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 ri