MJC H1 ECON P

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8819/01/JC2 PRELIMINARY EXAMINATION /MJC/2011 2 Section A Answer all questions in this section. Question 1: Renewable Energy Extract 1: Asian economies using oil subsidies In the global financial crisis, worldwid e energy consumption paused. But Asia continues to grow, despite the dour econom ic outlook in the United States and Europe, and so does its energy needs. Yet supply has been hit by uncertainties in the Middle East. Although we have not seen major disruptions, prices for crude oil are fluctuating, ranging up to US$120 per barrel, and most predict the long-term trend will be upwards. To ensure affordability, Vietnam, Indonesi a and Malaysia continue to subsidise energy, increasing government burdens as oil pr ices rise. Their artificially low energy prices increase waste and destroy incentives to invest in alternative technologies. Studies suggest that energy e fficiency measures can achieve at least the equivalent savings in power needs with safe, off-the- shelf technology at a much lower cost. Renewable energy currently costs more but with technological advances, may prove viable in the medium term. Source: Today Online, 27 July 2011 Extract 2: UK’s green revolution Thousands of new wind turbines could be built across the UK as part of a £100bn investment in renewable energy that could create hundreds of thousands of new "green collar" jobs, Gordon Brown announced today. The prime minister unveiled what he described as a "green revolution" and "the most dramatic change in energy po licy since the advent of nuclear power". He wants to build up Britain's clean power supply in or der to reach the EU-imposed target of producing 15% of the country's energy from renewable sources by 2020. In a speech to an energy summit at the Tate Modern art gallery in central London, Brown said that the North Sea, which has passed its peak in terms of oil and gas supplies, will be turned into "the equivalent fo r wind power of what the Gulf of Arabia is for oil". Wind turbines will also be built inland, but with sensitivity towards local communities. The government will also shortly begin a new advertising campaign showing people what steps they can take to reduce their en ergy and fuel bills – steps such as turning appliances off rather than leaving them on standby, and fitting new shower heads.

8819/01/JC2 PRELIMINARY EXAMINATION /MJC/2011 3 The prime minister also said that he wa s prepared to take on public opinion over green taxes, insisting that a low-carbon society would not emerge from a "business as usual" approach. Source: The Guardian, June 2008 Extract 3: China's plans for solar power China is to throw its econom ic might behind a national sola r power plan that could result in it becoming one of the world's biggest harvesters of the sun's energy. The government body responsible for overseeing energy policy has finalised a proposal for billions of pounds of subsidies for solar farms and rooftop panels. The central government and the five majo r utilities have deemed solar power too expensive, particularly compared with coal, which generates electricity for between an eighth and a tenth of the co st. But the global economic crisis and increasing concerns about climate change and energy security have prompted a change in attitudes. China is the world's leading manufacturer of solar panels, which turn sunlight into electricity and 95% of these are exported. Despite the infusion of cash and governm ent support for renew able sources of energy, China is expected to remain dependent on coal for about 70% of its energy needs for at least the next two decades, m eaning it will remain the world's biggest emitter of CO2, a major greenhouse gas. Also, China’s programme has been criticized for poor planning as a significant part of power generating capacity installed around the country has been left idle due to insufficient grid connection. Source: The Guardian, May 2009 Figure 1: Existing World Solar Energy Capacity, 1996-2010 Source: PV news, EPIA 0 5 10 15 20 25 30 35 40 45 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Gigawatts

8819/01/JC2 PRELIMINARY EXAMINATION /MJC/2011 4 Figure 2: World Oil Price Index, 1996-2010 (2005=100) Source: International Monetary Fund Table 1: Wind Energy Capacity in UK 2000-2010 (MW=Megawatts) Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 MW 406 474 552 648 888 1,353 1,962 2,406 2,974 4,245 5,204 Source: Global Wind Energy Council Questions a (i) Compare the changes in the world pr ice of oil between 1996 to 2010 with the changes in solar energy capacity over the same period. [2] (ii) Using a supply and demand diagram, account for the changes in the world price of oil. [5] b Explain how subsidies hinder the wo rking of the price mechanism as seen in Extract 1. [5] c Using the production possibility curve, analyse the macroeconomic impact of the ‘Green Revolution’ on the UK. [6] d (i) Explain one source of market failu re in the market for renewable energy. [4] (ii) In light of the data provided, if y ou were a consultant economist, would you recommend that the Singapore government leave the production of renewable energy to the market? Justify your answer. [8] Total Marks: 30 0 50 100 150 200 250 300 Jul‐96 Jul‐97 Jul‐98 Jul‐99 Jul‐00 Jul‐01 Jul‐02 Jul‐03 Jul‐04 Jul‐05 Jul‐06 Jul‐07 Jul‐08 Jul‐09 Jul‐10 Jul‐11 Price Index Price Index (Oil)

8819/01/JC2 PRELIMINARY EXAMINATION /MJC/2011 5 Question 2: The Road to Recovery Extract 4: Post-crisis Recovery Six months ago the Asian economies were among the hardest hit in the world, as exports to the rich world plunged. How can they be bouncing back when demand in America and Europe remains feeble? Domest ic demand seems to be the key, thanks to the biggest fiscal stimulus of any r egion of the world. On the other hand, Singapore’s bounce, for example, was partly due to a big increase in pharmaceuticals production, which is notoriously volatile. Sceptics argue that China al one cannot ignite economic recovery across the region because a large portion of Asia’s exports to China are just inte rmediate goods, which are processed into exports to develop ed economies. The Asian Development Bank calculates that 60% of t he region’s exports eventually end up in the rich world. However, this ignores the huge boost that China’s rebound is giving to business and consumer confidence across the region. Source: The Economist, 30 July 2009 Extract 5: China building its domestic engine China is fulfilling the long- standing demand of Western gover nments that it shifts its engine of growth from ex ports to domestic demand, which according to some economists, is better for boosting emerging economies’ economic growth. China’s real domes