Download Mark scheme for bioenergy data response

Supply and demand: data response answers
1. (a) Explain the meaning of the following terms:
(i) Substitute
1
2
Vague definition
The idea that it is an alternative for something else
2
1 mark
Precise definition
Substitutes are goods/services in competitive demand and act as replacements for
another product.
2 marks
(ii) Subsidy
1
2 marks
Vague definition
Money given to producers
2 marks
1 mark
Precise definition
Payments made by the government to producers to encourage production and
consumption
2 marks
(b) Using an appropriate diagram, explain how the effect of a subsidy given to
producers of corn for ethanol on the price of biofuel in the U.S.
4 marks
1
Identification of appropriate theory
For explaining that a subsidy will lower the costs of production of ethanol/biofuel for
producers, therefore increasing supply and lowering equilibrium price OR by drawing a
demand/supply diagram showing the supply curve for producers of ethanol shifting out,
lowering equilibrium price and increasing equilibrium quantity.
1-2 marks
2
Correct application of appropriate theory
For explaining that a subsidy will lower the costs of production of ethanol/biofuel for
producers, therefore increasing supply and lowering equilibrium price AND by drawing a
demand/supply diagram showing the supply curve for producers of ethanol shifting out,
lowering equilibrium price and increasing equilibrium quantity.
3-4 marks
(c) Using an appropriate diagram, explain the effect of an increase in the supply of
biofuel on the market for petrol in Brazil.
4 marks
1
Identification of appropriate theory
For identifying that the increase in supply of ethanol will lower its price making it more
competitive against alternatives like petrol. This fall in the price of a substitute will cause
demand to fall for petrol in Brazil OR by drawing a demand/supply diagram showing the
demand for petrol falling, causing a decrease in equilibrium price and quantity of petrol.
1-2 marks
2
Correct application of appropriate theory
For identifying that the increase in supply of ethanol will lower its price making it more
competitive against alternatives like petrol. This fall in the price of a substitute will cause
demand to fall for petrol in Brazil AND by drawing a demand/supply diagram showing
the demand for petrol falling, causing a decrease in equilibrium price and quantity of
petrol.
3-4 marks
d) Using information from the text and your knowledge of economics, evaluate the
decision by the U.S. government to subsidise biofuel production.
8 marks
Answers may contain:
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Opportunity cost to the government of the $6bn in subsidies the ethanol
industry receives a year
A realisation that other countries (Brazil) are more efficient at producing
better quality ethanol and therefore ethanol could be imported from lower cost
countries
The contribution of ethanol production to the increase in global food prices (330%)
The lower carbon emissions resulting from using ethanol as a biofuel (but not
that much lower than petrol)
The large amount of fuel and fertiliser that is used in ethanol production.
Evaluation could examine the short term and long term consequences, advantages and
disadvantages or the impact on various stakeholders- owners, consumers, the
government, petrol industry etc. Examiners should be aware that candidates may take
a different approach which if appropriate should be fully rewarded. If there is no
direct reference to the data, then candidates may not be rewarded beyond Level 2.
Level
0
No valid discussion.
0
1
Few relevant concepts recognized.
Little discussion or only basic understanding.
1-2
2
Relevant concepts recognized and developed in reasonable depth.
Some attempt at application and analysis.
3-5
3
Relevant concepts developed in reasonable depth, demonstrating effective
evaluation, supported by appropriate evidence or theory.
6-8