ed to taking bus and rail to work as a habit (Table 1). To move more motorists onto public transport, the rail network is being expanded. This will take years. Park-and-ride facilities should be expanded, if physically Cost Index 100 80 Upfront Cost (59.3%) 60 40 20 0 1994 2004 Upfront Cost (46.9%) Fixed Cost (16.2%) Fixed Cost (19.4%) Usage Cost (24.5%) Usage Cost (33.7%) © DHS 2008 9732/18th Sept 2008

3 possible, and their use eased. Concurrent improvements in bus frequencies are also required. By the time new rail lines ar e ready in about 15 years, the hope must be that rail commutes will have overtaken driving as a workaday habit. Source: The Straits Times, 21 Jun 2008 Table 1: Public Transport Ridership Vs Car Population Total Population (‘000) Public Transport Average Daily Ridership ('000 passenger-trips) Car Population (‘000) Year MRT Bus 1998 3,927.2 949 3,158 375.2 2002 4,176.0 1,080 3,123 404.3 2006 4,401.4 1,435 2,853 472.4 2007 4,588.6 1,564 2,969 514.7 Source: Land Transport Authority Website Extract 3: Stuck in a Jam Approval for the Manchester plan in Unit ed Kingdom to charge motorists for road usage to cut jams, should be applauded. The case for road pricing is clear: every driver on the road imposes a cost on others, through congestion, pollution, greenhouse gas emissions and t he risk of accidents. The attractions of a well designed scheme are the market mechanisms that encourage drivers to travel when road capacity is cheapest and most availabl e. By paying more for longer journeys through heavily built-up areas, motorists ar e encouraged to find other, quieter routes to get around or travel at less busy times. A small response from drivers can greatly improve traffic flows. In London, a 15 per cent reduction in journeys reduced delays due to congestion by 30 per cent. Since the rich drive more than the poor, road pricing is also progressive. Naturally, many motorists hate the idea, and the obvious compromise is to pay them off by cancelling taxes on fuel. While politic ally tempting, this is the wrong approach. We face two big problems: climate change and congestion. Fuel taxes encourage efficient cars. Road pricing fights congestion. With two aims, we need two incentives. Road pricing revenue could instead be used to reduce other taxes. It could replace three or four pence of the basic rate of income tax. We should encourage earning income rather than burning fuel and sitting in frustrating traffic jams. Source: The Financial Times, 10 June 10 2008 Extract 4: Are taxes the best means to cut greenhouse emissions? A major concern is the environmental impact of transport, which accounts for roughly 25% of total carbon dioxide emissions (Figure 2). A pending Commission proposal would introduce a CO2-dependent element in the tax base of registration and annual circulation taxes on passenger cars, encouraging car buyers to take energy efficiency and emissions into account. It is argued a CO 2-based taxation of cars will have a significant CO2 reduction potential by shapi ng consumer demand and setting © DHS 2008 9732/18th Sept 2008

4 economic incentives to which vehicle manufac turers and fuel suppliers will respond.” It is noted that the road pric ing systems introduced in a number of EU cities, such as London and Stockholm, to impr ove traffic conditions and reduce congestion have also significantly reduced CO2 and other emissions within the charged area. In contrast to regulator y or administrative approac hes, these market-based instruments such as taxes and tradable permit schemes offer several advantages as a means of achieving environmental objectives. Whether by influencing prices or setting absolute quantities, t hey improve price signals, allow industry greater flexibility in meeting objec tives, and give firms a longe r-term incentive to pursue technological innovations that further reduce adverse impacts on the environment. Source: The Economist Intelligence Unit, 23 Apr 2007 Source: Transport Trends 2007, Department for Transport, United Kingdom, http://www.dft.gov.uk ai) With reference to Figure 1, descri be the trend in the ‘cost of motoring’ between 1994 and 2004. [2] aii) Account for the trend obser ved in a(i). [4] bi) Using economic reasoning, explain t he rationale for ‘charging motorists for road usage’. [4] bii) Discuss the effectiveness of Singapore’s land transport policy to move more private motorists onto public transport. [8] ci) Describe the trend of CO 2 emissions caused by ‘non-t ransport sources’ in the United Kingdom (UK) between 1980 – 2005. [2] cii) In the light of the data provided, if that you were an economic advisor to the UK government, would you recommend us ing ‘market-based instruments’ to reduce the environmental impact of transport?