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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
One likely reason for the overall increase in retail prices of gas and electricity from 2004 to 2015 could be rising production costs, driven by factors such as increased resource prices or regulatory changes. Looking at Figure 1, we can see that while gas prices showed fluctuations, they generally trended upwards alongside electricity prices. As energy companies face higher costs (e.g., for sourcing and distributing energy), these costs are typically passed on to consumers, leading to higher 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 effectiveness of measures introduced by the Competition and Markets Authority (CMA) to increase competition in the UK energy market may vary. Initiatives like creating a switching database can empower consumers, helping them identify better deals and switch suppliers more easily. This could lead to increased competition and potentially lower prices. However, the challenges remain, as many consumers remain loyal to established suppliers due to perceived risks, potentially limiting the impact of increased competition. The introduction of smart meters may enhance energy efficiency, benefiting both consumers and the market in the long run.
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 can have mixed effects. On the positive side, capping profits ensures that consumers are not overcharged, promoting fairness in pricing. For instance, with profit caps in place, suppliers are compelled to operate more efficiently, which could lead to lower costs for consumers. Conversely, such regulations may deter investment in the market, as suppliers might find lower profit margins unattractive, affecting their ability to improve services or innovate. This could ultimately slow the growth of competition and efficiency gains within the sector.
Step 4
With reference to Extract C and your own knowledge, examine two possible reasons for the change in price elasticity of demand for energy.
Answer
Two possible reasons for the change in price elasticity of demand for energy include:
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Increased Availability of Substitutes: As renewable energy sources become more accessible, consumers may find alternatives to traditional gas and electricity, making their demand more elastic. If prices rise, consumers might switch to solar or other renewable sources, leading to a greater sensitivity to price changes.
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Changes in Consumer Preferences: Growing awareness of climate change could shift consumer preferences toward energy efficiency and reduced consumption. As consumers become more energy-conscious, they may react more significantly to price increases, leading to a more elastic demand as they seek to minimize costs through conservation.
Step 5
With reference to Extract C and your own knowledge, discuss businesses and government initiatives to reduce labour mobility in the energy sector.
Answer
To counteract labour shortages in the energy sector, businesses and the government can implement various initiatives.
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Targeted Training Programs: These programs aim to upskill current workers, particularly targeting the aging workforce. By investing in training and development, businesses can ensure workers are well-equipped to fulfill industry needs and reduce the reliance on new, potentially less experienced workers.
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Enhanced Career Awareness Campaigns: Government initiatives can focus on promoting careers in the energy sector to younger generations, helping to raise interest among students in relevant fields. By decreasing knowledge gaps about career prospects, increased enrolment in training programs could help maintain a steady pipeline of skilled workers.