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

1、（2）Projected water use was rising for Manufacturing, Electricity and Domestic sectors, except for Agriculture 1Manufacturing and Electricity contribution to water use is projected to rise more significantly 1ii.With the aid of economic theory and materials provided, predict the trend of the price of

2、 water in the next few decades.（4）rising water usage （population, climate, economic growth, wastage） DD expected to rise shift rightwards of DD curve 1scarce resource + limited supply, rising pollution SS expected to either remain fairly unchanged / rise marginally （insufficient information） 1 Rise

3、in DD change in SS price rise 1Moreover, DD and SS highly inelastic price rise （likely） more significant 1Evidence from Extract 1 & 2bExplain the economic justification for governments to intervene in the provision of water treatment.Market failure from externalitiesPrevention of polluting groundwat

4、er / preserve quality of available water resource external costs SS-side issues welfare loss （diagram） requires assignment of property rights or govt intervention / regulation OrWater treatment might be under-provided by the market as private enterprises may ignore the benefits of clean water on the

5、 wider community （i.e. they only care about the revenue they will receive）. Moreover, such projects have high capital intensity, requires large initial outlay and has long payback periods that presents a challenge to private enterprises Max 2 for identification of reason （if left to market, external

6、 cost is not internalized）Max 2 for diagram to illustrate welfare lossEvidence from Extract 2cTo what extent does “putting the right price on water” （Extract 2） achieve the two microeconomic objectives of efficiency and equity?（8）Balance between goals of efficiency vs equity expected especially for

7、a necessity where issues of affordability need also to be consideredExplain how right price on water can achieve efficiency If left to market forces, only private benefits and costs are considered （MPB = MPC）:- Price regulates quantity demanded （prevent wastage） to truly reflect MPB- Price regulates

8、 quantity supplied （affected by pollution which raises marginal cost of production） to truly reflect MPC- Price incentivise investments through rewarding profits （price vs cost）Explain how right price not possible via market system without govt intervention due to externalities （pollution costs, was

9、tage, lack of investments）- Market unable to capture cost of negative externality （pollution） right price is lower- Lower price leads to wastage in consumption- Lower price may not be sufficient to induce investment in water management technology that bring about lower cost of provision in the futur

10、e- Pricing through market is not efficient （MSB MSC）Therefore the “right” price should take into account external costs that are not captured in the market system to achieve efficient allocation of resource.Explain how government intervention via tax could achieve a more efficient allocation of wate

11、r resource （raise price of water & curb excess consumption）.Equity concerns will examine if the right price takes into account affordability of households to scarce resource.Explain why equity is not a problem for developed countries where water charges （price of water） does not constitute a signifi

12、cant burden for households. Explain why equity may be a problem- For poorer countries, similar water charges represent a more significant portion of income. Problem magnified by highly inelastic demand for water （-0.1 to -0.2）.- Subsidies solution to keep it affordable when not targeted worsens equi

13、ty problem. - Moreover, measures undertaken for water pricing policies need to be sustainableConclusion to demonstrate the conflict between achieving the goals of efficiency and equityMax 3m for Efficiency explanationMax 3m for Equity explanationMax 5m for both Efficiency and Equity without showing

14、understanding of conflict between achieving both Evidence in Extract 2dDistinguish between the concepts of shortage and scarcity.Shortage is a situation when the qty dd qty ss at the existing market price. 1Scarcity is a situation when limited resources are not able to satisfy unlimited wants. 1Expl

15、ain how shortage can be eliminated through adjustment when price changes but scarcity can never be eliminated. 2 eExamine the relative effectiveness of the methods adopted by countries to tackle the problem of shortage of clean water.Identify govt intervention methods: subsidies, tariffs, regulations, SS-side measures to boost accessMeasures identifiedHow they work / evaluationApplied in Developed