RI H1 ECON P1

8819/01/Prelim/Yr6/11 © RI 2011 [Turn over RAFFLES INSTITUTION 2011 YEAR 6 PRELIMINARY EXAMINATION Higher 1 ECONOMICS 8819/01 Paper 1 1 September 2011 3 hours Additional Materials: Answer Paper READ THESE INSTRUCTIONS FIRST Write your name, index number and CT 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. Section A Answer all questions. Section B Answer one question. Answer each question on a fresh sheet of paper. At the end of the examination, fasten all your work securely together with this sheet as cover page for your answer script. The number of marks is given in brackets [ ] at the end of each part question. Section Question Marks Name: __________________________ Civics Class: _____________________ A 1 /30 Economics Tutor: _________________ 2 /30 B (please fill in question no.) /25 This document consists of 8 printed pages and 2 blank pages. H

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8819/01/Prelim/Yr6/11 3 © RI 2011 [Turn over Section A Answer all questions in this section. Question 1 Rare Earths Extract 1 : China’s rare earth monopoly threatens global suppliers, rival producers claim The Chinese acquisition of stakes in Australian rare earth miners Lynas Corporation and Arafura Resources has caught the rest of the world sleeping. Following two acquisitions in the past six m onths for an aggregate US$163m, Korean, Japanese and Western players may find themselves locked out of the sector. With over 90% of the global rare earth resource held by Chinese companies, the country’s monopoly looks unchallenged. The recent Australian acquisitions have brought China’s control of the majority of the ra re earth deposits outside China. Rare earth metals are needed for the manufacturing of wind turbines, solar panels, plasma televisions, mobile phones and hybrid car batteries meaning the Chinese monopoly could shift the high-tech manufacturing industry bases from Japan and Korea to China. Although China is home to the largest rare earth reserves in the world, it is still actively seeking chances to acquire overseas mines. The purpose is to assure resources for the green energy and high-tech industries. Source: Mergermarket, 29 May 2009 Extract 2: China’s monopoly on rare earth metals could choke economies Global demand for rare earths has more than doubled over the past decade, as ever more devices make use of their unique properties. Rare earth phosphors in the television screen make the colours bright, while super -strong rare earth magnets allow electric motors to be compact enough to fit in a car, and headphones small enough to fit in your ear. Japan manufactures many of these goods and is the world’s biggest importer of the metals. The problem is that not only does China dominate the production of rare earths, it also leads the field in extraction. For example, when Japan buys rare earth minerals from countries other than China, it still has to pay Chinese factories to extract the pure metal because most of the technology for refinement is only produced in China. All of this wouldn’ t be an issue if China was keen to sell. But, increasingly, it isn’t. Over the last seven years, China has reduced the amount of rare earths available for export by some 40%. As China's industries begin to consume most of its own rare earth production, Toyota and other companies are seeking to secure reliable reserves for themselves. It was reported last year that Japanese firms are showing strong interest in a Canadian rare earth site under development at Thor Lake in the Northwest Territories. There is no viable rare earth substitute. Scientists have had some success in reducing the amount of rare earths needed in products, but not enough. Efforts being made to reuse and recycle the many tonnes of rare earth metals currently thrown away (in discarded mobile phones, hard drives, and so on) are unlikely to make a difference on their own. Even if any of these initiatives do eventually succeed, new mines still take years to build. Source: Prospect Magazine, 18 November 2009

8819/01/Prelim/Yr6/11 4 © RI 2011 Extract 3: China makes renewable power play to be world's first green superpower A game-changing moment could be upon us. In recent years, the world has grown used to condemning China as a climate criminal. But over the next few weeks and months, don't be surprised if you hear the same nation being hailed as the planet's first green superpower. The State Council, China's cabinet, will soon release the details of a staggeringly large " new energy" programme that could propel the world's biggest greenhouse gas emitter past Europe and the US into a global leader in renewable energy and low-carbon technology. The size of the energy stimulus has not yet been revealed, but reports in the domestic media and from foreign diplomats suggest between 1.4 trillion (US$200 bn) and 4.5 trillion yuan (US$600bn) will be invested over the next ten years in nuclear power plants, solar and wind farms, hydroelectric dams, "green transport", "clean coal" and super efficient electric grids. China could emerge as the unquestioned global leader in clean energy production, significantly increasing its chances to wean [itself] off coal, and at the same time ushering in an era of sustainable economic growth by exporti ng these clean-energy technologies to the world." Source: The Guardian, 10 June 2009 Extract 4: The Battle Over Rare Earth Metals All is not well in the world of rare earths. For the rest of the world, the problem is that the rare earths which the Chinese deem so important to their technological and green future are already critical for maintaining the West’s technological and green present, let alone a future of green growth and sustainable production. For example, China has announced that over the life of the next two decades, it will construct some 133 gigawatts of wind turbine generated electricity. This is likely to dramatically impact the supply of the rare earth metal suc h as neodymium, dysprosium, and terbium, the last two of which are among the rarest of the rare earth metals. Some rare earth elements such as cerium and neodymium are more abundant and concentrated. In contrast, dysprosium and terbium are less plentiful in world’s mining deposits. This is a direct challenge to the West’s march toward a greener future. Source: Journal of Energy Security, 12 January 2010 Extract 5: China’s Chokehold On Rare-Earth Minerals Raises Concerns Chinese officials say that mass extraction of rare earths is causing extensive environmental damage in China and that’s why the government has tightened controls over exploration, production and trade. Poisonous chemicals are used to mine rare earths, putting local water supplies and public health at risk. Source: YaleGlobal, 8 October 2010

8819/01/Prelim/Yr6/11 5 © RI 2011 [Turn over Extract 6: Rare earth prices increase due to new tax China’s Ministry of Finance and State Administration for Taxation in December 2010 announced a new tax on rare earth minerals that would be effect ive from April 1 2011. Since the new tax will be paid by Chinese miners, China may actually be able to show that it is serious about environment protection. Source: Critical Strategic Metals, 6 May 2011 Figure 1: Ten year International price history of selected rare earth metals Source: Cache Exploration Inc Questions (a) (i) Compare the trend in the prices of the rare earths in Chart 1. [2] (ii) With the aid of a diagram, account for the above trend. [5] (b) With the help of a diagram, a nalyze the effects of China’s increa