RVHS H2 ECONS P1 QP

This document consists of 7 printed pages and 1 blank page. [Turn over 1 ECONOMICS 9757/01 Paper 1 Case Study 12 September 2017 2 hours 15 minutes Additional Materials: Answer Paper READ THESE INSTRUCTIONS FIRST Write your index number and name 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 any diagrams, graphs or rough working. Do not use staples, paper clips, highlighters, glue or correction fluid. Answer all questions. Start each case study on a new sheet of paper. At the end of the examination, fasten your work securely together. Your answers for each case study are to be handed in separately. The number of marks is given in brackets [ ] at the end of each question or part question. RIVER VALLEY HIGH SCHOOL YEAR 6 Preliminary Examination II in preparation for General Certificate of Education Advanced Level Higher 2

2 © RVHS 2017 9757/01 [Turn over Answer all questions. Question 1: The market for oil and electric cars Table 1: Oil production and consumption (millions of barrels) Region Consumption Production 2014 2015 2014 2015 North America 23421 23753 18833 19733 South & Central America 7171 7139 7659 7761 Europe & Eurasia 18287 18450 17206 17479 Middle East 9180 9300 28515 30065 Asia Pacific 31195 32494 8307 8369 Total 89254 91136 80520 83407 Source: BP Statistical Review of World Energy Extract 1: Are low oil prices here to stay? Despite a recent upturn, the price of oil has slump ed almost 50% since last summer following the longest-running decline for 20 years. US oil, and to a lesser extent Libyan oil returning to the market, has pushed up supply while a slowdown in the Chinese and EU economies have led to a poor outlook for the economy, causing oil prices to fall sharply. This is precisely when the Organization of Petroleum Exporting Countries (OPEC), the cartel of major global oil producers, would normally step in to stabilise prices by cutting production. It has done so many times in the past, so often in fact that the market expects OPEC to intervene. This time it hasn't. In a historic move at the end of last year, OPEC said not only that it would not cut production from its 30 million barrels a da y quota, but had no intention of doing so even if oil fell to US$20 a barrel. And this was no empty threat. Despite opposition from Venezuela, OPEC leader Saudi Arabia refused to bail out its more vulnerable members. Many OPEC members need an oil price of US$100 or mo re to balance their budgets, but with an estimated US$900bn in government reserves, Saudi Arabia can afford to play the waiting game. OPEC now supplies a little over 30% of the world's oil, down from almost 50% in the 1970s, partly due to US oil producers flooding the market. "Given this scenario, who should be expected to cut production to put a floor under pri ces?" OPEC argued last month. Equally, Saudi Arabia is not prepared to sacrifice more mark et share while its competitors, not least US oil producers, prosper. Safe in the knowledge th at it can withstand very low oil prices for the best part of a decade, it would rather stand back and "let economics do the work". Source: BBC News , 24 February 2015

3 © RVHS 2017 9757/01 [Turn over Extract 2: Why the low oil price will not harm sales of electric cars Crude oil makes up about 50% of the volume of moder n cars. It is not only used to power vehicles, but can also be present in other areas of the vehicle such as in the enamel in paint to the synthetic rubber in the tyres. Increasingly, it is widely assumed that the tumbling oil prices will put a dent in the sales of electric car s, as internal combustion engines of conventional vehicles become increasingly cheap to run. But for buyers of electric cars, the relative cost of refuelling is in fact a minor consideration. The popularity of electric cars in the years to come will depend much more on improvements to their performance than on the oil price. Buyers of electric cars are not looking for cheap m otoring. Electric cars attract some buyers because they serve as a badge for people committed to environmental protection to demonstrate to the world that they care about the e nvironment, no matter what the cost. Owners of electric cars are not looking for budget motoring but status as early adopters of cutting-edge technology. Low maintenance costs and the ability to recharge at home add to the appeal of electric cars. In the long run, the cost of the vehicles themselve s will be far more influential than the oil price when it comes to getting people to buy them. Already, where battery packs generally comprise an estimated 25% of total costs of electri c car production, economies of scale reaped by companies like Tesla, an electric car mak er, has led to a decline in the cost of producing battery packs for electric vehicles from about US$1000 per kWh in 2007 to about US$450 per kWh in 2014. The battery in a Nissan Lea f, the world’s bestselling electric car, accounts for half the selling price. However, a bre akthrough in battery chemistry or other technologies will be needed to bring costs down eno ugh to make electric cars a realistic mass-market prospect. Yet, the challenges of overcoming a lack of infrastructure have yet to be resolved. If electric cars fail to catch on, low fuel prices will not be the reason. Source: The Economist , 24 February 2015 Extract 3: Toyota follows Tesla in announcing technology sharing initiative Japanese carmaker Toyota this week announced it wil l freely share all of its hydrogen fuel cell technology in order to spur development of low -emission cars around the world. Elon Musk’s Tesla Motors, took a similar step in making its patents available to other carmakers late last year. Both firms are trying to avoid a to tal collapse of the newly-formed electric car market. The first generation low-emission vehicles will be critical, requiring a concerted effort and unconventional collaboration between automakers , government regulators, academia and energy providers. Source: The Guardian , 8 January 2015 Extract 4: China’s electric car boom - Should Tesla Motors worry? During the last four months of 2014, China’s electr ic vehicle sales skyrocketed. Analysts attributed the jump in sales to the elimination of the vehicle tax on Chinese electric vehicles. When China’s auto market started to slow in 2008, t ogether with the rest of the world, the country sought to stimulate automotive sales and en courage its citizens to buy cleaner cars by cutting taxes on energy-efficient gasoline engin es. In 2008, the central government cut taxes on these small cars to 5% from 10%. That was the year China became the largest auto market in the world.

4 © RVHS 2017 9757/01 [Turn over It’s still far from clear what factors are driving China’s recent electric vehicle boom and why Tesla was left out. Another possibility is that Chi na’s policies to promote electric vehicles have finally reached a tipping point. For instance, to deal with traffic congestion in major Chinese cities, many municipal governments, includi ng Beijing, have limited the number of new vehicle registrations. In Beijing, electric veh icles are exempt from this quota system. The central government has also instituted a new se t of policies to encourage competition among domestic manufacturers, such as providing sub sidies to help smaller companies achieve large-scale production, which increases com petitive pressure that was woefully lacking during the early years of China’s electric vehicle program. Perhaps locally produced vehicles have finally reached a quality threshold that make them attractive to Chinese buyers. Whatever the reason, just as Chin