HCI H2 ECON CSQ (QUES)12SEP

© Hwa Chong Institution 2011 9732 /01/S/JC2 Prelim 2011 HWA CHONG INSTITUTION JC2 Preliminary Examinations Higher 2 CANDIDATE NAME CT GROUP 10A/S CENTRE NUMBER INDEX NUMBER ECONOMICS Paper 1 Additional Materials: Answer Paper 9732/01 12 September 2011 2 hours 15minutes INSTRUCTIONS TO CANDIDATES Write your name and CT class clearly in the spaces at the top of this page and on very page 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 and tape. Answer all questions. At the end of the examination, fasten all your work securely together. You are to fasten the answer sheets to Question 1 and Question 2 separately together with the respective cover page. INFORMATION FOR CANDIDATES The number of marks is given in brackets [ ] at the end of each question or part question. You are advised to spend several minutes reading through the data before you begin writing your answers. You are reminded of the need for good English and clear presentation in your answers. This document consists of 8 printed pages and 2 blank pages. [Turn over

© Hwa Chong Institution 2011 9732 /01/S/JC2 Prelim 2011 2 Blank Page

© Hwa Chong Institution 2011 9732 /01/S/JC2 Prelim 2011 3 Answer all questions. Question 1 World Copper Market Figure 1: World Prices for Copper, 2007-2010 (US$ per tonne) 2000 3000 4000 5000 6000 7000 8000 9000 10000 Jan-07 Mar-07 Ma y-07 Jul-07Sep-0 7 Nov- 07 Jan- 08 Mar-08 May-08Jul- 08 Sep-08Nov- 08 Jan-09 Mar- 09 May- 09 Jul-09Sep-09Nov-09Jan- 10 Mar-10 May- 10 Jul- 10 Sep- 10 Nov- 10 Source: adapted from London Mercantile Exchange Table 1: World Copper Mining Output, 2007-2010 (million tonnes) 2007 2008 2009 2010 Chile 6,125 5,873 5,941 5,968 Peru 1,312 1,398 1,407 1,375 United States 1,288 1,444 1,302 1,223 China 1,043 1,205 1,171 1,313 Australia 960 974 941 922 Other Countries 6,329 6,233 6,777 6,917 World Total 17,057 17,127 17,539 17,718 Source: Copper Development Association [Turn Over

© Hwa Chong Institution 2011 9732 /01/S/JC2 Prelim 2011 4 Extract 1: Uses of Copper Copper is one of the oldest metals ever used and has been one of the important materials in the development of civilization. Due to its properties, especially in its resistance to corrosion, copper has become a major industrial metal, ranking third after iron and aluminum in terms of quantities consumed. Building construction is the single largest market, followed by electronics and electronic products, transportation, industrial machinery, and consumer and general products. Copper byproducts from manufacturing and obsolet e copper products are readily recycled and contribute significantly to copper supply. Copper is greatly demanded by developing countries such as China and India and industrialized ones like US and EU. Source: United States Geological Service Extract 2: Copper Cartel for Chile and Peru? President Alan Garcia of Chile proposed that Peru and Chile, two of the world's top three copper producers, should work together to boos t sagging metal prices as the world economic crisis slashes demand for copper. An OPEC-like copper cartel would aim to stem a steep slide in copper prices that has reduced mining profits and investment and boosted unemployment, slowing both countries' economies. Prices have dropped more than 60 percent since last year as economic turmoil slows global demand for the metal. In Chile, although the mines are working at near capacity, some mine workers have called for world largest copper produ cer Codelco, to control copper shipments to the market to help bolster the price. Peru had no plans to form a copper industry cartel with neighbour Chile, the world largest producer of the red metal. Deputy mine minister Juan Felipe Isasi said that it is difficult to control international prices and there a n eed for coordination of policies among copper producing countries. Source: www.andina.com, 2 Feb 2009 Extract 3: Environmental Concerns in Chile While copper contributes a third of Chile’s government income and 55% of all exports, the impact of copper production in Chile on the count ry's environment is real and is growing at an alarming rate. Most threatened is the atmosphere in the immediate vicinity of the copper mines. The production of copper is a long and dangerous process. Workers heat copper at high temperatures as many as fifteen times before the metal is ready for export. The refiners at the factories emit high quantities of arsenic and carbon-monoxide. Local farming and fishing communities fear that loading operations in Port Caldera will pollute the bay. Some of these farmers and fishermen have already defeated Codelco, the state owned mining company, in court. To comply with environmental regulations Chuquicamata, the largest copper mine in the world, closed its furnaces for a month in July, 1994. The miners, who work in copper mines like Chuquicamata and La Escondida, are at risk because of the fumes they inhale while they are at work. Farmers and animals in the area are also in danger because the smelting of copper releases noxious chemicals that seep into the soil.

© Hwa Chong Institution 2011 9732 /01/S/JC2 Prelim 2011 5 The Chilean government only began to study the effects of the copper production process on the environment in the late 1980s. This concern led, in 1991, to new environmental regulations regarding sulfur dioxide and particulate matter emissions. Currently, the most important environmental challenge for the public mining industry is meeting the new environmental standards by solving the pollution problem in the copper smelters. Within the framework of Chilean air quality r egulations, all of the smelters have submitted cleanup plans that will eventually ensure compliance with the new air quality standards. These plans involve the installation of efficient gas co llection systems, electrostatic precipitators and sulfuric acid plants to reduce the amount of pollutants emitted into the atmosphere. Only some of these plans are being implemented. The total expected cost of these plans is approximat ely US$1.3 billion, most of it going to install sulfuric acid plants and electrostatic precipitators. This is not an amount most producers are willing to fork out. Copper will continue to be an important part of Chile's exports and the economy, so there is little doubt that c oncerns about copper production's effect on the environment will continue. Source: Adapted from Trade and Environmental Database, 2009 Questions (a) (i) Summarise what happened to the world prices for copper between 2007 and 2010. [1] (ii) With the aid of a diagram, account for the change in the world prices for copper in 2008. [6] (b) (i) Explain how the proposed cartel for Chile and Peru would benefit the copper producers. [2] (ii) With reference to Table 1, explain why even with the formation of the cartel, it would be difficult to ‘control international prices’. [3] (c) Assess whether high copper prices would benefit Chile’s economy. [8] (d) In the light of the copper industry contribution to Chile’s economy, discuss the policy options available to the government to control environmental degradation. [10] [Total:30] [Turn Over

© Hwa Chong Institution 2011 9732 /01/S/JC2 Prelim 2011 6 Question 2 Economic Recession and Recovery Figur