PJC_H2 Econs_H2 Prelim paper 2008 paper 1

Candidate Name: __________________________ CT Group: ______ Index no. : ______ ECONOMICS 9732/01 Higher 2 Paper 1 Thursday 11 SEP 2008 2 hours 15 mins Additional materials: Answer paper INSTRUCTIONS TO CANDIDATES Do not open this booklet until you are told to do so. Write your name, CT group and index number in the spaces provided on all the answer papers provided. Answer all questions. Begin Question 2 on a fresh sheet of paper. At the end of the examination, you will be required to hand in your answers to Question 1 and Question 2 separately. 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. 1 This question paper consists of 7 printed pages (inclusive of this page) PIONEER JUNIOR COLLEGE JC 2 PRELIMINARY EXAMINATIONS 2008

Answer all questions Question 1: Energy Markets Extract 1: European energy markets The European commission yesterday warned the 25-EU countries of the impact of rising prices in the energy market. Some of the challenges raised include climate change and shortage of oil supplies on its energy market. It said Europe, along with the rest of the world, faced "serious consequences" from global warming as energy consumption and carbon dioxide (CO 2) emissions continued to rise. The Commission has implemented policies like energy taxes. In addition, the commission is placing greater emphasis on greenhouse gas emissions trading in an attempt to meet the targets set in the Kyoto Treaty. In this system, government issues carbon credits to different firms. Firms can then sell off these carbon credits if their energy usage releases less CO 2 than the designated amount. Firms that cannot reduce their CO 2 emission at a low cost will then purchase the carbon credits in the market. The price of carbon credit is determined by the price mechanism. According to EU Commissioner for Energy, emissions trading will do the job. Without the market incentives implied in trading, companies would rather pay the hefty tax than reduce emissions. Going through carbon taxes can create funds, but there is not much private sector involvement. “Levels of greenhouse gases would be much higher without current efforts to cut emissions. However, several countries within the EU-15 are not doing enough and could jeopardise the collective effort of the entire EU,” said Executive Director of the European Environment Agency. The rising concern about the oil shortage has also sparked off an intense debate over its impact on Europe's economy. On the one hand is a longstanding project led by the European Commission designed to liberalise the market and enable producers and distributors to compete freely within and across national borders. On the other is