2020 Paper 1 Flashcards
Refer to Figure 1. Explain the likely effect of the change in subsidy levels between 2017 and 2018 on rail fares.
Include a supply and demand diagram in your answer. (5)
-Supply shifts right
-Subsidy is grant given by gov to cut in cost of production
-Decreasing costs are passed on to consumers as a fall in rail fares
Ap:
subsidy rises from £277 million to £287.9 million (1)
With reference to Figure 2, examine two possible factors which may have influenced demand for rail travel since 2008 (8)
One reason is rising incomes [K]. In 2008 there were 50 billion passenger kilometres travelled which rose to 65 billion in 2018 [Ap]. As incomes rise, demand for normal goods such as rail travel rises [An]
Secondly, changing tastes and preferences [K]might have led to a 30% rise in passenger kilometres by train between 2008 and 2018 [Ap].
Using the train instead of substitutes such as cars is more environmentally friendly, so demand for train travel would rise [Anl
However. the recession in 2008-9 caused incomes to fall [El and train services are less convenient than private transport with many delays and cancellations, so other reasons like a rising population might be more significant causes [E]
Assess whether complete nationalisation of the rail industry might protect employees (10)
Nationalisation could help protect rail employees by ensuring greater job security [K]. Under privatisation, private firms may cut unprofitable routes, reducing staff numbers. In contrast, a government-run rail network is more likely to maintain these services, ensuring continued employment [An] This was seen when the East Coast line was renationalised in 2018, preventing further job losses
However, government funding is limited, and nationalisation does not guarantee job security [E]. If the government faces budget constraints, it may be forced to reduce spending on rail services, leading to staff cuts in the long term [E]. Public-sector efficiency pressures could also result in wage stagnation rather than job protection
Another way nationalisation may protect employees is through stronger trade union influence [K]. Public sector workers often have more bargaining power, allowing unions to negotiate for higher wages and improved conditions [An]. Rail employees may also benefit from public sector wage setting, which could lead to reduced pay inequality across the industry [Ap]. Level 3 KAA
However, higher wages are not guaranteed under nationalisation [E].
Government control could result in pay caps, particularly for specialist managers, which may deter skilled workers from joining the industry [E].
Additionally, lack of investment in rail infrastructure due to limited government funds could make the industry less attractive for workers, reducing its long-term stability
With reference to Extract A, paragraph 3, discuss whether the rail network can be considered to be a natural monopoly (12)
The UK rail network has 32,000 km of tracks and 2,500 stations, requiring massive investment, which supports the argument that it is a natural monopoly. The extract states that the rail network was renationalised in 2001, showing that privatisation did not create effective competition. The graph illustrates this, as the long-run average cost (LRAC) continues to fall as output increases, showing that operating a single rail network minimises costs.
Akey reason for this is large infrastructure costs. Once tracks and stations are built, the cost of adding extra passengers or running additional trains is relatively low, meaning the average cost per customer continues to fall. The diagram supports this, as the demand curve (D) intersects the downward-sloping LRAC curve, indicating that allocative efficiency is met at a high output level. If multiple firms operated separate rail networks, duplication of infrastructure would lead to higher costs and rail fares.
However, there is evidence that the rail network may not be a natural monopoly. The extract states that private companies bid to run rail services, suggesting that competition already exists on certain routes.
Additionally, the government supports competition by allowing firms to bid for new rail lines, which could introduce greater contestability. Level2 E
Furthermore, diseconomies of scale may exist in a nationalised rail system. A single operator may suffer from inefficiency, with bureaucratic decision-making and misallocation of resources, reducing the benefits of economies of scale.
Discuss the likely benefits of price discrimination to rail passengers. Use a diagram to support your answer. (15)
Rail operators use price discrimination by charging different fares to different consumer groups. A single off-peak train journey from Edinburgh to Leeds costs £105.30 for an adult but only £69.50 for a 16-25 Railcard holder [Ap].
This benefits younger travellers by making rail travel more affordable [An].
With lower fares, young people may travel more frequently, accessing employment and education [An]. The diagram shows that without price discrimination, the profit-maximising price would be P3, with demand at Q3.
However, charging a lower price P2 increases demand to Q2, improving accessibility.
However, not all passengers benefit.
Adults without railcards may face higher fares to compensate [E]. Price regulation also limits how much rail operators can adjust prices [E]. The diagram illustrates that those paying Pl effectively cross-subsidise discounts for price-sensitive consumers [E]. If peak fares rise too much, affordability for regular commuters may decline
Another advantage is that price discrimination reduces overcrowding by shifting demand to off-peak times
[K]. Lower fares for young passengers encourage off-peak travel [Ap]. This improves efficiency by ensuring more seats are filled throughout the day [An] The diagram highlights how rail operators expand total rail usage by charging different prices to different groups, preventing congestion at peak times
However, overcrowding may still occur if discounts attract too many off-peak travellers [E]. Rail operators may also cut service quality to offset lower fares, reducing benefits for
passengers [E]. If investment in trains and facilities does not match rising demand, even discounted travellers at P2 may experience worsening service
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