MI H1 ECON P1

Class Adm No Candidate Name: This question paper consists of 8 printed pages. [Turn over 2011 Promotional Examination II Pre-university 2 ECONOMICS 8819/01 Paper 1 13 September 2011 3 hours Additional Materials: Answer Paper READ THESE INSTRUCTIONS FIRST Write your name and 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 any diagrams or graphs. Do not use paper clips, highlighters, glue or correction fluid. Section A Answer all questions. Section B Answer one question. Start each question on a fresh sheet of paper. You are reminded of the need for clear presentation in your answers. The number of marks is given in brackets [ ] at the end of each question or part question. At the end of the examination, hand in your answers to the three questions separately.

2 Section A Answer all questions in this section. Case Study Question 1: The Fight against Carbon Figure 1: Total Carbon Emissions Carbon Emissions 0 100 200 300 400 500 600 2000 2001 2002 2003 2004 2005 2006 2007 2008 Year ,000 Kilotons Canada Australia S o u r c e : tradingeconomics.com Table 1: Carbon Emissions from Electricity Generation Source: CARMA Database, Aug 2011 * 1mwh = 1000 kilowatt hours * 1kt = 1000 tons Extract 1: Australia introduces carbon emission tax Australia unveiled its most sweeping economic reform in decades on Sunday with a plan to tax carbon emissions from the nation's worst polluters , reviving hopes of stronger global climate action with the largest emissions trade scheme outside Europe. Prime Minister Julia Gillard said 500 companies including steel and aluminium manufacturers would pay a A$23 per ton carbon tax from next year, rising by 2.5 percent a year. Australia is the developed world's worst per-capita greenhouse gas emitter because of its heavy reliance on cheap coal for power generation. Emissions are set to rise in the booming economy with more people travelling, the government says. As carbon emission is a prevalent source of global warming, the scheme is aiming to cut national emissions by 5 percent of 2000 levels by 2020, which would mean a cut of about 160 million tons. The danger is that a vigorous campaign by the conservative opposition and business groups opposed to the tax could erode public support. Major concerns were raised as the tax may impose Country Present CO2 Emission (KT) Electrical Energy (MWH) % Fossil % Hydro % Nuclear % Renewable Australia 224,000 228,000,000 90.04 6.82 0 1.53 United Kingdom 227,000 4,190,000,128 71.35 1.33 20.34 5.28 Japan 414,000 1,030,000,000 33.23 7.57 27.74 2.75 Germany 429,000 636,000,000 62.11 3.05 24.36 7.46 China 3,120,000 3,260,000,000 82.51 14.51 2.02 0.12 Canada 172,000 732,000,000 26.29 49.91 11.95 4.28

3 the highest carbon price in the world, compromising the competitiveness of Australia’s export and import competing sector without much environmental benefits. To neutralise opposition, Gillard said more than A$24 billion to be raised from pollution permit sales over the next three years would go to households through generous tax cuts worth more than A$15 billion. S o u r c e : www.reuters.com, 10 July 2011 Extract 2: Qantas Airways warns of increase in fares Qantas Airways claims the new carbon tax is likely to increase the cost of its operations by as much as 115m Australian dollars (£76.7m). However, the airline says the extra cost will be passed on to passengers as it increases fares. Qantas expec ts the price on a single domestic flight to rise by about A$3.50 in 2013. "In the context of the significant challenges facing the global aviation industry, the Qantas Group will be unable to absorb the additional costs associated with the carbon price and there will be a full pass-through to customers," the Australian airline said in a statement. Meanwhile, Virgin Australia said the cost of the carbon tax to the company is likely to be about A$45m. The carrier said it will also pass the ex tra costs on to the customers, with average domestic fares increasing by A$3 per ticket. S o u r c e : BBC Business News, 11 July 2011 Extract 3: UK energy firms to get new low-carbon incentives The government is to guarantee prices for electricity to persuade the private sector to invest in new low-carbon forms of generation. The move is part of a range of proposals outlined by Energy Secretary Chris Huhne. He also mentioned that the measures "were a once-in-a-generation chance to lay the foundations for the sustainable economy of the future". Opposition MPs said they welcomed the proposed measures, but said the government must ensure that consumers did not bear their costs. Mr Huhne responded by saying that subsidies would be available for all forms of low carbon po wer generation, whichever proved to be the most attractive. The aim of the new framework is to ensure the UK has the electricity generating capacity it needs, while still meeting its climate change targets. In the next 10 years a quarter of UK’s generation capacity is due to come off line. Roughly half of that is due to tightening environmental regulation. The government wants industry to build a new generation of power plants using low-carbon technologies including renewables, nuclear, and clean coal and gas. So it is proposing a range of incentives to give investors the certainty they will need, saying its plans represent the biggest reform of the electricity generation market in 25 years. To limit the amount of carbon emissions, new coal power stations are also required to incorporate carbon capture and storage. There would be extra support for what are descr ibed as younger technologies like offshore wind and wave power. There will also be capacity payments to ensure there is back-up plant available on those days when the wind doesn't blow. There will be disincentives too. These will include support for the carbon price - which would make it expensive to generate power using dirty coal. S o u r c e BBC Business News, 16 Dec 2010

4 Questions (a) i) With reference to Figure 1, compare the trends for Australia’s and Canada’s carbon emission between 2000 and 2008. [2] ii) Give 2 possible reasons for the trend observed. [2] iii) Using Table 1, explain why Australia is a worse polluter compared to Canada. [4] (b) i) Based on extracts, identify two changes taking place in the airline industry. [2] ii) Using demand and supply analysis, explain the impact of these changes on Australia’s airline industry? [4] (c) i) Define market failure. [2] ii) With the aid of a diagram, explain why electricity generation is a source of market failure. [6] iii) With reference to the extracts, discuss the effectiveness of two measures mentioned which are used to correct market failure. [8] [Total: 30 marks]

5 Question 2: Effects of the US 2008 Economic Crisis Figure 2: US Dollar to Singapore Dollar Exchange Rate Source: TradingEconomics.com Extract 4: Asia and the financial crisis Countries in Asia are increasingly worried about what is happening in the US. The financial crisis has shown that in an increasingly inte r-connected world, Asia has had more exposure to problems stemming from the West. Many Asian countries have seen their stock markets suffer and currency values going on a downward trend. Asian products and services are also global, and a slowdown in wealthy countries means increased chances of a slowdown in Asia and the risk of job losses and associated problems such as social unrest. China and Japan are two of the largest economies in Asia. China has experienced a sharp slowdown and its growth is expect