Econ AS Paper 1 2024

1(a) With reference to the information provided, explain the distinction between

renewable and non‑renewable resources.                                                                       (3)

 

Renewables - naturally replenish themselves and don’t run out e.g. wind.

Non-renewables - limited in supply and cannot be used sustainably, e.g. oil.

Scarcity of oil encouraged economies to develop alternatives, e.g. increase production of wind power.

1 (b) Which one of the following best describes ‘scarcity’?                                              (1)

C – Insufficient resources to satisfy wants

2 (a) Define the term ‘supply.’                                                                                               (1)

Quantity of a good or service that a firm is willing and able to sell at a given price over a given time period.

2 (b) The diagrams below show movements from position X to Y on production

possibility frontiers. In which one of the diagrams does the movement from X to Y

illustrate the most likely impact on Madagascar’s economy of a natural disaster

such as a cyclone?

D

2 (c) Annotate the diagram below to show the effect of the cyclone on the price of

vanilla beans.                                                                                                                       (2)

GRAPH

3 (a) Which one of the following statements about a free market economy is true?

(1)

B - Price mechanism allocates all resources

3 (b) Singapore’s education system is provided by the state. With reference to the information above, explain why education is normally provided by the state.  (3)

K - Education paid for by govt. using tax revenue & benefits wider society.

Ap - Singapore teens rankings strong benefits to students and society.

An - Education normally underprovided in free market bc individuals may not consider the positive effects on others e.g. more skilled workforce and higher productivity.

4 a) Which one of the following best describes the two statements above? (1)

C - S1 = P/ S2 = N

4 (b) With reference to the information above, explain what is meant by

‘opportunity cost’.                                                                                                                 (3)

K - Opportunity cost is the value of the next best alternative forgone in an economic decision.

AP - e.g. 5% Govt spending Finland education, less for military.

An - Bc govt resources are scarce and limited, allocating large amount of funding to certain sectors = cuts or reductions of funding in others.

5 (a) In June 2023, Tesla further reduced the price of its Model 3 vehicle by £4 200 from £42 990. It has been forecast that the price cut will lead to a 15% increase in demand. Ceteris paribus, calculate the price elasticity of demand for the Model 3. You are advised to show your working.(2)

 

 

Step 1 – Knowledge
Price elasticity of demand (PED) = % change in quantity demanded ÷ % change in price.
% change in price = (change in price ÷ original price) × 100
% change in price = (£4,200 ÷ £42,990) × 100 ≈ 9.77%

Step 2 – Application
% change in quantity demanded = 15%
PED = % change in quantity demanded ÷ % change in price
PED = 15 ÷ 9.77 ≈ 1.54

Answer:
The price elasticity of demand for the Tesla Model 3 is approximately 1.54, indicating demand is elastic.

(b) Define the term ‘ceteris paribus’.  (1)

“all other things being equal”

Shows the effect of one variable is being considered while assuming that all other relevant factors remain constant.

c) Which one of the following is most likely to be a determinant of price elasticity of

demand for the Model 3 electric vehicle? (1)

A – Availability of substitute electric vehicles

6 (a) Explain what is meant by the ‘unintended consequence’ (Extract B, line 9) of the plastic tax. (5)

K - Unintended consequence = distortion of consumer or producer behaviour caused by an economic decision.

Ap - 30% tax / £200 per tonne tax on plastics. Designed to provide incentives for businesses to recycle.

An - BUT, does not reduce plastic consumption.

Tax leads to firms/ business selling more products that are already pre-wrapped in plastic to avoid using plastic bags.

Producers may switch to thinner plastic packaging to reduce costs, resulting in increase food waste. Negative outcomes —> not intended by policy.

(b) With reference to Extract A and your own knowledge, assess the view that it is irrational to buy plastic carrier bags when shopping. (10)

Knowledge (2)

• Rational behaviour - maximises utility while taking costs and available alternatives into account.

• Buying single-use plastic carrier bags = considered irrational if consumers ignore negative consequences of their decisions.

Application (2)
Extract A:

• single-use bags contribute to littering and protecting landscapes = a policy goal.

• Reusable alternatives like “bags for life” exist.

• Evidence shows a fall in single-use bag consumption from 7,500 million in 2014 to 197 million in 2021 after the introduction of charges.

• Buying new bags incurs a financial cost.

Analysis (2)
Rational perspective - purchasing new single-use bags when reusable options are available ignores both environmental and financial costs.

Habitual consumers could reuse previously purchased bags, so buying new ones = economically inefficient and environmentally harmful —> representing an irrational choice.

Evaluation (4)
BUT, many consumers’ decisions may still be rational in practice.

Consumers forget reusable bags, in a rush, or make multiple trips per week —> so inconvienant to rely only on previous purchases.

Cost of a single bag (e.g., 10p) is very small relative to income —> so, financial incentive to avoid buying is weak.

Stores continue to supply bags, and the price is not high enough to change people’s mind and reduce consumption.

Buying plastic bags appears irrational = economically and environmentally. BUT rational when considering convenience and negligible cost.

(c) With reference to Extract A, explain the likely numerical value for the income

elasticity of demand for reusable cleaning products.                                                     (4)

 

Knowledge (2)
Income elasticity of demand (YED) - measures how demand for a good changes in response to changes in income.

Reusable cleaning products = normal or luxury good —> positive YED, and demand rises as income increases.

 

Application (2)
Extract A shows that with average household incomes falling by 4.3% in 2023, sales of refillable cleaning products are expected to fall from 200,000 to 130,000 units.

% change in quantity demanded = (70,000 ÷ 200,000) × 100 = 35%.

YED = 35 ÷ 4.3 ≈ 8.14

So, demand = highly income elastic.

Retailers noted that most customers do not wish to pay more for reusable packaging, supporting the idea that demand is very sensitive to income changes.

(d) With reference to Extract C, explain how incentives to use reusable coffee cups may lead to a fall in demand for single‑use cups. (6)

Knowledge (2)

• Single-use and reusable coffee cups = substitute goods.

• Increase in demand for one reduces demand for the other.

• They have a positive cross-price elasticity of demand (XED).

• As consumers use more reusable cups, demand for single-use cups falls.

Application (2)
Extract C shows that environmental messaging in cafes, such as litter posters, increases the use of reusable cups by 2.3%. The availability of reusable cups leads to a further 2.5% increase, and distributing free reusable cups increases usage by 4.3%. A 25p charge on single-use cups also encourages consumers to switch.

Analysis (2)

• Consumers incentivised to switch bc reusable cups are effectively cheaper over time.

• Environmental messaging reduces information asymmetry about the external costs of single-use cups.

SO, demand for single-use cups falls. This relationship could be illustrated with a demand curve shifting left for single-use cups as more consumers switch to reusable options.

(e) Discuss the likely private costs and external costs of the production of plastic. (15)

• Private costs: Costs borne directly by firms (capital, raw materials, labour, operational costs).

• Costs affect only the producer.

• If external costs are ignored, firms produce more plastic than socially optimal.

• Creates deadweight loss bc market equilibrium diverges from the social optimum.

• E.G. Extract B: UK tax of £200/tonne on plastic packaging with <30% recycled content internalizes some external costs.

• External costs: Costs imposed on third parties (environmental damage, CO₂ emissions, waste management).

• Not born by producers, so overproduction occurs, increasing deadweight loss.

• E.G. Extract C: Single-use cups generate 25,000 tonnes of waste, showing external costs to society.

• Taxes and recycling incentives can reduce these external costs, but their impact may be limited if demand is inelastic or if alternative packaging is unavailable.

• Economies of scale may lower private costs, making production cheaper for firms.

• Plastic production also provides benefits, including food preservation, convenience, and employment, which partially offset negative externalities.

• Furthermore, plastic pollution has a global dimension, affecting other countries and spreading external costs internationally.

Conclusion

• Private costs are borne by firms.

• External costs affect society.

• Ignoring external costs leads to overproduction.

• BUT, policies such as taxes and recycling incentives can help align production closer to the social optimum.

• Effectiveness depends on market conditions, consumer behaviour, and the availability of alternatives, highlighting the trade-offs policymakers must consider.

(f) Evaluate the likely impact of a tax on plastic food-packaging. Use a diagram to support your answer.

Knowledge (4)

• Tax on plastic food packaging raises prices, reducing quantity demanded and moving consumption toward socially optimal level.

• Consumers pay higher prices → lower consumer surplus; producers face higher production costs.

• Incentivises firms to switch to recycled or alternative packaging → internalises negative externalities.

• Government revenue can fund environmental initiatives or reduce plastic waste.

Application (4)

• Extract B: Businesses producing >10 tonnes of low-recycled-content plastic taxed £200/tonne.

• Encourages use of ≥30% recycled plastic to avoid tax.

• Consumers may face higher food prices → behavioural nudge to reduce single-use plastic.

• Supply and demand effect: supply curve shifts left (MPC → MPC + tax), price rises (P → P1), quantity falls (Q → Q1), closer to MSC = MSB.

Analysis (6)

• Tax increases production costs → reduces production and consumption of plastic packaging.

• Incentivises innovation in recycled/alternative materials.

• Government revenue can fund recycling or litter reduction programs.

• Tax incidence depends on price elasticity: inelastic demand → consumers bear more; elastic → firms absorb more.

• Reduces overconsumption → decreases deadweight loss from negative externalities.

• Moves market closer to socially optimal output.

Evaluation (6)

• Effectiveness depends on price elasticity: low elasticity → limited environmental benefit.

• 30% recycled threshold may reduce impact; minor adjustments can avoid tax.

• Excessive tax → misallocation of resources, non-compliance, higher enforcement costs.

• Alternatives (subsidies, stricter regulations) might achieve greater behavioural change.

• Encourages long-term shifts in production/consumption.

• Short-term impact limited by price sensitivity and availability of alternatives.

f) Evaluate the likely impact of a tax on plastic food-packaging. Use a diagram to support your answer.

Graph:

-              A tax on plastic food packaging raises the cost of production, shifting the supply curve from MPC to MSC = MPC + Tax.

-              Increases market price from P → P1

-              AND reduces quantity demanded from Q → Q1

-              Moving output closer to the socially optimal level.

-               Deadweight loss associated with overproduction is reduced (shown as area ABC in the diagram).

 

Consumers face higher prices, reducing consumer surplus.

While producers face higher costs, incentivising them to switch to recycled or alternative packaging.

Govt. revenue from the tax can fund environmental initiatives such as recycling or litter reduction programs.

 

Impact of tax depends on price elasticity.

If demand is inelastic, consumers bear most of the cost.

If demand is elastic, producers absorb more.

Tax encourages innovation of alternative materials, reducing negative externalities.

 

 

BUT, effectiveness of tax may be limited.

Some consumers may find substitutes inconvenient.

Firms bypass the 30% recycled threshold, reducing the environmental benefit.

Excessive taxation risks misallocation of resources, non-compliance, and higher enforcement costs.

Alternative policies (e.g. stricter regulations) might achieve greater behavioural change.

 

Conclusion

Tax reduces overconsumption of plastic, internalises some negative externalities and moves the market closer to the social optimum.

BUT short term effectiveness is constrained by price sensitivity, availability of alternatives and avoidance strategies.