NJC 2008 Prelim - H2 P1 Qn Paper

This document consists of 7 printed pages. © NJC 2008 NATIONAL JUNIOR COLLEGE Humanities Department (Economics) [Turn Over National Junior College Humanities Department (Economics) Preliminary Examinations for General Certificate of Education Advanced Level 2008 JC2 H2 Economics (Syllabus 9732) ECONOMICS 9732/1 Higher 2 Paper 1 Case Study 27 August 2008 2 hour 15 min Additional Materials: Answer Booklet / Paper READ THESE INSTRUCTIONS FIRST Write your name and subject 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 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.

2 © NJC 2008 9732/Aug 2008 Case Study 1 – Answer ALL the Questions Figure 1: Price of Oil (US$ per barrel) Source : OPEC website www.opec.org Table 1 : Price of Rice (Thai A1 super grade) Year 2002 2003 2004 2005 2006 2007 Price of rice per tonne (US$) 150 151 207 219 217 275 Source: International Rice Institute Research website www.irri.org Extract 1: Don’t Panic, Don’t Hoard And Don’t Overbuy “Don’t Panic, Don’t Hoard And Don’t Overbuy.” This message comes from Ms Sopan Manathanya, the vice-president of one of Thailand’s top rice exporters. She is in Singapore on a 3-day visit to assure rice distributors here that Thai rice conglomerates like hers are taking steps to increase the number of crops harvested in a year and are also negotiating prices with farmers. According to Ms Sopan, factors pushing up the price of rice include the growing number of farmers switching from producing rice to biofuels, weather conditions and higher overheads. Source: Adapted from The New Paper, 29 Apr 2008

3 © NJC 2008 9732/Aug 2008 Figure 2 Source: www.opec.org Extract 2: Targeted Price Controls in United Arab Emirates A black market for rice has emerged in inflation-hit United Arab Emirates. An Abu Dhabi-based food trader said: "The price you pay a black market dealer could be as much as 20% more than what you pay normally." The United Arab Emirates (UAE) government has reportedly tried to limit inflation through targeted price controls. This measure has pushed rice supplies off store shelves. As a result of this, people took to panic buying, thereby causing Thai rice prices to nearly treble. According to traders, the UAE will continue to encounter a shortfall in rice supplies. A rice trader said: "The number of trader s who stopped importing rice in the last couple of months is scary. They want subsidies and compensation and the government is not giving any. We cannot import and make losses, if the countries we are importing from like Pakistan, demand higher prices and sell their output to other destination." With the implementation of price controls, food and commodity inflation is likely to come down. Nevertheless, prices may still remain high due to global trends. UAE is a member of the Organization of the Pe troleum Exporting Countries, OPEC, which is the source of about a third of the globe's oil supply. OPEC is widely regarded as the greatest beneficiary of the global oil price hike. Source : Adapted from Reuters, Jun 2008

4 © NJC 2008 9732/Aug 2008 Questions (a) (i) With reference to Figure 1 and Table 1, compare the trend of prices of rice and oil in the period 2004 to 2007. [2] (ii) With reference to Extract 1, provide a possible explanation for the relationship between the price of rice and that of oil between 2004 and 2007. [2] (b) With reference to Extract 2, explain, with the aid of a diagram, how price controls implemented by the UAE government may affect (i) the market for rice. [3] (ii) the consumers. [2] (c) Using economic analysis, assess the possible impact on the macroeconomy of UAE, as a result of persistent increases in the price of oil worldwide. [8] (d) With reference to Figure 2, identify the form of government intervention in the oil markets in G7 countries and explain a possible economic reason for your answer. [3] (e) Critically examine how the proposal of “a tax on any “unreasonable” profits of the five largest US oil companies” (Extract 3), is effective in protecting consumers’ interests. [10] [30m] Extract 3: Proposed Tax on Windfall Profits of Oil Companies At a time when Americans are finding they’re having to give up a host of things just to fill their gas tanks, they read news stories about record oil company profits. To address America’s anger over $4 a gallon gasoline, Democratic leaders have proposed a tax on the windfall profits of oil companies. The Democratic energy package would have imposed a tax on any “unreasonable” profits of the five largest U.S. oil companies. Exxon Mobil, one of the five largest oil companies, fired back at the call to counteract skyrocketing energy costs by hiking levies on producers. Exxon Mobil said that U.S. energy companies already pay record taxes and that the high oil prices is due to oil market speculation. “Proposals to increase taxes on the industry would discourage the sustained investments needed to safeguard U.S. energy security and are not in the interests of American consumers,” Exxon Mobil said. Other market analysts interviewed also urged for long term solutions to protect consumers’ welfare Adapted from Reuters, Jun 2008

5 © NJC 2008 9732/Aug 2008 Case Study 2 – Answer ALL the Questions Extract 1 - A glimmer of light at last? A recent report by the Organisation for Economic Co-operation and Development (OECD) estimates that Africa's economy grew by almost 5% last year, and is expected to do even better this year and next. Is Africa, often dubbed the hopeless continent, finally taking off? The perky figures are partly due to a global hunger for oil, minerals and other commodities, whetted by demand from China and India. Africa produces much of what China wants, boosting trade and fuelling interest in the continent. Soaring commodity prices (oil up by more than 90%, minerals and metals by about 70%, since 2000) have brought windfalls for oil- producers such as Angola and Nigeria. Africa itself deserves credit for the upswing. Most of its economies have been better run: inflation, now averaging 8% a year, is at its lowest level in many countries since soon after independence 40-plus years ago; governments hav e been tightening the purse strings. With the striking exception of such dismal places as Côte d'Ivoire, Somalia and Zimbabwe, which now has the highest inflation in the world, politics in most African countries is better handled and violence less prevalent. Emboldened by this good news, foreign investors have again turned their gaze to the continent. Good returns from Africa's small stock exchanges have lured in fund managers. Foreign direct investment (FDI) has also gone up: $18 billion flowed into the region in 2004, three times the annual average rate in the 1990s. For all this happy news, will the region weather the next global dip better than before? Sub- Saharan Africa has sometimes perked up a bit, only to slump again when commodity prices drop and the world economy falters. These boom-and-bust cycles have stymied real progress. The region's total of 48 countries contains ve ry few large, diverse or industrial economies. Most economies still depend hugely on rain-fed agriculture and on commodities. Most foreign investment in Africa still goes to oilfields or mi nes, rather than factories, services or farming. Mineral riches prov