Oxford Cambridge and RSA
Monday 23 May 2022 – Afternoon
A Level Economics
H460/01 Microeconomics
Time allowed: 2 hours
You can use:
* 8 9 6 6 5 7 6 5 5 6 *
• a scientific or graphical calculator
* H 4 6 0 0 1 *
Please write clearly in black ink. Do not write in the barcodes.
Centre number Candidate number
First name(s)
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INSTRUCTIONS
• Use black ink. You can use an HB pencil, but only for graphs and diagrams.
• Write your answer to each question in the space provided. If you need extra space use
the lined pages at the end of this booklet. The question numbers must be clearly shown.
• Answer all the questions in Section A, one question in Section B and one question in
Section C.
INFORMATION
• The total mark for this paper is 80.
• The marks for each question are shown in brackets [ ].
• Quality of extended response will be assessed in questions marked with an asterisk (*).
• This document has 20 pages.
ADVICE
• Read each question carefully before you start your answer.
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DC (RW/FC) 300291/4 Turn over
, 2
SECTION A
Read the following stimulus material and answer all parts of Question 1 which follow in this section.
Changing consumer trends in the UK?
Renewable energy sources, including wind, solar power and biomass, now provide more electricity
to UK homes and businesses than fossil fuels, such as coal and gas. This was first achieved in the
third quarter of 2019, see Fig. 1.
Fig. 1
UK electricity generation per quarter (measured in Terawatt hours)
Fossil fuels Renewables
90
80
70
60
Terawatt 50
hours
40
30
20
10
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: CarbonBrief
Coal is now used for less than 1% of electricity generation in the UK, with only four coal-powered
5 plants remaining, ahead of a ban in 2025. Gas is the largest fossil fuel (38%) in the UK energy
system. In terms of renewable energy sources, wind power is the UK’s largest, making up 20%
of the UK’s electricity, followed by 12% from biomass and 6% from solar power. Nuclear power
provides the remainder of the UK’s electricity.
Kwasi Kwarteng, the government minister for energy and clean growth, said the renewables
10 record is, “…yet another milestone on our path towards ending our contribution to climate change
altogether by 2050. We’ve cut emissions by 40% while growing the economy by two thirds since
1990. Now, with more offshore wind projects on the way at record low prices we plan to go even
further and faster in the years to come.”
One of the largest firms in the UK is Shell, a multinational company. It provides 10% of the UK’s
15 oil and gas, employs about 6,000 people and serves over 5 million customers every week at more
than 1,000 fuel service stations. It has the third largest number of fuel service stations, behind
Tesco and BP.
However, Shell now faces the prospect of no more petrol cars, lorries running on liquid gas, and
solar or wind powered homes and businesses. Even the fuel service station is changing, with
20 most now seen as a retail outlet where people can do their food shopping, pick up a parcel or
drink a coffee. Managers at Shell have taken all of these changes very seriously, as they attempt
to reinvent the company which is also faced with new climate change targets. Some experts have
compared the changes to a new industrial revolution.
© OCR 2022
, 3
Shell’s managers have already taken some big decisions. Shell has bought a company which
25 makes electric vehicle (EV) charging points for homes and workplaces. It has also bought a
supplier of electricity and gas in the UK. Shell’s managers see a time when the business will
supply all of an individual’s energy needs.
Shell is trying to take the lead in EV charging points for battery-powered cars. At present, less than
2% of cars on UK roads are battery-powered. However, by 2040 a third of all vehicles could be
30 electric. Shell believes it is well placed to take advantage of this growing market, as it has already
launched a ‘rapid recharge service’ which uses 100% renewable energy. It announced the opening
of its 50th EV charging station in October 2019. Given its large number of fuel service stations and
its strong position in the market, Shell plans to install hundreds more charging stations around
the UK.
35 The growth in EV charging stations will be necessary if the UK government’s ‘Road to Zero’ strategy,
to ban the sale of new petrol cars by 2030, is to be successful. As part of this strategy, more taxes
may be imposed to change the marginal private cost of using petrol cars, so that the price paid is
closer to the marginal social cost inflicted on society. Once the price of battery-powered cars falls
to a level closer to that of petrol cars, the use of a subsidy may also be beneficial.
40 One of the largest costs of running a petrol car is the petrol. The demand for petrol appears to be
significantly price inelastic. A 2019 review of over 100 pieces of research about the price elasticity
of demand for petrol found it to have a value of –0.26 in the short run and –0.58 in the long run.
Another limit on the growth of battery-powered cars is the cost of producing the batteries. Many
experts say that a battery-powered car cannot be price competitive until the cost of a battery falls
45 below $100 per kilowatt hour (kWh), see Fig. 2.
Fig. 2
Global car battery production
Output Cost per
(millions) kWh ($)
40 200
Cost per kWh
35
Output
30 150
25
20 100
15
10 50
5
0 0
2018 2025* 2030*
*Estimates
Source: Daily Telegraph
Some experts argue that the structure of this market will affect progress as, along with the energy
and power generation markets, it is really a natural monopoly.
© OCR 2022 Turn over
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1 (a) Explain what is meant by the term ‘subsidy’.
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(b) “…more taxes may be imposed to change the marginal private cost of using petrol cars, so
that the price paid is closer to the marginal social cost inflicted on society.” Lines 36–38
Explain, using an appropriate diagram, how this could be achieved.
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© OCR 2022
