TMJC 2024 H2 Econs CSQ1 Answers

JC2 H2 Economics 9570 2024 Prelim Suggested Answers & Markers Report 1 Tampines Meridian Junior College 2024 JC2 Prelim H2 Economics 9570 Paper 1 Question 1: The changing landscape of European Energy Market Suggested Answers a) i) Using Extract 1, explain one demand factor and one supply factor to account for the rise in price of liquefied natural gas (LNG) in Europe. [4] “heat waves in Europe have sparked stronger seasonal demand due to increased power demand, as the use of air conditioning climbs” → increase in demand for power/energy for the use of air conditioning → as LNG is a derived demand for energy → increase in demand for LNG “Heightened geopolitical tension, especially with the ongoing war in Ukraine and disruption of shipping on the Red Sea, has adversely affected LNG supply” → production process of LNG is disrupted with war → fall in supply for LNG The increase in demand and fall in supply will cause a shortage accounting for a rise in price. Markers’ Report Skills Strengths (+): What are the required skills that were well - demonstrated? Areas for improvement ( -): What are the skills that were lacking/ not well-demonstrated? Aha moment! (+) Students generally interpreted the question correctly i.e. they have elicited demand and supply factors and linked how these factors can result in a rise in price of LNG. (-) A significant minority of students did not explain how the shortage will eventually lead to a rise in price of LNG. Content Strengths (+): What are some concepts that were well - explained with clear linkages made? Areas for improvement (-): What are some concept gaps / conceptual errors? Aha moment! (-) However, a significant number of students merely elicited the evidence from the extract and stated that demand rose, and supply fell, without explaining the Economic concepts e.g. how the rise in demand for power for the use of air conditioning may result in the rise in derived demand for LNG is not clear.

JC2 H2 Economics 9570 2024 Prelim Suggested Answers & Markers Report 2 Tampines Meridian Junior College 2024 JC2 Prelim H2 Economics 9570 Paper 1 Hence, this means that the rigour in the explanation of factors is not evident. (-) A handful of students thought that power and LNG are complements instead of derived demand; the relationship between the 2 goods is not accurate. ii) Explain the likely value of price elasticity of supply for LNG. [2] “Bottlenecks and infrastructural limitations still exist in some regions” → supply will be more price inelastic and value of PES will be smaller than 1 due to lack of spare capacity /factor immobility as producers find it difficult to increase their production due to bottlenecks and infrastructural limitations. Markers’ Report Skills Strengths (+): What are the required skills that were well - demonstrated? Areas for improvement (-): What are the skills that were lacking/ not well-demonstrated? Aha moment! (+) Majority students understood the requirements of the question, where they have to identify the PES value and justify with determinants. (-) Some students identified the right PES determinant(s) e.g. spare capacity but determined the value of PES wrongly e.g. they wrote that PES>1. This is attributed to the wrong elicitation of evidence. Students are reminded to read the extracts carefully and gather the right evidence to support their answers. (-) Some students did not interpret the question correctly. The question asked for the likely value of PES, and hence students are required to state the value i.e. PES<1, and not just merely state that supply is price- inelastic. Content Strengths (+): What are some concepts that were well - explained with clear linkages made? Areas for improvement (-): What are some concept gaps / conceptual errors? Aha moment! (+) Majority of the students are able to identify that the value of PES is less than 1. (-) A significant number of students conflated PES determinants with PED determinants. For instance, many of them justified that PES<1 because LNG is a necessity or has low availability of substitutes.

JC2 H2 Economics 9570 2024 Prelim Suggested Answers & Markers Report 3 Tampines Meridian Junior College 2024 JC2 Prelim H2 Economics 9570 Paper 1 However, the degree of necessity and the availability of substitutes are PED determinants. b) Explain how the rise in price of LNG might affect the aggregate supply of a European country. [2] A rise in the price of LNG increases the unit cost of production. Ceteris paribus, profits fall which lower individual supply curves and hence total output produced in economy fall, causing fall in short run aggregate supply. Markers’ Report Skills Strengths (+): What are the required skills that were well - demonstrated? Areas for improvement (-): What are the skills that were lacking/ not well-demonstrated? Aha moment! (+) Majority of the students understood the requirements of the question to provide the explanation how increase in unit cost of production affected aggregate supply. (-) Handful of students included diagram which is not required of the question and marks allocated. Content Strengths (+): What are some concepts that were well - explained with clear linkages made? Areas for improvement (-): What are some concept gaps / conceptual errors? Aha moment! (+)/(-) Majority of students were able to explain how LNG is a crucial factor input and thus make the linkage to an increase in unit COP resulting in a decrease in SRAS. However, they were a handful which erroneously linked to an increase in SRAS instead. (-) Weaker responses gave an undeveloped explanation on how rise in price of LNG led to a decrease in productive capacity and LRAS. c) Considering the possible advantages and disadvantages to consumers, assess whether the exclusivity agreement between Repsol and EDF is likely to be of overall benefit to consumers. [8] Interpret Exclusivity Agreement between Repsol and EDF:

JC2 H2 Economics 9570 2024 Prelim Suggested Answers & Markers Report 4 Tampines Meridian Junior College 2024 JC2 Prelim H2 Economics 9570 Paper 1 Renewable energy firms Repsol and EDF will have a larger market share → will lead to both costs and benefits to consumers in terms of price and quality. R1: Explain the possible advantages to consumers with the exclusivity agreement • Internal EOS → Increase in scale of production allow them to better utilise existing offshore wind power from EDF Renewable (Extract 2) → Cost savings can arise from the use of better and larger machine or indivisible input that is spread over a larger quantity of output –> enables them to produce more output and sell their output at lower prices (“increase affordability”) → increase in consumer surplus from XEP to XE1P1. Thus, benefitting consumers. OR • Dynamic efficiency : Higher market share → able to retain supernormal profits → able and willing to engage in R&D → process innovation

JC2 H2 Economics 9570 2024 Prelim Suggested Answers & Markers Report 5 Tampines Meridian Junior College 2024 JC2 Prelim H2 Economics 9570 Paper 1 • For example, firms could adopt technology to increase productivity and reduce the manpower needed. • After successful process innovation, the firm now operates with lower marginal cost of production from MC 0 to MC1. Average cost will also fall from AC0 to AC1. When the MC is lowered, the profit -maximising firm now finds that MR exceeds MC and adjusts its output to 0Q’ where MR cuts MC1. The firm will charge a lower price at P’ and sell more units at Q’. The level of consumer surplus will increase from EaP to EcP’. Thus, benefitting con