VJC JC2 H2 Economics Prelim P1 Mark Scheme FinalWord格式.docx

VJC JC2 H2 Economics Prelim P1 Mark Scheme FinalWord格式.docx

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（2）

ProjectedwaterusewasrisingforManufacturing,ElectricityandDomesticsectors,exceptforAgriculture[1]

ManufacturingandElectricitycontributiontowateruseisprojectedtorisemoresignificantly[1]

ii.

Withtheaidofeconomictheoryandmaterialsprovided,predictthetrendofthepriceofwaterinthenextfewdecades.

（4）

risingwaterusage（population,climate,economicgrowth,wastage）DDexpectedtoriseshiftrightwardsofDDcurve[1]

scarceresource+limitedsupply,risingpollutionSSexpectedtoeitherremainfairlyunchanged/risemarginally（insufficientinformation）[1]

RiseinDD>

changeinSSpricerise[1]

Moreover,DDandSShighlyinelasticpricerise（likely）moresignificant[1]

EvidencefromExtract1&

2

b

Explaintheeconomicjustificationforgovernmentstointerveneintheprovisionofwatertreatment.

Marketfailurefromexternalities

Preventionofpollutinggroundwater/preservequalityofavailablewaterresourceexternalcostsSS-sideissueswelfareloss（diagram）requiresassignmentofpropertyrightsorgovtintervention/regulation

Or

Watertreatmentmightbeunder-providedbythemarketasprivateenterprisesmayignorethebenefitsofcleanwateronthewidercommunity（i.e.theyonlycareabouttherevenuetheywillreceive）.Moreover,suchprojectshavehighcapitalintensity,requireslargeinitialoutlayandhaslongpaybackperiodsthatpresentsachallengetoprivateenterprises

Max2foridentificationofreason（iflefttomarket,externalcostisnotinternalized）

Max2fordiagramtoillustratewelfareloss

EvidencefromExtract2

c

Towhatextentdoes“puttingtherightpriceonwater”（Extract2）achievethetwomicroeconomicobjectivesofefficiencyandequity?

（8）

Balancebetweengoalsofefficiencyvsequityexpectedespeciallyforanecessitywhereissuesofaffordabilityneedalsotobeconsidered

Explainhow‘right’priceonwatercanachieveefficiency

Iflefttomarketforces,onlyprivatebenefitsandcostsareconsidered（MPB=MPC）:

-Priceregulatesquantitydemanded（preventwastage）totrulyreflectMPB

-Priceregulatesquantitysupplied（affectedbypollutionwhichraisesmarginalcostofproduction）totrulyreflectMPC

-Priceincentiviseinvestmentsthroughrewardingprofits（pricevscost）

Explainhow‘right’pricenotpossibleviamarketsystemwithoutgovtinterventionduetoexternalities（pollutioncosts,wastage,lackofinvestments）

-Marketunabletocapturecostofnegativeexternality（pollution）right‘price’islower

-Lower‘price’leadstowastageinconsumption

-Lower‘price’maynotbesufficienttoinduceinvestmentinwatermanagementtechnologythatbringaboutlowercostofprovisioninthefuture

-Pricingthroughmarketisnotefficient（MSB≠MSC）

Thereforethe“right”priceshouldtakeintoaccountexternalcoststhatarenotcapturedinthemarketsystemtoachieveefficientallocationofresource.

Explainhowgovernmentinterventionviataxcouldachieveamoreefficientallocationofwaterresource（raise‘price’ofwater&

curbexcessconsumption）.

Equityconcernswillexamineifthe‘right’pricetakesintoaccountaffordabilityofhouseholdstoscarceresource.

Explainwhyequityisnotaproblemfordevelopedcountrieswherewatercharges（‘price’ofwater）doesnotconstituteasignificantburdenforhouseholds.

Explainwhyequitymaybeaproblem

-Forpoorercountries,similarwaterchargesrepresentamoresignificantportionofincome.Problemmagnifiedbyhighlyinelasticdemandforwater（-0.1to-0.2）.

-Subsidiessolutiontokeepitaffordablewhennottargetedworsensequityproblem.

-Moreover,measuresundertakenforwaterpricingpoliciesneedtobesustainable

Conclusiontodemonstratetheconflictbetweenachievingthegoalsofefficiencyandequity

Max3mforEfficiencyexplanation

Max3mforEquityexplanation

Max5mforbothEfficiencyandEquitywithoutshowingunderstandingofconflictbetweenachievingboth

EvidenceinExtract2

d

Distinguishbetweentheconceptsof‘shortage’and‘scarcity’.

Shortageisasituationwhentheqtydd>

qtyssattheexistingmarketprice.[1]

Scarcityisasituationwhenlimitedresourcesarenotabletosatisfyunlimitedwants.[1]

Explainhowshortagecanbeeliminatedthroughadjustmentwhenpricechangesbutscarcitycanneverbeeliminated.[2]

e

Examinetherelativeeffectivenessofthemethodsadoptedbycountriestotackletheproblemofshortageofcleanwater.

Identifygovtinterventionmethods:

subsidies,tariffs,regulations,SS-sidemeasurestoboostaccess

Measuresidentified

Howtheywork/evaluation

AppliedinDeveloped