RI 2022 Y6 H2 Timed Practice - Examiner's Report

ECONOMICS Higher 2 Syllabus 9757 Examiner’s Report Year 6 Timed Practice 2022 Raffles Institution Nurturing the Thinker, Leader & Pioneer TEL: 65 6419 9888 ● FAX: 65 6419 9898 http://www.ri.edu.sg ● One Raffles Institution Lane, SINGAPORE 575954

Y6/9757/TP/2022 2 © RI 2022 [Turn Over ECONOMICS Y6 H2 Timed Practice 2022 Paper 9757/01 Paper 1 Question 1 (a) Using an appropriate diagram, explain how the developments in the natural gas market have led to a sharp surge in electricity prices. [5m] Answer: Explain the developments in the natural gas market and effect on gas prices. [2m] Extract 1: • Fall in supply of gas o Resulting from rise in cost of production due to gas supply chain disruptions worldwide • Rise in demand for gas o Due to resumption of economic activities in many countries and higher usage for heating purposes which increases derive demand for gas given the harsh winter conditions. • These led to higher gas prices. Explain how the rise in gas prices caused sharp rise in electricity prices via market adjustment process with reference to diagram drawn. [2m] As a result, cost of production of electricity increased since natural gas is used as a factor input to produce electricity. The increase in cost of production will discourage firms from supplying electricity at each price levels. Thus, supply falls from S 0 to S 1. At the original price, P 0, the occurrence of a shortage will result in upward pressure on prices resulting in rise in price of electricity to P 1. Application of PED of electricity to explain the sharp surge in prices [1m] DD Quantity of Electricity 0 Price S0 S1 P0 Q1 Q0 P1

Y6/9757/TP/2022 3 © RI 2022 [Turn Over Due to a lack of availability of close substitutes to electricity, demand for electricity is price inelastic. The fall in supply will result in larger increase in prices of electricity relative to the fall in quantity of electricity. Markers Comments: • Many students did not address how the developments (at least 2) in the gas market affect the demand and supply of gas and hence prices of gas. They also did not identify the relationship between gas and electricity to explain how increas e in price of gas will lead to rise in electricity prices. • The weaker scripts seemed very confused between the gas and electricity market as they often explain how the changes in demand and supply of gas directly affect electricity prices. This is inaccurate as the changes in demand and supply of gas should affect prices of gas first before explaining how the impact of rise in gas prices then affect the electricity market. • Explanation for the sharp surge in electricity prices was also ignored by many scripts. Many just explained the rise in electricity prices without addressing the sharp surge. • Despite question stating use of an appropriate diagram, students dre