Section A
1) New and Old opportunity cost?
20 and 30
2) Reason for an outward shift of PPF
Technological improvements in machinery
3) Coastal defence scheme in kent
Public good
(5) Original supernormal profit was £225 but the new supernormal profit after the change in business objective (from profit maximisation to revenue maximisation) was £108, so £225-£108=£117 - a £117 loss of total supernormal profit.
6) If they were to go back to sales max what would happen?
Decrease in price of treatments
Section B
1) Explain one likely reason for the overall trend in price of gas and electricity? (5 marks)
Increase in demand- population (migration/rise in birth rate)
2) Effectiveness of measures to open up increase competition in UK energy market? (12 mark)
Define CMA
1. RPI - X formula and its significance of lowering prices for consumers when the value of X is high enough
Evaluation: determining the value of X is difficult
3) Assess how regulation of energy suppliers profit levels is likely to affect consumers and suppliers? (10)
4) PED of energy is -0.35 and -0.85 in the LR, suggest the reasons for change in PED over time? (8)
n the short terms PED is inelastic due to the fact that consumers have a limited range of options that can help increase their utility and lower their costs, as a result they are forced to stay with their current provider despite the excessively high prices 5x above average.to add to this being vertically merged and owning large portions means consumers have a limited range of energy supplier.
However,in the long run consumers computational skills improve as a result of the new smart meter which may encourage consumers to become more efficient and reduce their consumption because they are now more aware of there spending on electricity. Alternatively, they could install solar panels(renewable energy source) which would reduce their dependency on electricity companies,however solar panels don’t always work because of the whether which may explain why demand is still in elastic. Although more elastic,demand is still inelastic(-0.85)
Evaluation: with PED staying inelastic and people will always need electricity in developed countries
5) Discuss policies businesses and government might implement to reduce labour immobility to benefit energy sector? (15)
training new people to become skilled, employing skilled workers from overseas
Section C
1) External costs and private costs
First point -external costs- talked about effects of different pollutions (air and noise) and its effects on the local workforce- lower productivity due to absenteeism-
Eval- hard to measure and
external costs diagram with analysis of diagram
2nd point- positive private costs - employment gone up, more disposable income leading to more spending within local economy.
Eval -opportunity cost of the investment, can money be spent elsewhere
Conc- SR/LR- long run -alternative energy sources in future rather than nuclear
SR- short term job creation, good for local economy
2) Apple 38% market share
Evaluate whether allowing one firm to have a high market share is good for consumer interest
Define Monopoly
25% Market Share is considered a legal monopoly by CMA
1. Higher prices to consumers
Evaluation: Through Economies of Scale, lower AC could be passed down onto consumers in the form of lower prices.
2. Price discrimination (Provided the PD diagram with it)
-Elastic consumers likely to charged less but its the inelastic consumers that suffer the most. Apple offers student discounts (elastic consumers) but adults don't receive these.
Evaluation: Successful PD depends on the 3 conditions
3. Quality (Since monopoly is a profit max, its unlikely to take quality into account)
Evaluation: Through dynamic efficiency, the monopoly could reinvest its profit for R&D to improve quality