YJC Prelim 08 H2 Econ Paper 1

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□ 2□ Question□1□□ Oil□and□Petrol□ □ Extract□1:□Rising□demand□fuelling□global□energy□crisis□ With□oil□prices□approaching□US$100□(S$144)□a□barrel ,□the□world□is□headed□towards□its□third□energy□ shock□in□a□generation.□But□today’s□surge□is□differe nt□from□previous□oil□crises,□with□broad□and□longer- lasting□global□implications.□□ Just□as□in□the□energy□crises□of□the□1970s□and□1980s,□today’s□high□prices□are□causing□anxiety□and□pain□ for□consumers□and□igniting□wider□fears□about□the□im pact□on□the□economy.□But□unlike□past□oil□shocks,□ which□ were□ caused□ by□ sudden□ interruptions□ in□ exports□from□ the□ Middle□ East,□ this□ time□ prices□ have□ been□steadily□increasing□as□demand□for□petrol□grows □in□developed□countries,□as□hundreds□of□millions□ of□ Chinese□ and□Indian□ climb□ out□ of□ poverty□ and□as□ other□ developing□ economies□grow□ at□ a□ sizzling□ pace.□□ For□oil□companies,□high□prices□have□sparked□a□frenz ied□search□for□new□sources□around□the□world.□ The□trouble□is□that□these□big□new□developments□take□a□long□time,□and□companies□have□been□hobbled□ by□higher□costs.□The□cost□of□drilling□rigs,□for□exa mple,□has□doubled□in□recent□years.□□Supplies□have□ also□been□hampered□by□political□tension□in□the□Persian□Gulf,□the□war□in□Iraq,□devastating□hurricanes□in□ the□oil□producing□Gulf□of□Mexico□and□violence□in□Nigeria’s□oil□rich□province.□□ Source:□ The□Sunday□Times, □11□November□2007□ □ Extract□2:□Tax□rise□fuels□petrol□price□fears□□ Petrol□ prices□ could□ surge□ to□ near□ record□ highs□ following□ a□ 2□ pence□ rise□ in□ fuel□ duty.□ □ The□ Petrol□ Retailers□Association□said□the□rise□would□put□an□un due□"strain□on□motorists□and□petrol□retailers□alike ".□ It□has□criticised□the□government's□move,□highlighti ng□that□petrol□prices□have□risen□steeply□in□line□wi th□ the□oil□price.□□□ However,□Stephen□Joseph,□executive□director□of□the□Campaign□for□Better□Transport,□said□the□rise□was□ welcome,□ provided□ the□ extra□ money□ raised□ was□ used□ t o□ improve□ public□ transport□ and□ "other□ measures□that□will□give□people□real□travel□choices".□□A□Treasury□spokesman□said□the□tax□rise□sent□"the□ right□environmental□signals□in□our□fight□against□climate□change".□□ Source:□ BBC□News ,□01□October□2007□□ Extract□3:□US□airline□catastrophe□looms□under□record□oil□prices□ THE□United□States□airline□industry□is□set□to□crash□as□record□oil□prices□threaten□to□push□several□carriers□ into□bankruptcy,□an□industry□study□said.□□ According□ to□ a□ study□ issued□ by□ Airline□ Forecasts□ and□ the□ Business□ Travel□ Coalition,□ at□ current□ oil□ prices,□several□large□and□small□US□airlines□will□de fault□on□their□obligations□to□creditors,□beginning□ at□ end-2008□ and□ early□ 2009.□ □ The□ grim□ industry□ snapshot□ comes□ as□ US□ airlines□ cut□ fleets,□ jobs□ and□ capacity□and□add□fees□as□they□struggle□with□spiralling□jet□fuel□costs□and□a□weak□domestic□economy.□□□□ The□study□shows□that□oil□at□US$130□will□increase□ye arly□airline□costs□by□US$30□billion,□while□airlines □ will□ be□ able□ to□ generate□ only□ US$4□ billion□ in□ fare□ increases□ and□ incremental□ fees.□ □ Recently□ introduced□bag-checking□charges□and□other□fees□would□only□yield□US$1□billion□to□US$1.5□billion□at□the□ industry□level.□□ 'Stabilising□this□ailing□industry□must□become□a□nat ional□policy□priority,'□the□study□said,□calling□on□ the□ White□ House,□ Congress,□ federal□ regulators□ and□ state□ officials□ to□ take□ action.□ □ 'Absent□ direct□ policy□ intervention,□the□likelihood□is□several□airlines□wi ll□fail.□□The□consequences□will□be□devastating□to□U S□ jobs,□families,□businesses,□communities□and□our□American□way□of□life.'□□ Source:□www.straitstimes.com ,□14□June,□2008□ □ □ □ □

□ 3□ Extract□4:□Indonesia□inflation□set□to□surge□after□fuel□price□hike□ Inflation□in□Indonesia□is□set□to□soar□in□response□t o□a□government□plan□to□hike□the□price□of□subsidised □ fuel,□imperilling□growth□in□Southeast□Asia's□biggest□economy,□experts□said.□□□ The□country's□government□announced□recently□that□it □planned□to□raise□the□fuel□price□due□to□record- high□global□oil□prices,□which□are□causing□the□cost□of□the□multi-billion-dollar□subsidy□scheme□to□balloon.□ The□increase□comes□on□top□of□the□fallout□from□high□global□food□prices.□□□ Budget□committee□chairman□Haris□Azhar□Azis□said□the □fuel□price□hike□was□necessary□to□prevent□even□ greater□damage□to□the□economy□in□future.□□□Fuel□sub sidies□have□become□increasingly□expensive□as□ the□price□of□oil□has□surged,□and□are□projected□to□n early□triple□this□year□to□126.8□trillion□rupiah□(S$ 19□ billion□dollars),□amounting□to□about□12□per□cent□of□the□state□budget.□□ However,□there□are□fears□that□a□fuel□price□rise□cou ld□trigger□unrest□in□Indonesia.□□Small□protests□hav e□ already□started□over□the□latest□plan.□□Police□and□s tudents□clashed□in□two□cities,□while□peaceful□ralli es□ have□cropped□up□around□the□sprawling□archipelago.□ □ Source:□ www.straitstimes.com ,□8□May□2008□ □ □ □ □ □ □ □ □ □ □ □ □ □ □ □ *OECD□-□Organisation□of□Economic□Co-operation□and□ Development.□□Member□countries□include□Britain,□the□US,□ Germany□etc.□Non-OECD□are□countries□such□as□Indonesia□ and□Mexico.□ □ □ □ □ □ Chart□2 :□□ Retail□Petrol□Prices,□US$□per□litre□ (latest□prices)□□ Source: □The□Economist ,□29□May□2008 □ Chart□ 1:□ □ Annual□Change□in□World□Oil□Consumption □ (million□barrels□per□day) □ Source: □The□Economist ,□29□May□2008 □

□ 4□ Questions:□□ □ (a)□(i) □□Compare□the□trend□in□oil□consumption□levels□of□OECD□countries□with□non-OECD□countries□ □□□□□□□□□□□between□2004□and□2007□in□Chart□1.□□ □ □ □□□ □□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□[2]□ □ □ □□□□□□ (ii) □□Account□for□this□trend□in□the□consumption□of□oil□for□OECD□and□non-OECD□countries.