June 2017: AS Paper 1

Mark scheme

Examiner's comment

Most candidates achieved 1 mark by defining opportunity cost. This question polarised performance with a significant number ignoring the ‘marginal’ content of the question, many calculated the opportunity cost cumulatively in the column provided. Top marks were awarded for completing the columns correctly using marginal analysis and referring to the table for contact to define opportunity cost to score the third mark. This answer achieved 3 out of 3 marks. The candidate began by accurately completing the table as instructed, (1 Application mark). They then provided an accurate, concise definition of opportunity cost (1 Knowledge mark) before linking this as an example to the opportunity cost of the economy of moving from consumer goods to capital goods is initially small compared to gains in production. This was made using numerical references (1 Analysis mark) and the marginal opportunity cost increases again made numerically explicit. Make sure you use the table provided and any calculations you have made to answer the question set. This answer achieved 1 out of 3 marks. The definition provided was correct (1 Knowledge marks). Application was missing from the table with no attempt to complete it and confused in the written response (0 mark for Application). A PPF diagram was drawn but the attempt to link it to the question set was not clear (0 mark for Analysis). It is good practice to start with a definition, but look carefully at what the question is asking you to do with the concept – in this case ‘using marginal analysis’.

Notes from the mark scheme and report

• complete the column marginally: opportunity costs 2, 4, 6, 8, 10, 12 units of consumer goods per extra 10 capital goods (at least two calculations)
• many calculated cumulatively and ignored 'marginal'
• analysis = increasing opportunity cost, PPF concave to the origin

Quantitative skills: QS 9 (interpret, apply and analyse information in written, graphical tabular and numerical forms)

Answer

B

Mark scheme

Notes from the mark scheme and report

• more capital goods raise productive capacity, shifting the PPF outward (B)
• not linked to less specialisation, marginal utility or demand for consumer goods

Mark scheme

Examiner's comment

The most common correct definition was for a benchmark year or words to that effect. Sixty-four percent of candidates answered this correctly. This answer achieved 1 out of 1 mark. A definition of ‘base year’ was accurately provided (1). The mark scheme accommodates a range of accurate economic definitions for ‘base year’. Concise accurate answers for 1 mark are the best approach. This answer achieved 1 out of 1 mark. A definition of ‘base year’ as ‘benchmark year’ was accurately provided (1). The mark scheme accommodates a range of accurate economic definitions for ‘base year’. Concise accurate answers for 1 mark are the best approach.

Notes from the mark scheme and report

• the year against which all other values in the series are compared (benchmark year = 100)
• 64% answered correctly

Quantitative skills: QS 5 (calculate and interpret index numbers)

Mark scheme

Examiner's comment

Seventy percent of candidates achieved full marks on this question. Many candidates entered the data into the column. For those only using the answer space there was evidence of lots of working so it was important for them to clearly identify their final answer. It is advisable to show your working for your own benefit to avoid computational errors. This answer achieved 2 out of 2 marks. This answer achieved 2 out of 2 marks and could have alternatively inserted the accurate figures in the boxes provided. You can simply provide the correct answers and move on if you are certain.

Notes from the mark scheme and report

• 2011 = 15 257 / 14 878 x 100 = 102.5
• 2012 = 13 261 / 14 878 x 100 = 89.1 (accept 102 to 103 and 89 to 89.2)
• show working or fill the table

Quantitative skills: QS 5 (calculate and interpret index numbers); QS 9 (interpret, apply and analyse information in written, graphical tabular and numerical forms)

Answer

B

Mark scheme

Notes from the mark scheme and report

• (16 129 - 16 606) / 16 606 x 100 = -2.87% (B)
• C divides by the 2015 figure, D is the absolute change in thousand tonnes

Quantitative skills: QS 2 (calculate, use and understand percentages, percentage changes and percentage point changes); QS 9 (interpret, apply and analyse information in written, graphical tabular and numerical forms)

Mark scheme

Examiner's comment

This was a high scoring answer. The most common answers referred to government grant or encouraging consumption or production usually in context. This answer achieved 1 out of 1 mark. Definition of ‘subsidy’ was accurately provided (1). The mark scheme accommodates a range of accurate economic definitions for ‘subsidy’. Concise accurate answers for 1 mark are the best approach. It is important you do not confuse definitions with causes or effects and thereby fail to answer the question. This answer achieved 1 out of 1 mark. The shift supply outwards if provided as the only response would not have been awarded but government intervention encouraging production was awarded.

Notes from the mark scheme and report

• a government grant to producers to encourage production or consumption
• do not give the effect (supply shifts out) as the definition

Answer

C

Mark scheme

Notes from the mark scheme and report

• removing the subsidy shifts supply left, raising price and cutting quantity, so consumer surplus falls (C)
• producer surplus falls and government spending falls
• solar panels are not a public good

Mark scheme

Examiner's comment

Just over eighty percent of candidates had little trouble in obtaining full marks by making effective annotations of the diagram. A significant number of candidates lacked precision, losing a mark for not labelling the new curve or equilibrium points. This candidate achieved 2 out of 2 marks. Clear and confident annotations was provided identifying the new supply curve drawn and labelled, showing a shift inwards, and the new equilibria labelled showing a rise in price and decrease in quantity. Ensure you fully label accurate diagrams to obtain full marks. This answer achieved 1 out of 2 marks. The shift inwards in supply was accurate but not labelled. The new equilibria points were more than fully obtained and were awarded 1 mark. Ensure when you practice drawing diagrams they are always fully labelled.

Notes from the mark scheme and report

• draw and label the new supply curve shifted left and label the new equilibrium (higher price, lower quantity)
• a significant number lost a mark for not labelling the new curve or equilibrium
• command word is 'Annotate'

Quantitative skills: QS 4 (construct and interpret a range of standard graphical forms)

Mark scheme

Examiner's comment

The more able responses for this question immediately identified surplus on a diagram or a written definition, there was some confusion with excess demand for some candidates. The price mechanism in a free market was usually addressed confidently with reference to signalling or the price falling below $530 on their diagram or in written form for application. The most common limitation to candidate answers was despite many good diagrams the absence of analysis in explaining the diagram in context, with few discussing extension in demand/contraction in supply or annotating their diagrams fully as shown in the mark scheme. A number of candidates wrote in great detail about the price mechanism but failed to apply it to the context. This answer achieved 3 out of 3 marks. A clear, concise and well-structured answer, based around a fully labelled accurate diagram, was provided. The candidate immediately identified the price mechanism in a free market rations (reallocates) resources (1 mark for application) then using their diagram defined at P1 excess supply (1 mark for knowledge). The use of signalling (1 Application) to contract supply (1 Analysis) and incentive (1 Application) to extend demand as illustrated (1 analysis) ensured full marks. Note a maximum of 1 mark for application and 1 mark for analysis was available. It would have been good to have seen reference to steel in the answer but there was plenty of application as awarded in the mark scheme for price mechanism. A carefully drawn diagram can be a useful aid to structure your response around. This answer achieved 1 out of 3 marks. The diagram was not fully labelled but was sufficient for identifying excess supply and the diagram was explained regarding the definition (1 Knowledge). The next paragraph regarding a decrease in demand was unclear and inaccurate (0 Analysis). Finally the second attempt at defining excess supply lacked precision and alone would not have been awarded (0 Knowledge). Take care to revise all concepts in the specification. A lack of understanding regarding the price mechanism hindered this response.

Notes from the mark scheme and report

• define excess supply or surplus
• price falls (below $530) as a signal and incentive, supply contracts and demand extends to a new equilibrium
• many good diagrams lacked the analysis and context
• some confused it with excess demand

Answer

D

Mark scheme

Notes from the mark scheme and report

• lower indirect taxes cut the price of steel products, raising consumption and output and so carbon emissions (D)
• permits, closing steel plants and subsidies for clean technology all reduce emissions

Mark scheme

Examiner's comment

The more able responses for this question accurately defined excess demand and clearly identified it in a fully labelled diagram which was then briefly explained in context. There was some confusion with excess supply for some candidates. As with 4(a) the most common limitation to candidate answers was despite many good diagrams the absence of analysis in explaining the diagram in context , with few providing linked development indicating the maximum price was below the equilibrium price or reference to extension in supply/contraction in demand or annotating their diagrams fully as shown in the mark scheme. The most common application mark was reference to candidates being more able to afford higher education, marks were often lost by failing to explain the decrease in fees made them more affordable. This answer achieved 3 out of 3 marks. The initial sentence unpacked the data to provide the economic concept of a maximum price carefully explained and then later illustrated (1 Analysis). The diagram drawn was accurate and carefully applied the initial maximum price of £9,000 (1 Application) further to this the candidate added that ‘more people would be able to afford the fees’ (1 Application). Finally the definition of excess demand was provided with reference to the diagram, although a little benefit of doubt was given here aided by the arrows provided (1 Knowledge). Without the definition being provided this response would have obtained 2 out of 3 marks. When using a diagram make use of clear and precise labels. This answer achieved 2 out of 3 marks. Whilst the diagram ensured the definition of excess demand (shortage) was clear (1 Knowledge) there was no reference to the data in the diagram (0 Application). The explanation clearly provided linked development of the diagram (1 Analysis) but again did not attempt to apply from the source provided or the context of the question regarding university places (0 Application). Take care reading the question so that you answer it in full, some candidates did not pick up the application mark for university education.

Notes from the mark scheme and report

• the fee cap is a maximum price set below equilibrium: demand extends (more affordable at £6 000) while supply of places contracts, giving a shortage
• define excess demand
• most common loss was the analysis mark

Answer

A

Mark scheme

Notes from the mark scheme and report

• university education has external benefits, so MSB exceeds MPB (A)
• it is a normal good, not a public good, and the social optimum quantity is greater than the market quantity (not D)

Mark scheme

Examiner's comment

The question required candidates to explain why ‘bans on tobacco advertising’ may result in a fall in revenue. Most candidates started with a diagram and explained how the ban would shift demand to the left. More able candidates then clearly defined revenue in their written explanation or by identifying in their diagram and went on to explain or clearly illustrate the fall in revenue. Almost all candidates drew a well-labelled and accurate diagram showing the shift but marks were lost by failing to define revenue or show the effect on revenue in the diagram, in some cases there was confusion with profit. 5 out of 5 marks awarded. The answer began with applying the ban to a shift inwards in demand as illustrated (awarded 1 mark for Application). There then followed further relevant application regarding consumers but this had already been awarded. The candidate then defined revenue (1 Knowledge). Finally the candidate explained the decrease in revenue with a careful reference to a relevantly shaded diagram (+1 Application as well as identifying revenue worth 1 Knowledge). The diagram clearly showed the shift left in demand and the new equilibrium, aided by relevant arrows (1+1 Analysis). Always make explicit use of your diagram when asked to draw one to answer the question set; in this case illustrating the decrease in revenue of tobacco firms. 3 out of 5 marks awarded. The candidate started by mostly repeating the question set before finally linking the ban to a decrease in demand (1 Application mark). The candidate then illustrated the shift in demand and explained the new equilibrium (1+1 Analysis). There was no attempt to define or identify diagrammatically the fall in revenue so there was no mark for Knowledge and no additional mark for Application. Ensure you provide a clear definition of the key term required and make it central to your answer.

Notes from the mark scheme and report

• the ban reduces consumption, shifting demand left
• define revenue (P x Q) and show the smaller revenue area on the diagram
• marks were lost for not defining revenue or confusing it with profit

Quantitative skills: QS 4 (construct and interpret a range of standard graphical forms)

Mark scheme, including the levels grid and indicative content

Examiner's comment

The question required candidates to assess the view that tobacco consumers switching to e-cigarettes is an example of rational behaviour. It proved to differentiate effectively between the quality of responses particularly at the top and lower end of the mark range. Typical responses carefully used the data to identify rational behaviour drawing on Figure 1 price comparisons, tobacco tax increases in Extract A or health concerns in Extract B. Level 2 responses tended to limit themselves to using the data and their own knowledge and only a confident understanding of the concept of rational behaviour in context could access Level 3. As a consequence many answers to this question followed a similar pattern with financial gains and health concerns being most common, more able candidates used the data to support their answers and discussed concepts such as utility. Some candidates were able to correctly define rationality although many thought it was predictable or sensible behaviour. This was a high scoring question with the majority of candidates using the data to evaluate fully. There was little evidence of candidates flipping KAA and EV, which was awarded as the mark scheme allowed. Responses which provided thin evaluation by just mentioning magnitude of price differences or tax rises only achieved a Level 1 evaluative award. Level 2 evaluation often referenced the data with information gaps as to the benefits or brand loyalty of cigarettes often coming up. 10 out of 10 marks awarded. The candidate achieves all 6 Knowledge, Application and Analysis marks available by securely achieving top Level 3 (L3KAA) in their first paragraph. They immediately answer the question by defining rational behaviour and linking their understanding in a fully integrated context. The candidate then demonstrates their evaluative skills in the second paragraph which carefully applies herding behaviour as irrational behaviour in context, achieving Level 2 evaluation (L2 EV). The final paragraph includes another evaluative comment raising the issue of computational problems with measuring welfare benefits in depth and in context. Given the quantity and quality of evaluation there is a case for flipping KAA and EV, to guarantee full marks, as indicated on the mark scheme. Make sure you develop key knowledge with concise explanations and precise use of data. Similarly, well-balanced evaluation will also be well explained and in context as in this example; albeit perhaps not so extensive given time constraints. 4 out of 10 marks awarded. This candidate starts by not correctly defining rational behaviour. The reference to health benefits is thin and borderline Level 1 or Level 2 KAA. The candidate then raises the issue of possible computational problems with lack of information but it is unclear and not totally convincing, receiving low Level 1 Ev and lifting the KAA award slightly. It received Level 2 and Level 1e – = 3+1Ev. It is essential that candidates take the time to carefully structure their responses. In this case using the data to identify rational behaviour; then identifying reasons for not being rational using the information provided. Careful revision of all Theme 1 concepts also helps ensure a candidate is not second guessing their response as they work through it.

Notes from the mark scheme and report

• rational: cheaper per cigarette (48p vs 7p), health gains (Extract B), utility maximisation
• against: information gaps and weak computation, habit and addiction, herd behaviour
• many thought rational meant predictable or sensible
• arguments either way count as KAA or evaluation

Quantitative skills: QS 9 (interpret, apply and analyse information in written, graphical tabular and numerical forms)

Mark scheme

Examiner's comment

The question asked candidates to explain how changes in the price of tobacco cigarettes may affect the demand for e-cigarettes over time, given tobacco cigarettes and e-cigarettes are considered to be substitutes. High scoring candidates confidently identified a close substitute relationship with a positive cross price elasticity of demand greater than one and explained in context. Knowledge marks proved relatively easy for candidates to score with many identifying the positive relationship and/or giving the formula/definition of XED. Application marks proved harder to score, substitutes both containing nicotine being one of the more common marks. Some diagram were drawn either showing XED relationship, but fewer showing the relationship between the two markets. There was the odd attempt to evaluate which was not required for this type of question. 6 out of 6 marks awarded. The candidate started by defining substitutes through the cross elasticity of demand formula (1 Knowledge) before a linked development of analysing in context (1 Analysis). This was further aided with application to a diagram showing the impact of a price rise in tobacco cigarettes on e-cigarettes (1+1 Application). Finally the candidate gained a further knowledge mark by understanding the substitute relationship ‘switching (1 Knowledge) and analysed this with reference to the magnitude of the price increase (1 Analysis). A good way of achieving maximum marks for an explain question is to carefully go through the concept, in this case the cross elasticity of demand, illustrating your knowledge of the concept as you apply it to the context. 2 out of 6 marks awarded. The opening sentence was not relevant to the question set. There was some understanding of the relationship (1 Knowledge) in the next elongated sentence with a limited example of analysis (1 Analysis). Always look carefully at the question. The initial stem of the question, referred to ‘substitutes’, as this can act as a prompt to guide you to the correct concept to be considered.

Notes from the mark scheme and report

• substitutes with positive cross elasticity of demand: a rise in the price of tobacco cigarettes raises demand for e-cigarettes, more so over time
• application was harder (both contain nicotine, health awareness, Figure 1 prices)
• no evaluation needed

Quantitative skills: QS 8 (make calculations of elasticity and interpret the result)

Mark scheme

Examiner's comment

The question was one requiring use of quantitative skills and provided an accessible question asking candidates to calculate the price elasticity of demand for tobacco cigarettes in high-income countries and in low-middle-income countries. Eighty five percent of candidates achieved full marks by correctly applying the PED formula twice to the data provided in Extract A, lines 11–13. Where marks were lost was an inability to identify the correct formula to perform the calculation. Where the correct formula data was substituted into the formula but the wrong answer was provided this was awarded 1 of the marks available. Answers which simply wrote down an acceptable accurate response, 0.4 and 0.5, were awarded full marks. 4 out of 4 marks awarded. Correct formula identified which if it was done in isolation with no further correct responses would obtain 1 mark. 1 mark was awarded for data located for high income countries and substituted into correct formula used (1 mark). Correct answer ‘-0.4’ was provided (2 marks). 1 mark for data located was awarded for low income countries and substituted into correct formula used (1 mark). Correct answer ‘-0.5’ was provided (2 marks). The written comments explaining what the answers meant were not relevant to the question so were awarded no marks. Accurate working will always receive credit and candidates are strongly advised to show their working in case they make a computational error with the final answer. 1 out of 4 marks awarded. 1 mark was awarded for a correct formula as an alternative for substituting correct figures on up to one occasion. The candidate did not then apply the data to calculate the formula for high and low income countries. Showing your working, including stating the correct formula, may help pick up some marks if you make computational errors.

Notes from the mark scheme and report

• PED = %change Qd / %change P: high income -4 / 10 = -0.4
• low-middle income -5 / 10 = -0.5
• 85% scored full marks
• a correct formula alone earns 1

Quantitative skills: QS 2 (calculate, use and understand percentages, percentage changes and percentage point changes); QS 8 (make calculations of elasticity and interpret the result)

Mark scheme, including the levels grid and indicative content

Examiner's comment

The question invited candidates to assess the likely reasons for the difference in price elasticity of demand for tobacco cigarettes and e-cigarettes, with reference to Figure 1. More able candidates clearly understood the determinants of price elasticity of demand in context and provided a coherent chain of reasoning to access top level KAA. They did not have to cover all the reasons but often covered two in depth, typically the closeness of the substitute given and the proportion of income spent. There were many strong answers on this question, with candidates being able to distinguish and give reasons for the difference in PED. In some cases there was repetition of one reason applied to tobacco and then e-cigarettes. Less able candidates did not know the determinants of PED and often started with defining price elasticity of demand but then became confused by covering determinants which cause shifts in demand rather than determinants of the relative price elasticity of demand determinants. In the evaluation for high scoring candidates some behavioural approaches were often used in conjunction but evaluation typically focused on why the determinant may change over time, e.g. closer substitutes or changes in price often using Figure 1. Top level evaluation made use of the context and provided a clear chain of reasoning, typically completed within two separate evaluative points. Full marks were not always accessed when the answer did not consider the broad elements of the question. 15 out of 15 marks awarded. A confident start was made by concisely defining price elasticity of demand and using the data to identify relative elasticity. This was then followed by a well-structured paragraph on addictiveness of nicotine in tobacco cigarettes linked to it becoming habitual compared to e-cigarettes (Level 3+ KAA). The chain of reasoning was then well balanced with Level 3 evaluation explaining the lack of information linked to how as a new product e-cigarettes may become more addictive over-time (Level 2 EV). The use of data to compare the proportion of income taken up by the two products was then well analysed in context (L3+KAA). The final paragraph then critiqued this by questioning the PED measures and computational problems for consumers in comparing the two products (Level 2 EV). Overall it achieved top Level 3 KAA marks and Level 2 evaluation as an assess question and also achieved top Level 3 evaluation as a discuss question. A well-structured 15 mark response will enable you to more fluidly link knowledge and understanding in context using relevant and focused examples which are fully integrated into one paragraph. This will then enable you to provide linked evaluation to a similar standard. Ensuring the evaluation is balanced and covers the broad elements of the question in depth. 9 out of 15 marks awarded. The initial paragraph defined PED and explained relative price elasticity. The next paragraph obtained a low Level 3 response in looking at the addictive nature of tobacco cigarettes as price inelastic. Whilst the next paragraph started with ‘however’ it covered a separate analytical point regarding health concerns for e-cigarettes to a Level 3 standard. The next page attempted to look at a second factor regarding price-elasticity but linked addiction to habitual behaviour locking in the earlier Level 3. There was a possible separate low Level 2 coverage of brand loyalty. Again the next paragraph whilst beginning with ‘however’ was not convincing as evaluation. The use of the data comparing the price did not go far enough in explaining a clear reason for the different price elasticities, scoring a low Level 1 KAA. The coverage of inferior goods was wrong but the end of the paragraph was worthy of Level 1 evaluation. The diagram and its explanation achieved Level 1. Overall the response achieved Level 3 KAA and Level 1e – evaluation, resulting in 8 + 1e. It is worth planning out your response so that your evaluation offers critical thinking supported by chains of reasoning and appropriate reference to context to achieve top level evaluation. Writing however does not guarantee you evaluative marks.

Notes from the mark scheme and report

• -0.35 vs -1.9: habit and addiction, closeness of substitutes, how broadly defined, proportion of income
• Level 3 needs both tobacco and e-cigarettes
• weaker answers gave factors that shift demand instead of determinants of PED
• evaluate how determinants change over time

Quantitative skills: QS 8 (make calculations of elasticity and interpret the result); QS 9 (interpret, apply and analyse information in written, graphical tabular and numerical forms)

Mark scheme, including the levels grid and indicative content

Examiner's comment

The question required candidates to evaluate the possible advantages of a free market approach to cigarette consumption. The question was significantly less popular than 6(g) and had more polarised responses. Candidates were expected to draw on their own understanding of a free market approach and were aided by the data in Extract B. Top Level 3 or 4 responses provided well-structured balanced responses with often some evidence of planning. They made effective use of the data in Extract B in particular and applied free market theory to non-governmental solutions using market forces, typically covering signals, rationing and incentives. Diagrammatic analysis was not required but when used was accurate and well explained with a solid chain of reasoning. More able answers referred to the substitution effect happening between tobacco and e-cigarettes and made references to utility. Hardly any candidates made a direct reference to Adam Smith or Hayek but their ideas were often implicit in the candidates writing and this was to be expected and awarded a high level. Level 4 answers often drew, in a sophisticated manner, from the broad Theme 1 specification to provide logical chains of reasoning. A key differentiator was the quality of knowledge and understanding of free market approaches, often carefully applied through logical and clear chains of reasoning. Level 2 answers tended to use basic and generic supply and demand analysis or changed the focus of the question to government intervention. Evaluation tended to concentrate on information gaps or the role of government to prevent consumers being exploited and protecting third parties against passive smoking but could often be generic or common-sensical resulting in Level 1 evaluation. Level 2+ evaluation was placed in context and developed with a good chain of reasoning. Best uses of substantiated judgement were sustained throughout in candidates’ responses as they made effective use of positive economics to make judgement calls answering the question by weighing up the free market approach to come to a clear answer to the question set. 20 out of 20 marks awarded. The candidate started by defining free market and after making a confused comment about ‘publicly owned’ provided an accurate definition which was also implicit throughout the essay. The first advantage they focused on was the incentive effect for firms and consumers. The paragraph was well-structured, demonstrating a logical and coherent chain of reasoning in context to a Level 4 standard. The evaluation provided a case for government intervention against the free market which was valid and in context. The second advantage of having a free market was it makes it easier for consumers to switch; there was precise use of theory and focus on context fully integrated to earn top Level 4 (14 KAA). Evaluation was then linked to the need to regulate to prevent consumers switching to unhealthy products and the need to quit to a Level 3 evaluation. The conclusion locks in Level 3 evaluation as it offers a substantiated judgement. By carefully structuring your response it is easier to then offer a sophisticated approach to developing a coherent argument in depth and in context. 8 out of 20 marks awarded. The candidate started with a clear definition and moved on to the first advantage of considering the incentives to firms. This was not explained carefully or in context but there was elements of knowledge and understanding to achieve low Level 2. They then go on to attempt to evaluate by saying the lower cost was not assessed on to consumers but the reason for this was not explained nor was there context, thus achieving a low Level 1 EV. The second advantage provided was consumer sovereignty but this seemed to build on the incentive argument for firms already covered although there was better context here, the response achieved a Level 2 KAA. The attempt to evaluate did not answer the question so was not awarded. Overall they achieved L2 KAA (6 marks) plus Level 1 evaluation (2 EV) = 8/20. The structure is sound but it is essential to use theory and data to ensure you carefully explain it and link your evaluation back to the question.

Notes from the mark scheme and report

• price mechanism (signalling, rationing, incentive), consumer sovereignty and utility, profit motive and competition from e-cigarettes (Extract B), Smith and Hayek
• evaluate with information gaps, externalities, addiction, market power
• far less popular than 6(g) with polarised answers

Mark scheme, including the levels grid and indicative content

Examiner's comment

The question invited candidates to evaluate the impact of government intervention in the cigarette market. This was by far the most popular essay choice and the majority of candidates were able to explain policies and evaluate to a good level. There was much evidence in the data which gave candidates an opportunity to analyse and evaluate possible types of government intervention. Most frequently offered answers were taxation (although often not specified what tax), subsidies (whether of information or for e-cigarettes) and minimum pricing. The most able candidates explained the impact of taxing cigarettes and in most cases moved on to discuss the effects of a minimum price making effective use of mostly Extract A enabling them to access Level 3 and above. Some candidates considered bans in public spaces or subsiding e-cigarettes or nicotine patches. High Level awarding was available for those able to structure their answer and make effective use of the information and accurate well-labelled diagrams where appropriate. Tax and minimum price were usually applied diagrammatically and explained linking to effects on consumption, producer and consumer tax burden, surpluses and effects to consumers. A number of candidates confused minimum and maximum prices and also confused buffer stocks. There was clear differentiation in approach from basic diagrams showing a shift inwards in supply or a minimum price without the surplus identified to fully labelled and annotated diagrams. More candidates would benefit from fully explaining their diagrams. Often candidates illustrated an exkternal cost diagram but did not always succeed in linking it to the question set. Evaluation was often critical of government intervention as ineffective given the price elasticity of demand in the short run or considered it as more effective in the long run if they had already used price inelasticity as part of their analysis typically on taxation. The other main methods of evaluation was considering the unintended consequences of encouraging the hidden economy and missing information on external costs to accurately impose a socially optimum tax. Top level evaluation made effective use of data discussing causes of government failure. Often evaluation was very narrowly focused on unintended consequences focusing on smuggling and thereby not enabling candidates to access Level 3e. Effective sustained judgement balanced government failure against the need for further research and reforms in government intervention and attempted to use positive economics to make the judgement call. 20 out of 20 marks awarded. The candidate started by defining government intervention and decided to focus on the main form of intervention in the cigarette market, ad valorem tax. This was a valid approach as the question did not ask for different methods. The first impact they focused on was internalising the negative externality. The paragraph was well- structured, demonstrating a logical and coherent chain of reasoning in context to a Level 4 standard. The diagram was to a Level 2 standard as it would have been good to see the tax incidence correctly labelled, consideration of the burden and integrated into the answer. The evaluation though does link back to the effectiveness of the tax in internalising the externality in context to a Level 3 evaluation standard. The second impact considered was the use of the tax revenue being hypothecated to subsidise e-cigarettes and an educational campaign; there was precise use of theory and focus in context fully integrated to earn top Level 4 (14 KAA). Evaluation was then linked to the questioning of how much tax revenue would be raised due to the hidden economy and that the negative externalities could be larger due to unintended consequences of government failure (Level 3 EV). The conclusion locked in Level 3 evaluation as it offered a substantiated judgement focused on the effectiveness of the tax depends on how much tax revenue was raised. By linking together precisely and coherently different concepts in context you are more likely to access top level marks in KAA and EV; this candidate exemplifies this. 9 out of 20 marks awarded. After defining government intervention the first impact considered was a basic analysis of supply shifting left and not in context, achieving Level 2 KAA. This was then evaluated well in considering how it could lead to smuggling and whilst it may access low Level 3 evaluation it lacked balance. Another government measure considered was a minimum price but the impact of reducing consumption was not integrated with the incomplete diagram, again achieving Level 2 KAA. Unfortunately the evaluation that then followed repeated the earlier point about smuggling so couldn’t be awarded and became confused at the top of the last page. The conclusion mainly repeated earlier points but there was some application in considering cancer to possibly obtain Level 1. Overall the response achieved Level 2KAA and Level 3Ev – NB (Not Balanced) resulting in 5 & 4e = 9/20. It is important you focus on the key part of the question, in this case the impact of government intervention rather than describing government policies. Ensure your diagrams are carefully labelled and integrated fully into your answers. Finally to avoid repetition a rough plan at the start can help.

Notes from the mark scheme and report

• indirect tax, minimum price, subsidised substitutes, information, regulation and bans with diagrams linked to the negative externality
• evaluate with inelastic demand (PED below 1), smuggling, information gaps on e-cigarettes, government failure
• some confused minimum and maximum prices