CJC 2023 A-level CSQ1 ANS

Suggested answer to 2023 A Level H1 Paper 1 CSQ 1 (a) With reference to Figure 1, compare the net additions to offshore wind energy capacity in China to those of Germany and the UK over the period 2017 to 2021. [3] • China’s net additions to offshore wind energy capacity from 2017 to 2021 is always higher than Germany and UK. • China’s net additions to offshore wind energy capacity from 2017 to 2021 is always increasing while Germany’s and UK’s fluctuate throughout the years. • In 2019, all three countries experienced a net addition to offshore wind energy capacity. • In 2018, 2020 and 2021, Germany and UK both experienced a decrease in net additions to offshore wind energy capacity while China experienced an increase in these years. Examiners’ comments Most candidates accurately identified three broadly comparative issues in relation to China within Figure 1. Those who did not often did not make their statements comparative. (b) Explain why renewable solar energy produced in Singapore is not likely to be a public good. [3] Renewable solar energy produced in Singapore is not likely a public good because it is excludable, rivalrous, and rejectable. • It is excludable because it is feasible to exclude non-payers from enjoying the benefits of the good as only those who paid their utility bills or own solar panels can access renewable energy. • It is rivalrous because with every additional person using energy generated from renewable sources, the amount of renewable energy available is likely to be lesser for other consumers. • It is rejectable as consumers can refuse to consume from renewable energy sources by opting for other energy sources, such as non- renewable ones. Examiners’ comments Many candidates showed good knowledge and understanding of two characteristics of a public good. Good understanding constituted a clear contextual application of these two characteristics of a public good to renewable solar energy production. Weaker responses demonstrated inaccurate understanding of the correctly-identified public goods characteristics when explaining in the context of renewable solar energy production or demonstrated inaccurate understanding of non-rejectability characteristic with that of being non-rivalrous. Other weaker responses did not provide a direct response to the question. They wasted vital time with extended explanations of the characteristics fulfilled by a public good in general and then repeating much of these explanations in the production of renewable solar energy in Singapore. Only a few candidates showed no knowledge of the characteristics of a public good. (c) With reference to Extract 2, explain

(i) one positive externality that could arise from the operation of the solar panel energy farm opened in Singapore in July 2021. [2] Positive externalities are spill over benefits enjoyed by third parties who are not directly involved in the consumption or production of the good or service itself, without payment. Extract 2 mentions that “the solar farm will help to reduce carbon emissions by an amount equivalent to taking 7000 cars off the roads”. This suggests that one positive externality that could arise from operating solar panel energy farms is that third parties such as commuters are able to enjoy the lowered carbon emissions that improves air quality, without paying for the good itself. Examiners’ comments There was a clear grasp of the information provided by the penultimate paragraph of Extract 2 by many candidates with respect to the generation of positive externalities. Weaker responses often did not make explicitly clear who the relevant third party might be in this specific case or did not include a reference to wider (third party) beneficiaries. Such wider third-party beneficiaries include those who have no link, either as producers or consumers, to the operation of the solar panel energy farm but are positively affected by it. This could be a result of the reduction in carbon emissions released on society or from the improved quality of the water in the reservoir on which the farm is located. (ii) why solar energy produced in the Singapore farm would be under- consumed in a free market. [3] A consumer of solar energy will enjoy the marginal private benefit of using a renewable energy source such as reduced costs and energy savings. Private costs borne by the individual includes the utility bill or the costs of purchasing solar panels to power their homes. In a free market economy, driven by self-interest, individuals will consume at Qf where Marginal Private Costs (MPC) equates Marginal Private Benefit (MPB) and their net private benefit is maximised. We will assume there are no external costs in the consumption of solar energy (Marginal External Costs (MEC) = 0), hence Marginal Social Costs (MSC) equals to Marginal Private Costs (MPC).

Consumers of solar energy do not consider external benefits enjoyed by third parties when consuming the good, but only their own private marginal benefit and costs. From the extract, “the solar farm will help reduce emissions” and “be used as a tool for managing and improving the reservoir’s water quality.” By consuming solar energy, these consumers allow for potential external benefits including improved air and water quality to third parties such as traffic commuters and residents who reside near the reservoir. The marginal external benefit (MEB) generated from consumption of solar energy is shown by the divergence between MSB and MPB in Figure 1 above, where MSB (MPB + MEB) is higher than MPB of consuming solar panels at all levels of consumption. The socially efficient equilibrium where society’s welfare is maximised is at Qs where MSB = MSC. Therefore, there is under-consumption of solar energy by amount QfQs. With the under-consumption by amount QfQs, the total social cost incurred at output QfQs is represented by the smaller trapezium QfACQs. The total social benefit at output QfQs is represented by the bigger trapezium at QfBCQs. Thus, we can see that by underconsuming at Qf, consumers forgo more social benefit than social cost and therefore a net welfare loss represented by triangle ABC is resulted, as shown in Figure 1. At any output between Qf and Qs there is a potential net welfare gain for society should these units be consumed. The loss of this potential net welfare gain is shown by the shaded area in the diagram. Therefore, the government’s microeconomic goal of allocative efficiency is not achieved and there is market failure.

Examiners’ comments Most candidates demonstrated a good understanding of the private cost and private benefit outcome/equilibrium in the market for solar energy, often with an appropriate diagram. These candidates also provided an explanation of the impact of positive externalities on the social benefit and the subsequent free market underconsumption when compared to the socially optimal outcome. (d) With reference to Extract 3, explain the likely impact on consumers’ energy expenditure as a result of the price increase authorised by Ofgem in August 2021. [5] From the extract, Ofgem has set a “maximum energy price controls” on renewable energy to lower the prices of “greener suppliers” whose energy tend to be more expensive to generate. It was also mentioned that “A comprehensive study … concluded that it lies in the range (-)0.1 to (-)0.3.” which suggests that for the market of renewable energy, the demand is likely to be price inelastic. This may be due to the lack of available substitutes for renewable energy. Therefore, the price ceiling imposed at Pc which is below the initial equilibrium price Pe will result in a less than proportionate decrease in quantity demanded to Qd. At the new price Pc, quantity supplied is at Qs which means that the price ceiling creat