A-Level Economics Model Answers
Evaluate the economic case for and against leaving the provision of renewable energy to the free market.
Here is a question and answer from the market failure section of the A-level Economics syllabus.
This question is an ‘evaluate’ question - the type of question students need to practice their exam technique. In some exam boards, this is the ‘25 marker’.
I have seen so many capable students drop a few marks on these sorts of questions simply because they do not evaluate the scenario with enough scope.
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Evaluate the economic case for and against leaving the provision of renewable energy to the free market.
The question asks you to provide an argument for and against free market provision in the energy market. You should try and structure an argument around why the free market is preferable and alternatively, why a market with intervention may be better. Throughout, you should aim to explain your points using economic theory and the extract. You should also look to consider the weight of your points (evaluation).
FREE Model Answer Guide
Possible Definitions
Definition of market failure - the inability of the free market to generate maximum social welfare given scarce resources
Definition of government intervention - the government response in a mixed economy to a failing market, the aim being to maximise social welfare
Definition of government failure- when the government intervenes in a failing market and reduces social welfare in some way
Arguments
Arguments For Free Market
- the rationing function of prices to preserve resources
Government intervention often fails
- inefficient allocation of resources
- X-inefficiencies
- opportunity costs (look at the extract for evidence)
- attraction to nuclear energy
Free market aims to do what is efficient
- provision of cheap energy
- well-run businesses stay in the market
Consumers want cheap energy
- how can we know the market inefficient?
Inequality
- Relate the issue of non-renewable vs renewable energy to the problem of inequality
Taxes
- Government pays for the setup and maintenance of renewable energy with taxpayer money
- taxes could rise
Argument Against the Free Market (For Intervention)
Negative externalities (production)
- caused by free market mechanism
- free market favours non-renewable resources
- give examples
Negative externalities for renewable energy
- caused by government building of renewable wind farms - “eyesore”
Scarcity
- What happens when non-renewable energy resources run out? Relate to the economic problem.
Capability
- Is the market able to provide renewable energy on its own? What does the price mechanism tell us about that?
- Is the market able to produce all kinds of renewable energy, or only some?
A diagram you could use
- Negative production externalities diagram
Evaluation statements
- Consider the short-run and long-run impacts of both free market and government intervention.
- Provide alternative real-world solutions where the government and free market work well together.
- Likelihood of government failure or failure of the free market.
- Consider government CBA and could this reduce the likelihood of failure?
- Use examples from the real world - examples are Ukraine, the Chernobyl disaster in 1986 and Fukushima 2012 - these are still referenced but perhaps nuclear power technology can be improved and made safe? E.g. Bill Gates and TerraPower project
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