Case Study 2008

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Case Study
- H2 Economics -
National Junior College Economics Unit

2009
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____________________________
Case Study H2 Economics
Assessment Format at ‘A’ Levels (Paper 1)

2 hrs 15 mins (40%)
- 2 sets of questions based on 2 condensed

write up, each on a multi-faceted economic
issue or policy decision including a set of
data

2009

___________________________________________________________________
Before you get started,
1. Skim read the case study, get a feel of the case

material.
• look for any underlying themes, mark/highlight
the paper accordingly.
2. Get a feel of any numerical data : units used,
headings of columns and time trends ?
3. Read all the questions carefully, think about how

your themes may fit in
4. Re-read the case study, noting all the relevant

concepts.
2009

___________________________________________________________________
General principles on improving case study

techniques
• writing your answers - note the directive/command
words and mark allocation.
• aim for a balanced answer

- skill is to extract from case study and not reproduce it
- use information to support a point made in your own
words, written evidence to be indicated by quotation
marks.
• relate to the relevant theories

2009
____________________________
(a) (i) Describe the trend in oil prices from 1997 to 2005 [2]
• General trend
• Specific trend
General trend : Oil prices have been rising
Specific trend :
- oil prices have been fluctuating with significant dips in
1997 to 1999 and 2001 – 2002, Or
- oil prices have increased by about 80%, Or
- oil prices in 2005 was almost twice the price of that in
1997

2009
____________________________
(ii) Describe the trend in private vehicle ownership in China

from 1997 to 2005 [2]
• General trend
• Specific trend
General trend : Private vehicle ownership has increased.
Specific trend :
- private vehicle ownership has been increasing at an
increasing rate, Or
- private vehicle ownership has increased by about 620%, Or
- the number of privately owned vehicles in 2005 was about
7 times the number in 1997.
2009
____________________________
(iii) Using demand and supply analysis, account for the

significant change in oil prices [6]
• identify and explain that change in oil prices is

brought about by an increase in demand and a decrease
in supply.
• explain the magnitudes of shifts in demand and
supply curves
• use elasticity concepts to explain the significant
increase in oil prices.
• illustrate using the demand and supply diagram.

2009
____________________________
(iii) Using demand and supply analysis, account for the
significant change in oil prices [6]
• identify and explain that change in oil prices is brought about by an
increase in demand and a decrease in supply
Increase in demand due to a change in consumers’ income

- with rising income in China, more consumers are willing and able to
purchase normal goods such as motorbikes and cars at any given
price. Demand for inferior goods such as bicycles have therefore fallen
as more Chinese are trading them in for motorbikes and cars. This
increase in demand can be illustrated by a rightward shift of the
demand curve from D0 to D1 as shown in figure 1.
Decrease in supply due to declining oil production.

- In Daqing, the supply of oil is declining at a rate of 4% a year. Although
there has been a discovery of new oil, this does not add up to much as
the addition of about “700,000 barrels a year is less than what the main
field produces in a day.” The decrease in oil supply can be illustrated by
a leftward shift of the supply curve
National Juniorfrom
CollegeS0 to S1Unit
Economics as shown in Figure 1.
2009
____________________________
• explain the magnitudes of shifts in the demand and
supply curves
The extent of the rightward shift of the demand curve for

oil is likely to be greater than the leftward shift of the
supply curve; with the huge population in China, it is
likely that with rising incomes the increase in demand for
motorised vehicles will be substantial.
The discovery of new oil may have helped to lessen the
decrease in oil supply.

2009
____________________________
• Use of elasticity concepts to explain the significant increase in oil
prices.
To analyse the extent of the significant change in oil prices due to supply
factors, the PED value of oil must be considered.
Demand for oil is price inelastic due to the lack of substitutes as a source
of alternative energy. So when the supply of oil decreases, quantity
demanded decreases less than proportionately relative to the increase in
price.
To analyse the extent of the significant change in oil prices due to demand
factors, the PES value of oil must be considered.
Supply of oil is price inelastic due to the difficulty in finding new oil
fields and that “both injection and extraction wells must be drilled with
a margin of error of no more than 50cm in order to drain ever last nook
and cranny of the reservoir.” So when demand increases, quantity
supplied increases less than proportionately relative to the increase in
price. National Junior College Economics Unit
2009
____________________________
An increase in demand and a decrease in supply, coupled with a
price inelastic demand and supply, have resulted in oil prices
rising significantly from P0 to P1 as shown in figure 1.
Price per unit

($) S1
P1 S0
P0
D1
D0
Quantity
Figure 1 – Market forNational
oil Junior College
2009
Economics Unit
(units)
____________________________
(b) (i) With reference to Extract B, identify the form of integration

between Vale and Inco? Explain your answer [2]
Horizontal integration.
Both firms are rivals in the iron ore industry and at the
same stage of production.

2009
____________________________
(b) (ii) Explain one disadvantage of Rio Tinto’s expansion and

how this may be overcomed. [5]
• Identify that Rio Tinto is experiencing internal diseconomies
of scale.
Define internal diseconomies of scale.
• State one disadvantage of Rio Tinto’s expansion, explaining how

the expansion led to an increase in average cost of production.
internal diseconomies of scale can arise because of loss of
coordination, control and lack of communication (any one
reason and elaborate), which increased Rio Tinto’s average cost
of production.
• Explain how Rio Tinto may be able to reduce average
cost of production.
2009
____________________________
• Explain how Rio Tinto may be able to reduce average

cost of production (any one reason)
- Organisational / financial economies of scale
- technical economies of scale through the automation of

equipments to labour costs and therefore average cost of
production, which have been rising due to the chronic
shortage of skilled and unskilled labour
- training its staff to drive more gently to extend the life of its
tyres

2009
____________________________
(c ) Explain the assumption necessary for the statement “rising prices
have brought rising profits” to hold true (Extract B) [3]
• Profits = TR – TC
• For rising prices to have brought about rising profits, total cost
must have assumed to either remain constant or to have
increased by less than the increase in TR brought about by the
increase in prices.

2009
____________________________
(d) Critically assess the Chinese government’s measure to ensure the
affordability and availability of oil. [10]
• identify Chinese government’s objective : to ensure affordability and
availability of oil. Measure : indirect subsidy
• initially due to high demand and
Price relatively low supply, equilibrium price
S and quantity of oil at P1 and Q1.
• the provision of the indirect

S + subsidy subsidy lowers the cost of
P2 production of each unit of the
good by the amount of the
P1 subsidy.
•supply curve shifts downwards by
P3
the amount of the subsidy from
from S to S + subsidy.
•Effects of the subsidy : price level
– market price decreased from P1
D
to P3 , but price does not decrease
by the full amount of the subsidy.
0 •Quantity transacted increased
Q1 Q2 Quantity
2009 from Q1 to Q2 units.
Figure 2 – Market for oil
____________________________
Evaluation (based on government’s objective):
• Policy appropriate only in the short term.
Subsidising oil production is a costly and unsustainable
method. Subsidy is likely to be supported from the revenues of
corporate taxes and cash flow from foreign investment.
In the long term, these subsidies will be unsustainable; the
government may run into budget deficits trying to maintain
these subsidies.
• Opportunity cost of subsidies; diverting limited

resources away from important areas like healthcare,
education or national defence.
• Incentive to exploit the use of subsidies if oil is brought to

China and resold in other markets.
2009
____________________________
Measures for long term consideration :
•Reducing dependency on crude oil by looking for alternative

sources of fuel
• dampening the demand for oil by taxing users eg. Petrol

tax
• shifting focus from heavy manufacturing industries to

service industries thereby lowering the usage of oil.

2009
SH1 H2 Economics Common Test

29th June 2009 (Monday), 8.15am
____________________________________________________________
What is the format ?
• 1 compulsory case study (30 marks)
time allocated : 1 hour 10 mins
• 1 essay question (choose 1 out of 2) (25 marks)

time allocated : 45 minutes
equal weightage.
Common test mark contributes 20% towards SH1

year end results.
What are the topics covered ?

All topics (topics 1 to 3.1) covered in Term 1
and 2. 2009
SH1 H2 Economics Common Test

29th June 2009 (Monday), 8.15am
________________________________________________________
Things to note for common test:
1. Seating arrangement plans will be available on KM

from the 1st June 2009 onwards.
2. Please bring along your identification card and
calculator (acceptable model)
What happens if you fall ill on the day of the

economics paper?
Inform your subject tutor.

Pass your original MC to your tutor.
Note: Parent’s letter willCollege
National Junior notEconomics
be accepted.
Unit
2009
____________________________
SH1 H2 Economics Common Test – 29th June 2009
One last note …….
Online assessment on KM to help you to revise the

topics covered.
KM: Student centre -> Economics -> Revision Workbook -> holiday quiz

2009

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This watermark does not appear in the registered version - http://www.clicktoconvert.

National Junior College Economics Unit

Assessment Format at ‘A’ Levels (Paper 1)

- 2 sets of questions based on 2 condensed

National Junior College Economics Unit

Case Study H2 Economics

1. Skim read the case study, get a feel of the case

3. Read all the questions carefully, think about how

4. Re-read the case study, noting all the relevant

Case Study H2 Economics

General principles on improving case study

• aim for a balanced answer

• relate to the relevant theories

General trend : Oil prices have been rising

National Junior College Economics Unit

(ii) Describe the trend in private vehicle ownership in China

General trend : Private vehicle ownership has increased.

(iii) Using demand and supply analysis, account for the

• identify and explain that change in oil prices is

National Junior College Economics Unit

Increase in demand due to a change in consumers’ income

Decrease in supply due to declining oil production.

The extent of the rightward shift of the demand curve for

National Junior College Economics Unit

Price per unit

(b) (i) With reference to Extract B, identify the form of integration

National Junior College Economics Unit

(b) (ii) Explain one disadvantage of Rio Tinto’s expansion and

• State one disadvantage of Rio Tinto’s expansion, explaining how

• Explain how Rio Tinto may be able to reduce average

- Organisational / financial economies of scale

- technical economies of scale through the automation of

National Junior College Economics Unit

National Junior College Economics Unit

• the provision of the indirect

• Opportunity cost of subsidies; diverting limited

• Incentive to exploit the use of subsidies if oil is brought to

Measures for long term consideration :

•Reducing dependency on crude oil by looking for alternative

• dampening the demand for oil by taxing users eg. Petrol

• shifting focus from heavy manufacturing industries to

National Junior College Economics Unit

SH1 H2 Economics Common Test

• 1 essay question (choose 1 out of 2) (25 marks)

Common test mark contributes 20% towards SH1

What are the topics covered ?

SH1 H2 Economics Common Test

1. Seating arrangement plans will be available on KM

What happens if you fall ill on the day of the

Inform your subject tutor.

One last note …….

Online assessment on KM to help you to revise the

National Junior College Economics Unit

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