RJC Econs 2008 H1 Prelims P1 final

Raffles Junior College JC2 Preliminary Examinations 2008 ECONOMICS Higher 1 8816/01 Paper 1 15 September 2008 3 hours Additional Materials: Answer Booklet/Paper READ THESE INSTRUCTIONS FIRST Write your name, index number and CT 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 roug h working. Do not use staples, paper clips, highlighters, glue or correction fluid. Section A Answer all questions. Section B Answer one question. Start each question on a fresh sheet of paper. At the end of the examination, securely fasten your work to each question separately . The number of marks is given in brackets [ ] at the end of each question or part question. For Section A, you are advised to spend several minutes per question reading through the data before you begin writing your answers. This document consists of 8 printed pages. JC2Prelims 8816_01 © RJC 2008 [Turn over R a f f l e s R a f f l e s R a f f l e s R a f f l e s J u n i o r J u n i o r J u n i o r J u n i o r C o l l e g e C o l l e g e C o l l e g e C o l l e g e Developing the Thinker, Leader & Pioneer

2 8816/01/S/08 © RJC 2008 Section A Answer all questions in this section. Question 1: Oil Prices and Government Policies Extract 1: What’s Driving up Oil Prices? There are a variety of factors that have facilitate d the run-up of oil prices to US$140 a barrel in the last couple of months, including insufficien t investments in exploration and refining activities, soaring energy demand from Asia and a l ong list of supply disruptions. These factors have left the global oil industry with very little capacity to increase oil supplies. Source: The Business Times , 26 June 2008 Table 1: Comparing Retail Oil Prices (US$ per litre) Singapore $1.54 Thailand $1.22 India $1.19 Vietnam $0.90 Malaysia $0.59 China $0.72 Indonesia $0.64 UK $2.29 Belgium $2.34 Netherlands $2.63 Source: June 2008, EIA & Reuters Figure 1: Oil Prices (£ per barrel) Figure 2: Who Gets What from a Litre of Oil in the G7 in 2007? Source:http://www.opec.org/ [Turn over

3 8816/01/S/08 © RJC 2008 Extract 2: Cheaper Petrol Prices in Malaysia Thousands of Thais and Singaporeans cross the borde rs daily to fill their tanks and take advantage of subsidised fuel, which is expected to cost the government RM56billion (S$23billion) this year. Mr Abdul Wahid Bidin, acting president of the Petro leum Dealers Association of Malaysia, said 90% of the usual customers of some fuel statio ns near the northern border were from Thailand. Regular petrol in Malaysia costs RM1.92 a litre, cheaper than the 31.59 baht (S$1.32) in Thailand and S$2.10 in Singapore. Source: The Straits Times , 3 June 2008 Extract 3: Are Ecotaxes a Good Idea for Europe? The ambitious goals set by EU leaders in March at t he Brussels summit–a 20% cut in greenhouse gas emissions by 2020 and related target s for energy savings, biofuels and other renewable energies–is unlikely to be achieved , at least without the use of environmental taxes to induce changes in businesses’ and consumers’ behaviour. In contrast to regulatory or administrative approac hes, market-based instruments such as taxes and tradable permit schemes offer several adv antages as a means of achieving environmental objectives. Whether by influencing prices (through taxation or fiscal incentives) or setting absolute quantities (via tradable permit s), they improve price signals, allow industry greater flexibility in meeting objectives, and give firms a longer-term incentive to pursue technological innovations that further reduce adverse impacts on the environment. There are a variety of measures that are often prop osed in the management of negative externalities. The standard tax theory proposes a c arbon added tax which could be implemented in a way similar to a value added tax. Taxation can fall on either consumption or production of a good. This fits with the concept of the tax being targeted directly to reduce production or consumption whereby the polluter pays. However, the regulation and enforcing, especially in developing countries, may result in higher transaction costs An alternative policy is to cap the emissions limit and allow the trading of pollution permits that is implemented under the Kyoto Protocol. This ensures that the amount of pollution is set at the level desired by the governing bodies. T he advantage of such a system is that it is easy to implement for major sources of emissions. H owever, for multitude of small sources, it may prove difficult. On top of that, it is diffi cult to decide how to allocate emission rights across countries as well as within countries (corruption). Source: Various Sources Extract 4: How Green Taxes Hurt the Poor As Spanish hauliers and French fishermen have shout ed out for the entire world to hear, higher fuel prices are not popular. This is uncomfo rtable for those who see increased taxation as a way of fighting global warming. Green taxes tend to fall hardest on the poor. In America the Congressional Budget Office has esti mated that a cap-and-trade system, designed to cut emissions by 15%, would reduce the average income of the lowest quintile of the population by 3.3% and the richest quintile by just 1.7%. The effect on the poor is not uniform; fewer drive cars, for example. However, for those that do, they spend a big part of their income on petrol . In 2007 Britain's Institute for Fiscal [Turn over

4 8816/01/S/08 © RJC 2008 Studies (IFS) estimated that a 5% rise in fuel duty would cut the income of the poorest decile of Britons by 0.27%; the richest decile would lose only 0.11%. And although the poor may not all drive, they must all heat their houses in w inter. In addition, the wealthy have more money to spend on products that improve energy effi ciency, such as insulation and hybrid cars. The fundamental problem is difficult to get round. If governments desire people to use less energy, they have to ration supply by price. They c an limit frivolous use (gas-guzzling cars, televisions on standby and the like), but there may be a core demand for energy (heat, light, commuting) where consumers will resist cuts. For th at part, the rich will always be able to outbid the poor. And that will plague green campaigners. Source: The Economist , 12 June 2008 Questions (a) Identify and account for the trend in oil prices from 2000 to 2008. [4] (b) (i) Compare the price of petrol in Malaysia to that in UK. [2] (ii) Using the information given, identify the different governments’ policies that gave rise to the above. [2] (c (iii) Evaluate the effects behind both governments’ policies. [8] (c) With the aid of a diagram, discuss whether there is a need for governing bodies to come together and reduce greenhouse gases. [6] (d) If you are an environment minister in the governmen t, which measure(s) would you use to achieve the greenhouse gas emissions targets set by the EU? Justify your answer. [8] 30 marks

5 8816/01/S/08 © RJC 2008 Question 2: The Asian Financial Crisis and its Aftermath Extract 5: The Asian Financial Crisis Ten Years Later Ten years ago, the Asian financial crisis of 1997–9 8 began to unfold. Few countries in the region were left untouched, and the aftereffects re verberated across the globe. As private investors were stampeding for the exits, the intern ational community stepped in to help, providing external financing, while governments in the region adjusted policies, and steps were taken to coordinate private sector financing. Today, Asia is among the star perform