VICTORIA JUNIOR COLLEGE

JC2 PRELIMINARY EXAMINATION 2021

HIGHER 1

 
 

ECONOMICS 8823/01
Paper 1 13 September 2021
     
3 hours 

No Additional Materials are required.

 

READ THESE INSTRUCTIONS FIRST

An answer booklet will be provided with this question paper. You should follow the instructions
on the front cover of the answer booklet. If you need additional answer paper ask the
invigilator for a continuation booklet.

Answer all questions.

The number of marks is given in brackets [ ] at the end of each question or part question.

 
 
 
 
 
 
  
 
  
 
 

 
This document consists of 9 printed pages.
 2

Answer all questions.

Question 1: Water Issues

Table 1: Potable water price for domestic users

Table 2: Industrial Water Price

Source: PUB website

Extract 1: How vulnerable is Singapore to climate change?
When considering costly damages arising from extreme weather elsewhere, one common
view is that Singapore is "lucky" to not experience these impacts directly. While we should
acknowledge our fortunate geography, we still are exposed to several hazardous climate
impacts. As global greenhouse gas (GHG) emissions continue to rise despite political pledges
from the 2015 Paris Agreement, it would be timely to reconsider how vulnerable Singapore is
to present and future climate change impacts.
In the medium term of the next 30 years, changes to rainfall patterns, both in the excess and
lack thereof, will be an issue. Periods of meteorological drought, in which monthly rainfall is
consistently below average, have recently been more intense for Singapore and Johor.
Singapore imports about half of its daily water supply from Johor. Water levels in the Linggiu
Reservoir in Johor, which supplies water to Singapore, have been falling below healthy levels
in recent years; the worst was in 2016, where the water level fell to a historic low of 20 per
 3

cent. This was caused by a prolonged El Nino episode, potentially strengthened by climate
change. “A better approach towards drought adaptation for now, is to reduce water use
through changing consumption behaviour.” Water use in Singapore is rising, due to population
and income growth. Therefore individual and commercial water demand can be lowered to
reduce drought vulnerability and also prevent further water price hike.
Source: Straits Times online, 2018

Extract 2: Assistance for Singapore households

Water is an essential good. Governments around the world are adopting different measures to
keep clean water affordable for their people. Some of these measures include providing
subsidies for water, regulating water prices and giving vouchers.
The Singapore government introduced the goods and services tax (GST) voucher scheme to
help lower-income Singaporeans. Some 1.2 million Singaporean households will receive a
total of $340 million in utilities support. This scheme has been in place since 2012. About
940,000 Singaporean households living in HDB flats will receive double their regular U-Save
vouchers this financial year, through a one-off U-Save Special Payment. The credit will be
given on top of the U-Save (Utilities-Save) GST Vouchers, as well as the U-Save Special
Payments which eligible households living in Housing Board flats will be able to enjoy.
Households will also get a U-Save rebate of up to $300, depending on their HDB flat type.
Those living in one-and two-room flats will get $300, and those in three-room flats will get
$270. Families living in four-room flats will receive $240, while those in five-room flats will get
$210. Taking into account these higher U-Save rebates, 75 per cent of all HDB households
will see an increase of less than $12 in their monthly water bills. 1- and 2-room HDB
households will on average see no increase in their water bills
Source: Adapted from Straits Times online, July 2020

Extract 3: Singapore to spend S$100 billion on flood control measures

Singapore is weighing options including the issuance of government bonds to fund the $100
billion it could take to fight rising sea levels over the next century. In fact, large parts of
Singapore are low-lying, and there is a need to protect these low-lying areas as a whole. In
the short term, funding for projects such as a $400 million upgrade to the country's drainage
systems to boost flood resilience will come from ministry-level expenditures. Other measures
include building an additional pump house at Marina Barrage and creating polders - tracts of
land that lie below sea level. For long-lived major flood control infrastructure such as sea
walls, the Government will look to the option of borrowing to spread the cost across the
generations which will benefit.
Adapted from various sources
 4

Extract 4: Are dams the answer to fight climate change?

Many nations see dams as an important way to fight climate change – dams are built to
control floods, improve irrigation, alleviate water shortages and generate low-carbon
hydroelectricity. Hydropower is a major player on the world renewable energy stage,
responsible for around 16 per cent of global electricity production.
Unfortunately, the building of dams can come with high costs. The risks associated with large
hydroelectric dams are numerous: disrupted fish migration patterns, rapid fluctuations in water
levels, reduced biodiversity, and elevated methylmercury concentrations in reservoirs, which
in turn have major impacts on the aquatic resources important to communities’ livelihoods and
income. Even small hydroelectric plants can have significant impacts on fish populations and
the human livelihoods and ecosystems they support.
Proposed dam projects should be met with scrutiny. They should have extensive impact
studies performed, and be located in places where, not only will environmental damage be
limited, but where populations already feeling the most severe effects of climate change will
not be further disadvantaged by new developments.
Source: International Water Association website, 2019
Extract 5: Flooding in Thailand
After being hit by the worst flooding in half a century, Thailand and its residents are on the
long road to recovery. Following Tropical Storm PODUL and Tropical Depression KAJIKI's
passage, widespread floods have affected 32 Thai provinces since the end of August. 33
people are confirmed dead, 23,000 have been evacuated and 418,000 affected. At least 4,000
houses and 325,000 hectares of crops have been destroyed. The authorities have deployed
rescue and emergency teams to help the affected population. The catastrophe caused
damages to infrastructure and assets such as schools, health facilities and farms. Floods in
Thailand are regular natural disasters and of recent, authorities have been gearing up to
extend assistance to more residents, as the floodwater which has inundated the southern
province of Thailand for almost a week is not expected to recede. Tourism industry has also
taken a hit. “There have been fewer new bookings," Sisdivachr Cheewarattanporn, President
of the Association of Thai Travel Agents (ATTA) said. "We had a good number of bookings
earlier this year but from this point on, if the floods get worse, we expect a drop of at least 20
per cent. Tourism is a vital part of Thailand's economy, Southeast Asia's second-biggest,
employing about 15 per cent of the workforce and contributing about 6 per cent of GDP.
With co-funding from the Government of Sweden, a United Nations (UN) program has
enabled Thailand’s agricultural sector agencies to rethink climate change as a key factor when
planning and budgeting major new investments. Over the last year, it supported the Royal
Irrigation Department (RID) to better understand the costs and benefits of a major new
investment in improved water distribution and diversion being planned. The project would help
stem against a high future cost of flooding along the Chao Phray River.
Source: Adapted from ReliefWeb, 2019 & unctad.org publication 2019
 5

Questions
(a) With reference to Tables 1 and 2, compare the changes seen in the total
price of water for domestic and industrial users from Phase 1 to Phase 2. [2]

(b) What is a normative economic statement? Identify one such statement from
Extract 1. [2]

(c) With reference to Extract 1 and using a diagram, explain why the price of
water is likely to rise significantly in Singapore if left to the free market. [6]

(d) “About 940,000 eligible households living in Housing Board (HDB) flats will
be receiving rebates on their utility bills this month through the goods and
services tax (GST) voucher U-Save scheme” (Extract 2).

Discuss the relative appropriateness of providing water subsidies and

Singapore’s GST voucher U-save scheme to improve equity of distribution. [9]

(e) Identify and explain the two main characteristics of a ‘public good’ and
comment briefly on whether flood control infrastructure fulfils these
characteristics. [7]

(f) Discuss the factors that the government should consider when deciding to
build flood control infrastructures such as a dams and sea walls. [7]

(g) Using the case study materials and your own knowledge, discuss the extent
to which floods may impact Thailand’s standard of living. [12]

[Total: 45]
 6

Question 2: Prospects of ASEAN countries

Table 3: Unemployment rates (%) of Selected ASEAN Economies (2018 to 2019)

2018 2019
Malaysia 3.3 3.31
Philippines 2.34 2.24
Singapore 3.65 3.10
Vietnam 1.16 2.04
Source: World Bank, 2021

Table 4: Human Development Index Data of Selected ASEAN Economies (2019)

Human Development PM2.5*

Index (Ranking)
Malaysia 0.810 (62) 19.4 µg/m³
Philippines 0.718 (107) 17.6 µg/m³
Singapore 0.938 (11) 19 µg/m³
Vietnam 0.704 (117) 34.1 µg/ m3
*PM2.5 is defined as ambient airborne particles which measure up to 2.5 microns in size. This pollutant is widely
regarded as most harmful to human health. The unit of measurement µg/m³ is the micrograms per cubic meter.

Source: United Nations Development Programme Human Development Reports, 2021 and
Greenpeace, 2019 World Air Quality Report

Extract 6: ASEAN as Asia’s new manufacturing hub – too good to be true?

Earlier this year in May, the American Chamber of Commerce in China found that 40 per cent
of its surveyed members had either begun to shift their production outside of China or were
thinking of shifting their production out of the country. Of those planning to leave China, more
than half listed Southeast Asia as the location they are considering relocating to.

Some investors doubted that a move to an ASEAN country can be truly profitable. They claim
that ASEAN countries lack China’s developed supply chain, and the infrastructure necessary
to support a burgeoning industrial sector. Some have gone so far as to say investing in
ASEAN is like investing in China back in the 1990s, or the early 2000s at best.

For many, it all boils down to the simple question: can companies be as productive in ASEAN
as they were in China, or can’t they?

Source: ASEAN Briefing, 2019

Extract 7: Vietnam becomes a new manufacturing base in Asia

Since the second half of 2018, under the influence of the US-China trade war, Vietnam has
become a popular investment region in Asia and the world's most compact manufacturing
base. In recent years, the Vietnamese government has actively developed domestic
manufacturing, attracting many foreign manufacturing industries such as textiles, shoe-
making, electronic products, etc. to invest in Vietnam to set up factories
 7

According to a report in Vietnam, in recent years LG has closed some factories in South
Korea, Thailand and China and set up more factories in Vietnam. Likewise, after Samsung
officially closed its last factory in China in September 2019, Vietnam has become Samsung’s
largest production base in the world where half of Samsung's mobile phones are exported
from Vietnam.

Investment of foreign capital and rapid development of Vietnam's local economy led to a faster
pace of automation and smart machinery in Vietnam.

From January to June 2020, Vietnam's industrial production index increased by 2.71 per cent
compared to the same period last year (2019). Whether it’s because of an increasingly skilled
workforce, improved infrastructure, pro-business policy decisions, close proximity to China, or
a combination of the reasons, Vietnam seems ready to step up as the ASEAN alternative to
Chinese manufacturing.
Source: https://www.market-prospects.com/articles/vietnam, 10 July 2020

Extract 8: Inflation in Philippines falls below target

The government’s target for annual headline inflation under the inflation targeting framework
has been set at 3.0 per cent ± 1.0 per cent for 2019‐2022 by the Development Budget
Coordination Committee.

With price pressures abating, inflation slid to 1.7 per cent, below the Central Bank’s (Bangko
Sentral ng Pilipinas, BSP) target. Food prices, which was the main culprit for inflation
previously, is the main reason for the sharp deceleration in price trends this year. Thanks to
new legislation allowing increased imports of the all-important staple of rice. Meanwhile,
utilities and transport costs have also seen softer price gains given the relatively benign crude
oil environment.
The Philippine economy grew at below 6 per cent for the first time in 4 years as robust
consumption failed to offset slower government spending and lacklustre capital formation.
Source: Adapted from ING Bank N.V., 5 September 2019

Chart 1: Government Debt (% of Nominal GDP), Philippines (2009 - 2018)

 8

Source: https://www.ceicdata.com/

Extract 9: Economic Preparedness: The need for fiscal space

How much leeway national policymakers have for increasing spending or cutting taxes during
periods of economic downturn when the government is asked to stimulate the economy is a
critical question. It is a question of how much fiscal space the government has. When a
government looks to temporarily increase spending or reduce taxes, it needs to gauge
whether it will be able to fund the resulting budget gap without risking an unfavorable reaction
from financial markets or undermining the longer-term health of public finances. The more
confident it can feel about this, the more fiscal space it has. Conversely, the riskier a country’s
market and fiscal outlook, the more limited the government’s ability to actively use fiscal
policy.
Source: https://blogs.imf.org/2018/06/27/economic-preparedness-the-need-for-fiscal-space

Extract 10: Policy recommendations for improved environmental performance

Environmentally sustainable growth is a key strategy for development in Asia. However, for
policy makers in Asia, environmental governance is embedded with challenges in the age of
economic takeoff. The potential trade-off between growth and green stewardship as well as
the economic burden of stringent regulations have been sources of resistance against
devoted environmental efforts. At the same time, a substantial number of studies have been
undertaken to show the positive economic impacts of effective environmental governance, in
terms of encouraging innovations, increasing productivity, and enhancing competitiveness.
Economically and socially effective environmental governance is contingent upon well-
designed policies and efficient regulatory frameworks. Environmental governance throughout
the world is experiencing a transition from the conventional “command-and-control” regulation,
for instance emission standards, to the market-oriented approach, which includes a series of
measures such as eco-taxes, subsidies and emission trading. Market-oriented policies have
the benefits of greater flexibility, less compliance cost, and more importantly, incentivising
stakeholders to raise productivity and undertake innovations. Given that many developing
states in Asia lack sufficient government capacity for regulation enforcement, the market-
oriented approach could set in a self-regulating mechanism.
 9

The majority of countries in Asia are at the stage where economic growth often compromises
environmental quality. Eco-innovation in production technologies can be a key solution to help
countries transcend the trap of growth-driven environmental degradation. Policy makers need
to signal and engage research at universities, research institutions, and corporations, and to
encourage applications in both public and private sectors.
Source: Environmental Performance in Asia, ADBI Working Paper Series, 2019

Questions
(a) Compare the changes in unemployment rates from 2018-2019 across the
economies in Table 3. [2]

(b) With reference to Table 4, discuss the extent to which the data reflects that
average living standards in Singapore is the highest amongst the [8]
economies.

(c) Discuss the likely impact of “automation and smart machinery” (Extract 7) on
Vietnam’s labour productivity and wage growth. [7]

(d) (i) Why might the Philippines Central Bank set a target for its inflation
rate? [4]

(ii) Using AD/AS analysis and with the aid of Extract 8, explain why the
Philippines did not meet the inflation target. [6]

(e) State the trend of public-debt ratio in Philippines from 2009-2018. Explain
how a country’s public-debt ratio may affect its “fiscal space”. [6]

(f) Discuss the various policies which can be adopted by ASEAN governments
to achieve “environmentally sustainable growth”. [12]

[Total: 45]