RI_H2_ECONS_P1

9757/01/Prelim/Y6/18 © RI 2018 [Turn over RAFFLES INSTITUTION 2018 YEAR 6 PRELIMINARY EXAMINATIONS Higher 2 ECONOMICS 9757/01 Paper 1 Case Study 28 August 2018 2 hrs 15 minutes Additional Materials: Answer Paper READ THESE INSTRUCTIONS FIRST Write your name, index number and civics 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. Do not use paper clips, highlighters, glue or correction fluid. Answer all questions. The number of marks is given in brackets [ ] at the end of each question or part question. This document consists of 8 printed pages.

2 9757/01/Prelim/Y6/18 © RI 2018 [Turn over Question 1: Madagascar – The Story of Vanilla Table 1: Madagascan Exports of Vanilla to the US Year Price of Vanilla (USD$/kg) Volume (kg) Export Revenue (USD$) 2008 21.5 1,300,000 27,950,000 2009 23 1,150,000 26,450,000 2010 21 - - Source: www.datamnye.com Extract 1: Background Knowledge of Vanilla Vanilla is an essential ingredient used in sweet foods, alcohol, scented perfumes as well as cosmetics. It is a difficult spice to cultivate and a vanilla vine takes three to four years to mature, before it could be harvested. One of the world’s most popular spices, vanilla is also the second most expensive spice in the world. Today, vanilla accounts for approxim ately 20% of Madagascan exports, worth $600m at current prices, and is a significant contributor to Madagascar’s GDP. In fact, Madagascar is the main exporter of vanilla in the world. Together with the fishing industry, the agriculture sector, being the largest sector in the Madagascan economy, employs 82% of its labour force and accounts for 30% of the country’s GDP. Vanilla farmers, like farmers all over the world, face dramatic fluctuations in the price of the crops they produce. In the early 1900s, the Madagascar government imposed a fixed price on vanilla and also intervened in the market through a buyback programme that ensured the surplus stocks were purchased and kept as inventory. Such intervention ensured price stability and equity in the distribution of gains from vanilla farming to all. Price fixing succeeded in keeping the price high and brought about positive results for the farmers for a limited period. In the end, sustained government intervention meant that the cost of keeping exploding inventories escalated beyond what could be financed. This led to stocks of inventories being burnt ultimately, which was an extraordinary waste, given the high unit value of vanilla and the extreme poverty of the farmers whose output was thus destroyed. Madagascar’s agriculture performance has also been hindered by problems such as low productivity and high vulnerability to climatic conditions. A recent cyclone in 2017 destroyed a number of vanilla plantations a