Unit 2: Economics in Action · 2520U20-1
WJEC AS Unit 2, June 2024
All 10 written questions from WJEC AS Unit 2 (June 2024), Economics in Action. Case studies: Reducing the threat of climate change and A new coal mine in the uk. Each question shows its marks and topic, with an examiner insight on 7, and opens the question paper and mark scheme at the right page.
Case study
REDUCING THE THREAT OF CLIMATE CHANGE
In the extracts: ETS, EU ETS, UK ETS, Replace the EU ETS, European Union, Governments, Tackling, England, Perhaps, Create
Q1(a)
'Tackling climate change is not an issue which can be left to the free market' (line 2). Briefly outline one reason why the free market has led to climate change.
Mark splitKnowledge 2
TopicThe economic problem and resource allocationGrowth and developmentMarket failure
Q1(b)
To what extent do the external benefits of wind power outweigh the external costs?
Mark splitKnowledge 2Application 2Analysis 2Evaluation 4
TopicMarket failure
Examiner insight
- What to cover
- Separate private, external and social costs and benefits, then list the external costs of wind power (visual and noise effects, habitat and bird impacts, intermittency) and the external benefits (lower carbon emissions, energy security, less air pollution).
- Diagram
- Not required, but an externality diagram is an efficient way to demonstrate knowledge of external costs and benefits.
- Evaluation
- To what extent, so weigh the two sides and reach a judgement, considering how the costs are localised while the benefits are global.
- Watch out
- Writing about the private costs and benefits of wind power scored no marks. And identifying an external effect is not enough: explain how it reaches a third party, for example carbon reduction to food and water security or lower flood risk for homeowners.
- How it went in the exam
- Examiners said candidates performed well here because the text gave a lot of guidance. The AO3 marks were lost on the third party link.
Q1(c)
Discuss the likely effectiveness of a tradeable carbon emissions permits scheme, (EU ETS or UK ETS), in reducing carbon emissions.
Mark splitApplication 2Analysis 2Evaluation 4
TopicThe economic problem and resource allocationGrowth and developmentMarket failure
Examiner insight
- What to cover
- Explain the scheme's mechanism: the regulator restricts the supply of permits, firms that cut emissions can sell surplus permits, so there is a financial incentive to abate where it is cheapest, and the cap can be tightened over time.
- Diagram
- Permit market with a perfectly inelastic supply curve, which is not required but helps demonstrate the restricted supply.
- Evaluation
- Judge effectiveness: setting the cap right, over allocation, the permit price being too low to change behaviour, monitoring and enforcement, and carbon leakage to countries outside the scheme.
- Watch out
- Do not conflate tradable permits with a carbon tax. The two are different interventions. The strongest answers named both the restricted supply and the incentive to sell surplus permits.
- How it went in the exam
- Candidates found this a difficult question in general, and examiners asked centres to teach the two interventions apart.
Q1(d)
Explain how a carbon tax could correct the market failure caused by carbon emissions. Illustrate your answer with an appropriate diagram.
TopicMarket failureGovernment intervention in markets
Examiner insight
- What to cover
- Define market failure, identify carbon emissions as a negative externality in production, and show how a tax equal to the external cost internalises it and moves output to the social optimum.
- Diagram
- Negative production externality: MSC above MPC, free market output beyond the social optimum, the tax shifting supply so that the private cost equals the social cost. Label it fully.
- Watch out
- Many candidates drew a negative consumption externality diagram instead of a production one. Practise telling the two apart, and label the axes and curves.
- How it went in the exam
- Most candidates could define market failure and explain the tax. The diagram was the main source of lost marks.
Q1(e)
To what extent might UK Government policies to tackle climate change cause conflicts with their macroeconomic policy objectives?
Mark splitKnowledge 2Application 2Analysis 4Evaluation 4
TopicMacroeconomic objectives and policy
Examiner insight
- What to cover
- Name a specific climate policy, such as a carbon tax, the ETS or subsidies for renewables, then trace it into named macroeconomic objectives: growth, employment, inflation, the current account, and the budget.
- Diagram
- AD and AS with SRAS shifting left for a carbon tax, showing the cost push effect on the price level and output.
- Evaluation
- Weigh the conflicts against the cases where policies support objectives, for example green investment creating jobs and long run growth. Judge the extent.
- Watch out
- The objective is equilibrium on the current account of the balance of payments, not the balance of payments as a whole. Tie every point to a specific policy rather than offering general commentary.
- How it went in the exam
- Almost all candidates identified two or more objectives. Answers were weakened by the missing link to a specific policy.
Case study
A NEW COAL MINE IN THE UK
In the extracts: European, Russia, Steel, Climate Change Committee, Whitehaven in Cumbria, CEO of British Steel, USA and Canada, NEW COAL MINE, IN THE UK, Russian
Q2(a)
Describe the likely impact of the new coal mine on the UK Government's budget/fiscal balance.
Mark splitKnowledge 2Application 2
Q2(b)
Outline how the 'estimated private sector investment of £165 million' (line 4) to build the new coal mine will create a multiplier process in the UK economy.
Mark splitKnowledge 2Application 2
TopicAggregate demand
Q2(c)
With reference to the data and Chart 1, discuss the possible effects of the new coal mine on the steel market in the UK.
Mark splitApplication 2Analysis 4Evaluation 4
TopicMeasuring economic performanceAggregate demandInternational trade and exchange rates
Examiner insight
- What to cover
- Find more than one effect on the steel market. Cheaper domestic coking coal lowers steel production costs and so the price of steel, but also consider output and employment in steel, import substitution and competitiveness, and security of supply. Use the data and Chart 1.
- Diagram
- Steel market with supply shifting right, lower price and higher quantity. Not required, but it supports the analysis.
- Evaluation
- Weigh how much of the cost saving is passed on, how large UK coal output is relative to steel demand, and how world steel prices constrain the effect.
- Watch out
- Answers that only discussed the price of steel were capped at Band 2 for AO3. Find a second effect.
- How it went in the exam
- Examiners said analysis was generally good and most candidates used the data thoroughly. The strongest explained the link between the coal and steel markets explicitly.
Q2(d)
Assess the likely impact of the new coal mine on the exchange rate of the pound to the euro. Illustrate your answer with an exchange rate diagram.
TopicInternational trade and exchange rates
Examiner insight
- What to cover
- Explain the routes to an appreciation: import substitution reduces the supply of pounds, export sales of coal raise demand for pounds, and inward interest in the project raises demand.
- Diagram
- Exchange rate diagram with demand for the pound shifting right. Label the y axis as the exchange rate, price of the pound or price of the pound in euros, not simply price.
- Evaluation
- Assess the size of the effect against the total volume of currency traded, the role of interest rates and speculation, and how long the mine's output lasts.
- Watch out
- Most candidates got the direction right but lost marks through labelling. Full and correct labels on every diagram are among the cheapest marks on this paper.
- How it went in the exam
- Most candidates successfully identified the appreciation, so the marks turned on the diagram and the evaluation.
Q2(e)
Evaluate the view that the new coal mine will 'add £1.5 billion to UK GDP... over the first ten years of the mine's operation' (lines 27 and 28). Illustrate your answer with an aggregate demand and aggregate supply (AD/AS) diagram.
Mark splitKnowledge 2Application 2Analysis 4Evaluation 4
TopicAggregate demandAggregate supply
Examiner insight
- What to cover
- Give more than two reasons why GDP could rise: the investment itself, employment and incomes, the multiplier, lower steel costs, import substitution and tax revenue. Use the data figures.
- Diagram
- AD and AS with macro labels, real GDP on the x axis and the price level on the y axis, not Q and P, and not GDP without real.
- Evaluation
- A third of the marks are evaluation. Use the multiplier, the expected decline in EU demand for coal, the crowding out of renewables investment, and a Keynesian LRAS to argue how much of the 1.5 billion is realistic.
- Watch out
- Micro labels on a macro diagram were the commonest diagram error, and a lack of evaluation was the commonest overall weakness.
- How it went in the exam
- Examiners noted the strongest candidates used the Keynesian LRAS to evaluate, which is a reliable way to separate your answer.
Question text is quoted from the question papers, © WJEC CBAC Ltd, for students’ private study. Open the official papers and mark schemes from the links on each question. Examiner insights are written with AI assistance and moderated by Finn.