Extract 1: The regulator Ofgem sets a price cap on standard variable energy tariffs. The cap for a typical household reached £3549 a year in October 2022, though the government's Energy Price Guarantee limited bills to £2500. By mid-2024 the cap had fallen to about £1690 as wholesale gas prices fell.
Extract 2: More than 25 small suppliers went bust in 2021–22 because they had sold energy at fixed prices without buying it in advance. Their customers were moved to the remaining large suppliers. The market is now dominated by a handful of firms.
Extract 3: Energy producers made record profits. The government introduced an Energy Profits Levy (a windfall tax) on oil and gas producers, while offering investment allowances for new production. Environmental groups argued that support should go to renewables and home insulation instead.
Section B — Data: UK productivity and economic growth
Extract 1: UK output per hour worked grew by around 2% a year in the decade before 2008. Between 2008 and 2023 it grew by only about 7% in total. Business investment as a share of GDP is lower than in most G7 economies.
Extract 2: Real GDP growth was around 0.1% in 2023 and the economy entered a technical recession in the second half of the year. Economists estimated a small negative output gap. Inflation was falling back towards the 2% target, while public sector net debt was close to 100% of GDP.
Extract 3: Proposals to raise growth include planning reform to speed up building of homes and infrastructure, permanent full expensing of investment for tax purposes, more spending on skills and childcare, and closer trading links with the EU.
Section A — Data: The UK household energy market
Extract 1: The regulator Ofgem sets a price cap on standard variable energy tariffs. The cap for a typical household reached £3549 a year in October 2022, though the government's Energy Price Guarantee limited bills to £2500. By mid-2024 the cap had fallen to about £1690 as wholesale gas prices fell.
Extract 2: More than 25 small suppliers went bust in 2021–22 because they had sold energy at fixed prices without buying it in advance. Their customers were moved to the remaining large suppliers. The market is now dominated by a handful of firms.
Extract 3: Energy producers made record profits. The government introduced an Energy Profits Levy (a windfall tax) on oil and gas producers, while offering investment allowances for new production. Environmental groups argued that support should go to renewables and home insulation instead.
1(a)5 marks
With reference to Extract 1, calculate the percentage fall in the price cap between October 2022 and mid-2024, and explain why it fell.
1(b)8 marks
Examine the effects of the collapse of small suppliers on competition in the energy market.
1(c)12 marks
Discuss the case for a windfall tax on energy producers.
1(d)25 marks
Evaluate the effectiveness of government intervention in the household energy market. Refer to the extracts and your own knowledge.
Section B — Data: UK productivity and economic growth
Extract 1: UK output per hour worked grew by around 2% a year in the decade before 2008. Between 2008 and 2023 it grew by only about 7% in total. Business investment as a share of GDP is lower than in most G7 economies.
Extract 2: Real GDP growth was around 0.1% in 2023 and the economy entered a technical recession in the second half of the year. Economists estimated a small negative output gap. Inflation was falling back towards the 2% target, while public sector net debt was close to 100% of GDP.
Extract 3: Proposals to raise growth include planning reform to speed up building of homes and infrastructure, permanent full expensing of investment for tax purposes, more spending on skills and childcare, and closer trading links with the EU.
2(a)5 marks
With reference to Extract 1, calculate the average annual growth in output per hour from 2008 to 2023 and compare it with the pre-2008 trend.
2(b)8 marks
With the help of an AD/AS diagram, examine why the UK experienced a negative output gap in 2023.
2(c)12 marks
Discuss whether full expensing of investment is likely to increase the UK's long-run growth.
2(d)25 marks
Evaluate the policies proposed in Extract 3 as ways of raising UK economic growth when public sector net debt is close to 100% of GDP.
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This paper is written by Plasmo in the style of the Edexcel A-Level Economics exam. It is not a past paper and is not produced or endorsed by the exam board.
Edexcel A-Level Economics Mock Exam: Paper 3: Microeconomics and macroeconomics | Plasmo