Economics 9708/41 — May/June 2015
Cambridge A-Level · A Level Data Response and Essays · worked solutions for every part, with the mark scheme
Topics Government Policies to Correct Market Failure · Market Structures · Economic Growth and Sustainability · Efficiency and Market Failure · Utility Theory · Indifference Curves and Budget Lines · +9 more
A fuel shortage slows India’s economic growth
India has struggled to provide enough electricity to power its industry. New power stations have been built but the country cannot get enough fuel, mainly coal, to run the power stations. About 55% of India’s electricity is generated by the use of coal. India has one of the world’s largest reserves of coal but has not been able to exploit it. The state-owned Coal India, which has a monopoly control of 80% of production, is required by government policy to sell coal at a 70% discount below the market price.
There has been almost no new investment in coal production by either the Government or the private sector according to industrialists who struggle with the daily loss of electric power. Coal production increased by 1% in 2012 while electricity-generating capacity increased by 11%. Some coal is imported but this has now become very expensive as India’s chief supplier, Indonesia, has doubled prices of its coal.
Attempts to open new areas to mining have met with strong opposition from environmental regulators who have blocked the plans because, it is claimed, the development would destroy dense forests.
The electricity sector’s problems have contributed to a second year of decreasing economic growth for India. The growth rate was 10% in 2010 but only an estimated 7% in 2012. A complex system of price controls has resulted in retail electricity prices being lower than the cost of producing power, which has caused large losses at state-owned electricity-generating industries.
Businesses report that frequent losses of electric power have forced them to lower production and spend significantly more on diesel fuel to run back-up generators. Analysts say that the reduced rate of economic growth could have been avoided if policymakers had addressed the problems of electricity shortage, weak infrastructure and restrictive regulations.
The gap between demand and supply for electricity increased between 2010 and 2012 as shown by Table 1.
Table 1: Electricity use in India, 2010–12
| Excess of electricity units demanded over units supplied 2010–2011 | Excess of electricity units demanded over units supplied 2011–2012 | |
|---|---|---|
| Normal use | 8.5% | 10.3% |
| Peak use | 9.8% | 12.9% |
Source: Adapted from The New York Times
Define economic growth and identify two reasons for India’s decreasing economic growth.
Analyse whether the increase in electricity-generating capacity in 2012 overcame the problems reported by businesses.
Consider whether the above evidence about Coal India conflicts with the economic analysis of a monopoly.
Use evidence from the information given to analyse whether the government policy towards Coal India has been only disadvantageous to businesses and to economic growth in India.
The rest of this paper
6 more questions- Q2Efficiency and Market Failure · Government Policies to Correct Market Failure25M
- Q3Utility Theory · Indifference Curves and Budget Lines25M
- Q4Wage Determination and Labour Market Intervention · Demand for and Supply of Labour · Government Policies to Correct Market Failure25M
- Q5Market Structures · Performance of Firms in Different Market Structures · Costs of Production · Short-Run and Long-Run Production25M
- Q6The Multiplier and National Income Determination · Effectiveness of Macroeconomic Policies25M
- Q7Economic Development and Living Standards · Characteristics of Countries at Different Levels of Development25M