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6 (a) With reference to Figure 1, explain one likely reason for the overall trend in the retail prices of gas and electricity - Edexcel - A-Level Economics A - Question 6 - 2018 - Paper 1
Question 6
6 (a) With reference to Figure 1, explain one likely reason for the overall trend in the retail prices of gas and electricity. (b) With reference to Extract A, disc... show full transcript
Worked Solution & Example Answer:6 (a) With reference to Figure 1, explain one likely reason for the overall trend in the retail prices of gas and electricity - Edexcel - A-Level Economics A - Question 6 - 2018 - Paper 1
Step 1
With reference to Figure 1, explain one likely reason for the overall trend in the retail prices of gas and electricity.
Answer
The overall trend in the retail prices of gas and electricity between 2004 and 2015 shows an increase, with both price indices rising significantly. One likely reason for this trend is the increasing production costs associated with energy, which can be attributed to factors such as higher raw material prices, increased regulatory costs, and demand pressures. As companies face rising costs, they are likely to pass these expenses onto consumers, leading to higher retail prices.
Step 2
With reference to Extract A, discuss the likely effectiveness of measures to open up and increase competition in the UK energy market.
Answer
The measures introduced by the CMA aim to increase competition in the UK energy market by enhancing transparency and lowering entry barriers for new suppliers. The creation of a database to help consumers switch suppliers is likely to empower customers, leading to more competitive pricing. However, the effectiveness of these measures may be limited. Established companies may still dominate the market, and consumer inertia could hinder switching behavior. Additionally, the effectiveness also depends on the responsiveness of consumers and the entry of new suppliers with competitive offerings.
Step 3
With reference to Extract B, assess how the regulation of energy suppliers' profits is likely to affect consumers and suppliers in the energy market.
Answer
Regulating energy suppliers' profits, such as capping profit margins, is designed to protect consumers from excessive pricing and ensure fairer market conditions. For consumers, this can lead to lower prices and better service outcomes. However, for suppliers, strict profit regulation may limit their ability to invest in infrastructure and innovation. A balance must be struck to ensure suppliers remain viable while protecting consumers from high costs.
Step 4
With reference to Extract C and your own knowledge, examine two possible reasons for the change in price elasticity of demand for gas.
Answer
The price elasticity of demand for gas is likely to change due to two main reasons:
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Consumer Switching Behavior: As more consumers become aware of alternative energy sources and competitive suppliers, they may become more price-sensitive, leading to increased elasticity as they switch based on price changes.
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Availability of Substitutes: The development of more renewable energy sources and technologies could make gas less essential, increasing its price elasticity. If consumers view electricity or solar power as viable alternatives, demand for gas becomes more elastic as they can easily switch based on price fluctuations.
Step 5
With reference to Extract C and your own knowledge, discuss businesses and government intervention to reduce labour mobility in the energy sector.
Answer
Businesses and government intervention can play a crucial role in addressing labour mobility in the energy sector. Programs that invest in training and education specific to energy skills could help to retain experienced workers and attract new talent. Furthermore, government incentives for energy companies to offer stable career paths and competitive wages can reduce turnover. Efforts to promote awareness of energy sector career prospects, particularly among younger students, could also mitigate labour shortages and enhance workforce stability.