VJC econs 2021 Promo QP and SAMS

2021 Promo QP 115 H2 ECONOMICS – PROMOTIONAL EXAM 2021 QP Case Study Question: Developments in the global semiconductor industry Extract 1: The smallest things leave the biggest impact Semiconductors, also known as microchips and integrated circuits, are essential components in every electronics product, whether it be a simple remote control unit for changing channels on the television, or car electronics systems like driver assistance and navigation. However, recent events have caused significant disrupti on to the industry an d excess demand in the market for semiconductors. The supply of microchips cannot be turned on and off with a switch. Multibillion -dollar fabrication plants are finely tuned and run 24/7, 365 days a year. Changing the production line for a new microchip can take weeks, if not months, and adding significant new fabrication capacity can take years and billions of dollars. When car sales bounced back faster than expected in the third quarter last year and carmakers tried to ramp up production again, microchip factories could not respond fast enough given the long lead times needed to schedule orders. Other industries, such as consumer electronics and home appliances, saw a spike in sales from the pandemic’s “stay at home” effect but suddenly found themselves unable to secure adequate supplies of microchips to meet the increased demand. A fire at a Renesas microchip fabrication plant in Japan, which accounts for 30 per cent of the global market for microchips used in cars, as well as disruptions to microchips plants following the severe winter in Texas, further compounded the excess demand. Taiwan also faced the worst drought in nearly 60 years, threatening chip-making production lines that consume large amounts of water. Source: Adapted from South China Morning Post, 12 May 2021 and Nikkei Asia, 28 April 2021 Extract 2: Growth in semiconductors exports for Singapore and South Korea As consumption slowly returns to life across the world with growing vaccination rates and government stimulus payments reaching buyers, impacts are being felt around the world. Analysts are predicting higher full -year exports for Singapore after a better -than-expected first quarter showing. Electronics shipments expanded 24.4 per cent from a year ago in March. Selena Ling from OCBC Bank noted that there was double -digit growth recorded in personal computers, electronic components and integrated circuits shipments. “This is a clear indication that Singapore’s semiconductor industry is benefiting from the ongoing global shortage,” she said. South Korea’s exports in April rose the most in ten years – total semiconductor shipments climbed 30.2 per cent, while automobiles exports jumped 73.4 per cent. Products such as computers, televisions and smartphones have been rising in demand along with semiconductors. Source: The Straits Times, 16 April 2021 and Bloomberg, 1 May 2021

2021 Promo QP 116 Table 1: Composition of Gross Domestic Product (GDP) for Singapore and South Korea As % of GDP (2020) Singapore South Korea Consumption Expenditure 45 65 Investment Expenditure 23 32 Export Revenue 176 37 Import Expenditure 144 33 Source: World Bank Extract 3: Dirty microchips With the increasing demand for high -tech devices such as smart phones, wearable watches and portable health monitoring devices, the semiconductor manufacturing industry faces a big challenge of fabricating these devices in a sustainable and cost-effective way. The current semiconductor manufacturing process releases a large amount of hazardous chemical waste in the fabrication process, which poses a great threat to human beings (e.g. toxic chemicals may contain carcinogens) and the environment (e.g. resulting in water and air pollution). It takes three to four months for a disc of silicon to go through the multiple stages required to process them into the finished product. Rinsing with huge amounts of ultrapure water is a key step of the process. With each new generation, more electricity and water are required, and more greenhouse gases are emitted. Source: Adapted from Oxford News Blog, 4 May 2021 and Bloomberg Green, 8 April 2021 Extract 4: Measures targeting air pollution from semiconductor production In Taiwan, the “Air Pollution Control and Emissions Standards for the Semiconductor Industry” law spells out limits on various pollutants that apply specifically to the semiconductor manufacturing industry. To comply with regulatory emissions standards, Ta iwan Semiconductor Manufacturing Company (TSMC) last year spent around US$667 million on environmental protection measures, while over the last seven years, it has invested some US$3.38 billion to reduce its impact on the environment. From 2019, large emitters in Singapore have to pay to pollute when the government rolls out a carbon tax scheme. A carbon tax puts a price on pollution. In Singapore, the 30 to 40 large emitters - mainly from the petroleum refining, chemical and semiconductor sectors - will pay up to S$15 per tonne of emissions by 2030 . The Singapore government expects to collect carbon tax revenue of about S$1 billion in the first five years, which can be channelled to projects that deliver emissions reduction. To provide businesses with certainty in the current challenging economic climate, the carbon tax rate will be maintained at S$5 per tonne of greenhouse gas emissions up until 2023. An appropriate carbon tax level is one of the key levers to spur the reduction of Singapore’s car bon footprint, promote industry innovation and green growth while maintaining Singapore's overall economic competitiveness. Since 2015, South Korea has implemented the Korea Emissions Trading Scheme, which aims to mitigate greenhouse gas emissions using a market-based instrument. This scheme caps emissions from participants, including semiconductor producers, and involves the issuance of a corresponding number of emissions allowances which can be traded among participants. The emission permit price, which started at 8,640 won per tonne in 2015, constantly rose and reached 42,500 won in April 2020. That represented a 392 per cent rise since the scheme started. “What companies want most at the moment is the stability of permit prices in the market,” said Lee Chung-kuk from the Korea Research Institute on Climate Change. Source: Various sources

2021 Promo QP 117 Questions (a) With reference to Extract 1, explain the likely value of the price elasticity of supply for semiconductors. [2] (b) Using Extract 1 and a diagram, account for the excess demand for semiconductors. [4] (c) (i) Define Gross Domestic Product (GDP). [1] (ii) Both Singapore and South Korea saw strong growth in exports of semiconductors. Discuss how rising export re venue may have different impacts on the GDP of these two countries. [8] (d) (i) With the aid of a diagram, explain why there is allocative inefficiency in the market for semiconductors. [5] (ii) Discuss the measures raised in Extract 4 that a government could adopt to address the allocative inefficiency in the semiconductor industry. [10] [Total: 30]

2021 Promo QP 118 Essay Questions Answer TWO questions in total. Question 1 Increasing environmental consciousness has led to growing interest in electric vehicles. At the same time, technological advancement in battery production methods has contributed positively to the growth of the global electric vehicle market. The battery pack is the single most expensive part of an electric vehicle, accounting for about 30 per cent of the total cost. (a) Using relevant examples, distinguish between the concepts of price elasticity of demand and cross-price elasticity of demand. [10]