Photo AI
6 (a) With reference to Figure 1, explain one likely reason for the overall trend in the real prices of gas and electricity - Edexcel - A-Level Economics A - Question 6 - 2018 - Paper 1
Question 6
6 (a) With reference to Figure 1, explain one likely reason for the overall trend in the real prices of gas and electricity. (b) With reference to Extract A, discus... show full transcript
Worked Solution & Example Answer:6 (a) With reference to Figure 1, explain one likely reason for the overall trend in the real prices of gas and electricity - Edexcel - A-Level Economics A - Question 6 - 2018 - Paper 1
Step 1
With reference to Figure 1, explain one likely reason for the overall trend in the real prices of gas and electricity.
Answer
The overall trend in the real prices of gas and electricity shows an increase from 2004 to 2015. One likely reason for this trend is the rising costs of production and distribution of energy. Factors like inflation, increased demand, and higher prices of raw materials can contribute to the overall increase in prices. Additionally, regulatory changes and investments in infrastructure may also have led to increased costs being passed on to consumers, reflected in the rising indices.
Step 2
With reference to Extract A, discuss the likely effectiveness of measures to open up and increase competition in the UK energy market.
Answer
The CMA measures, including creating a database for easier switching of suppliers and conversion to smart meters, aim to enhance competition. These measures are likely effective in increasing consumer choice and reducing costs; however, the impact relies on consumer awareness and willingness to switch. The small market share of new entrants and the entrenched positions of larger firms may slow the effectiveness of these measures, as consumers may feel stuck with established suppliers.
Step 3
With reference to Extract B, assess how the regulation of energy suppliers' profits is likely to affect consumers and suppliers in the energy market.
Answer
Regulation caps on profits aim to protect consumers by ensuring that energy prices remain fair. For consumers, this could mean lower energy bills. However, for suppliers, especially smaller firms, strict profit caps might deter investment and innovation, potentially leading to poorer service quality and reduced market competition. While consumers benefit in the short term, the long-term health of the energy market could be jeopardized if firms cannot ensure financial sustainability.
Step 4
With reference to Extract C and your own knowledge, examine two possible reasons for the change in price elasticity of demand in the energy sector.
Answer
Firstly, consumers' increased reliance on heating and electricity makes demand for energy more inelastic; even with price rises, consumption continues relatively unchanged. Secondly, the availability of substitutes, like renewable energy sources, affects elasticity. As more consumers consider alternatives like solar panels, demand for traditional energy suppliers may become more elastic over time, as consumers can switch based on price changes.
Step 5
With reference to Extract C and your own knowledge, discuss businesses and government interventions that might help to reduce labour mobility in the energy sector.
Answer
Businesses can implement training programs that provide workers with specific skill sets tailored to the energy sector, thus creating a more committed workforce. Additionally, governments can introduce incentives for companies that invest in workforce stability, such as tax breaks. Creating partnerships between educational institutions and energy companies can also help align skills training with market needs, reducing labour mobility by making jobs more attractive and secure.