2025 EJC Paper 1 - Mark Scheme

1 2025 EJC Prelim Exam H2 Econs P1 CSQ1 Question 1: Artificial intelligence (AI) and data centers SAMS (Suggested Answer & Mark Scheme) (a) Describe the trend in the actual total electricity consumption in the US from 2018 to 2023 and in the projected consumption from 2024 to 2030. [2] 1m for general trend for actual total electricity consumption from 2018 to 2023 From 2018 to 2023, the actual total electricity consumption in the US has generally fallen. 1m for general trend for projected consumption from 2024 to 2030 From 2024 to 2030, projected consumption has generally risen or risen at a fast rate. (b) With reference to Extract 1: (i) Explain the likely value of the price elasticity of supply (PES) of electricity in the US market. [2] 1m for stating and explaining the likely value and explaining The PES of electricity in the US is likely to be <1. This means that as price rises, electricity producers can only increase quantity supplied by less than proportionately. Hence PES value is likely to be <1. 1m for explaining the likely value This is because from Extract 1, it states that ‘there is limited grid capacity and long lead time to build new infrastructures. This means that power plants have limited spare capacity as electricity generation depends on fixed infrastructure like power plants and grid capacity, which cannot be quickly expanded to meet sudden increases in demand (ii) Using the PES concept and a diagram, explain why increasing electricity prices have intensified in the US market. [4] 1m for a well-labelled diagram Diagram (bii): Intensified rising electricity prices in the market

2 1m for explaining rise in demand A key factor contributing to the increase in electricity prices in the U.S. is a surge in demand , especially from AI -powered data centers, which has shifted the demand curve for electricity rightward. This is because electricity is a factor input for the data centers, so when there is a rise in demand for services by the data centers due to AI, there is a rise in derived demand for electricity. 1m for explaining price inelastic supply This rightward shift in the demand curve, when met with a price-inelastic supply of electricity in the short run (PES<1), it leads to a sharp rise in equilibrium price relative to the less than proportionate increase in quantity supplied. This is because producers are unable to significantly increase the quantity of electricity supplied in response to rising prices, due to structural limitations such as ‘limited grid capacity and long lead time to build new infrastructures’ (Extract 1). 1m for explaining why increasing prices intensified in the graph As shown in the below diagram, with a price inelastic supply curve, a rightward shift in the demand curve (from DD 0 to DD1) leads to shortage. As producers can only increase Qs by less than proportionately, it becomes very challenging to clear the shortage, hence producers had to allow for a significant increase in price from P 0 to P1, but only a less than proportionate increase in quantity from Q 0 to Q1. This explains why electricity prices surged by 4.5% in 2023, even though the total increase in electricity quantity consumed was modest in comparison. (c) Discuss the factors that the Singapore government has considered when deepening AI adoption ‘to power Singapore’s future ’ through initiative s such as NAIS 2.0. [8] Question Analysis Approach

3 Command Discuss – two-sided explanation with a well-reasoned evaluation -6m Explain R1 + R2 -2m Evaluation Context Singapore government deepening AI adoption to power Singapore’s future = economic transformation and growth (Extract 3) Start Point Factors for decision making End Point Main 1) Objectives and Benefits 2) Costs, constraints and unintended negative consequences Content Requirement 1 Requirement 2 Explain Some factors that the Singapore government has considered is the objectives and benefits of deepening AI adoption. Objectives For Singapore future economic growth → link to BUGPEES → maximize social welfare Benefits (a) Potential EG: AI → Technology → LRAS → PEG (b) Actual EG: AI industries → Attract FDI over time → Rise in AD → AEG (c) Sustained EG = PEG + AEG Other factors that the Singapore government has considered is the costs and unintended consequences. Costs (a) Direct cost e.g. more than $500 mil invested by the govt (b) Constraints e.g. government fiscal budget and resources (CELL) (c) Opp cost e.g. next best alternative govt spending on environment , since there is Singapore Green Plan 2030 + value forgone Unintended Negative Consequences (a) Environment and resource for future generations = Non-sustainable EG (b) Structural UNN + non-IEG → Lower quality of wf → fall in LRAS in future (c) Higher energy COP & GPL (price stability) → business confidence →

4 fall in FDI → fall in LRAS in future Evaluate IEV1 Evaluate the limitations of each decision -making factor in the given context(s) IEV2 Evaluate the limitations of each decision -making factor in the given context(s) SEV Make a stand and justify it on the relative importance of the factors that Singapore government has considered in deepening AI adoption in the given context(s) i.e. likely benefits outweigh costs Introduction When the Singapore government has considered when deepening AI adoption ‘to power Singapore’s future’ through initiatives such as NAIS 2.0, the government would have considered the key rational decision -making factors such as its objectives, benefits, costs and unintended consequences. Decision making is based on the marginalist principle, where marginal benefits outweigh the marginal costs for the government to proceed. R1: Some factors that the Singapore government has considered is the objectives and benefits of deepening AI adoption. As from the preamble, Singapore was one of the first countries in the world to introduce a national AI strategy to power Singapore’s future. It represents the next phase of the country’s economic transformation and growth. This means that the key benefit of deepening AI adoption was for future economic growth, which allows the government to fulfil its objective of maximizing social welfare. Firstly, deepening AI adoption allows Singapore to achieve potential economic growth in the future. With “enhanced capabilities”, AI technology could improve the efficiency and hence quality of Singapore’s factors of production, such as labour and capital, for example, the automation of routine tasks so that our workers can focus on higher value work. This mea ns there can be more output per input. This then expands the productive capacity of Singapore economy, which is reflected in a rightwards shift of LRAS from LRAS1 to LRAS2 in Diagram (c) below. When all resources are fully utilized, the Singapore economy can produce a higher level of maximum output from Yf1 to Yf2. This is potential economic growth.

5 Diagram (c): Singapore future growth (PEG and AEG) There will also be actual growth in the future. As the Singapore government has invested “more than $500 million has been invested in research and development” in the AI industry, there is likely a continu