June 2017: Paper 1

Mark scheme

Examiner's comment

This is a Theme 1 question and a number of responses only stated the equilibrium price and not the quantity as requested. Candidates need to practice completing such tables as part of their exam preparation. This answer achieves a mark of 4/4. The candidate accurately inserts the data in the last two columns and has calculated the correct equilibrium price (£24) and quantity (9,000). This answer achieves a mark of 4/4. The columns alone would score zero as the measure per month is (000) making the quantity at £24 being 9,000,000. The answer does achieve full marks for going on to identify the new equilibrium as £24 and 9,000. Ensure you are careful with the unit of measure.

Notes from the mark scheme and report

• add 3 to every Qd and 1 to every Qs: new equilibrium £24 and 9 000 kits per month
• "9" alone scores nothing (units are 000)
• report: many gave only the price and not the quantity

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

Answer

C

Mark scheme

Notes from the mark scheme and report

• %change in Qd = XED x %change in P = 0.16 x 5 = 0.8 (C)
• positive because e-cigarettes and tobacco are substitutes
• A and D divide 5 by 0.16
• B just restates the XED with a minus sign

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

Examiner's comment

Another Theme 1 question. In this question it was clear who knew their PED formula and who did not. Candidates need to practice such key calculations as part of their exam preparation. This answer achieves a mark of 2/2. This candidate has got the correct answer of 1.2, a minus or plus sign is allowed. Some margin for rounding up/down is allowed on mark schemes but do try to be as accurate as you can with calculations. This answer achieves a mark of 1/2. This candidate receives one mark for correct calculations of both percentages. However their formula is the wrong way around. A significant minority of candidates made this mistake. Learn your formulas and be careful in applying the formula accurately.

Notes from the mark scheme and report

• PED = %change in Qd / %change in P = -21.65 / 17.78 = -1.2
• 1 mark for both percentages
• report: a significant minority put the formula the wrong way round

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

Examiner's comment

In this question it was clear who knew how to calculate revenue and who did not. A number of candidates lost a mark as 'million' was missing from their answer as the unit of measure. This answer achieves a mark of 2/2. This candidate achieves full marks for providing the correct answer, being £53.9 million. Always ensure you state the correct unit of measurement. This answer achieves a mark of 1/2. This answer can only be awarded 1 mark as million, the unit of measure, is missing.

Notes from the mark scheme and report

• TR = P x Q: £7.20 x 97m = £698.4m and £8.48 x 76m = £644.5m, a fall of £53.9 million
• leaving out "million" loses a mark (common, per report)
• demand is price elastic so revenue falls

Quantitative skills: QS 6 (calculate cost, revenue and profit (marginal, average, totals))

Answer

B

Mark scheme

Notes from the mark scheme and report

• an inferior good has a negative income elasticity of demand (B)
• negative XED means complements, negative PED is normal for any good, PES is a supply concept

Mark scheme

Examiner's comment

In this question it was clear who knew how to calculate subsidy and who did not. A number of candidates lost a mark as 'million' was missing from their answer as the unit of measure. Candidates need to practice similar subsidy and tax diagrams from Theme 1. This answer achieves a mark of 2/2. This candidate achieves full marks for providing the correct answer, being 1,022,400,000. Best practice is always to state the currency. This answer achieves a mark of 1/2. The candidate can only be awarded 1 mark as million, the unit of measure, is missing. Always ensure you state the correct unit of measurement.

Notes from the mark scheme and report

• subsidy per unit = 1023 - 455 = 568 rupees x 1.8 million cylinders = 1 022.4 million rupees
• leaving out "million" loses a mark
• read the subsidy as the vertical gap between S and S1 at the new quantity

Quantitative skills: QS 4 (construct and interpret a range of standard graphical forms); QS 9 (interpret, apply and analyse information in written, graphical tabular and numerical forms)

Mark scheme

Examiner's comment

Most candidates achieved full marks but a significant number of candidates lost a mark as the answers were transposed incorrectly i.e. they identified consumers as receiving 87.55 and producers 12.5%. Candidates need to practice similar subsidy and tax diagrams from Theme 1. This answer achieves a mark of 2/2. Full marks for correctly identifying 12.5% for consumers and 87.5% for producers. Without the correct answers being provided only one mark would have been awarded for correct annotation of diagram. This answer achieves a mark of 1/2. This response has transposed the answers incorrectly. Ensure you carefully follow the instructions provided.

Notes from the mark scheme and report

• consumers gain the fall in price 526 - 455 = 71 rupees: 71 / 568 x 100 = 12.5%
• report: a significant number transposed the consumer and producer shares

Quantitative skills: QS 2 (calculate, use and understand percentages, percentage changes and percentage point changes); QS 4 (construct and interpret a range of standard graphical forms); QS 9 (interpret, apply and analyse information in written, graphical tabular and numerical forms)

Mark scheme

Examiner's comment

Most candidates achieved full marks but a significant number of candidates lost a mark as the answers were transposed incorrectly i.e. they identified consumers as receiving 87.55 and producers 12.5%. Candidates need to practice similar subsidy and tax diagrams from Theme 1. This answer achieves a mark of 2/2. Full marks for correctly identifying 12.5% for consumers and 87.5% for producers. Without the correct answers being provided only one mark would have been awarded for correct annotation of diagram. This answer achieves a mark of 1/2. This response has transposed the answers incorrectly. Ensure you carefully follow the instructions provided.

Notes from the mark scheme and report

• producers receive 1023 - 526 = 497 rupees: 497 / 568 x 100 = 87.5%
• the two shares must sum to 100%
• supply is inelastic so producers gain most of the subsidy

Quantitative skills: QS 2 (calculate, use and understand percentages, percentage changes and percentage point changes); QS 4 (construct and interpret a range of standard graphical forms); QS 9 (interpret, apply and analyse information in written, graphical tabular and numerical forms)

Answer

A

Mark scheme

Notes from the mark scheme and report

• a subsidy lowers the price and raises the quantity, so consumer surplus increases (A)
• the subsidy costs the government rather than raising tax revenue
• cooking gas is a private good, not a public good

Mark scheme

Examiner's comment

This was a straightforward question from Theme 3 that required candidates to fully annotate carefully and correctly. One issue that some candidates faced was incomplete labelling and not carefully identifying the smaller profit/loss box. This answer achieves a mark of 4/4. Full marks are awarded for a fully labelled cost and revenue diagram carefully annotating the fall in profits. . This answer achieves a mark of 0/4. Whilst the shift left in demand is indicated, this answer receives no marks as a cost and revenue diagram was requested. A decrease in Average Revenue and Marginal Revenue would have received one mark. Make sure as you identify whether a Theme 3 cost and revenue diagram or a supply and demand Theme 1 diagram is required. Remember diagrams are an effective way to concisely apply economic theory.

Notes from the mark scheme and report

• cost and revenue diagram: AR and MR shift (or pivot) left, new MC = MR output and price, original and smaller supernormal profit (or loss) areas
• report: a supply and demand diagram scored 0
• label the smaller profit box carefully

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

Answer

B

Mark scheme

Notes from the mark scheme and report

• a 50% market share and strong brand image are barriers to entry, so contestability is low (B)
• concentration would be high not low
• private ownership and specialisation are irrelevant

Answer

D

Mark scheme

Notes from the mark scheme and report

• rent does not vary with output, so it is a fixed cost (D)
• coffee, milk and packaging rise with each cup sold so are variable costs

Mark scheme

Examiner's comment

Most candidates were able to clearly define these terms. The main problem when not awarded a mark was a failure to link to output. This answer achieves a mark of 2/2. This is a full answer identifying the difference related to output (2/2) but also providing examples. This answer achieves a mark of 2/2. A correct explanation is provided.

Notes from the mark scheme and report

• fixed costs do not change as output changes, variable costs vary directly with output
• report: answers lost the mark by not linking the definitions to output

Mark scheme

Examiner's comment

Most candidates were able to calculate correctly. The main problem was a failure to indicate the answer as a unit that clearly could be interpreted in pence between 29 and 30. This answer achieves a mark of 2/2. A clear answer is provided. This answer achieves a mark of 1/2. The wrong answer is provided but one mark is awarded for 13% of £2.27 in their working. It is always advisable to show your working in case of a computational error.

Notes from the mark scheme and report

• profit = 13% of 227p = 29.5p (accept 29 to 30)
• answer must be clearly in pence (report)
• show working to earn a mark for 13% x 227

Quantitative skills: QS 2 (calculate, use and understand percentages, percentage changes and percentage point changes); QS 6 (calculate cost, revenue and profit (marginal, average, totals))

Mark scheme

Examiner's comment

In this question it was clear which candidates knew what the four firm concentration ratio meant. Candidates need to practice such key knowledge and why it may change as part of their exam preparation. Be careful in future about percentage points change and percentage change. This answer achieves a mark of 5/5. The candidate starts by calculating the four firm concentration ratio for both years and identifies that the ratio has decreased by 3.6 percentage points (benefit of doubt given here as technically it is not 3.6%); thereby picking up 2 marks for analysis and one for implicit knowledge of concentration ratio. They then go on to provide and explain the reason for the change. This answer achieves a mark of 5/5. The candidate starts by calculating the four firm concentration ratio for both years thereby picking up 2 marks for analysis and one for implicit knowledge of concentration ratio. They then go on to provide and explain the reason for the change. Ensure you carefully apply the data available, as instructed in the question.

Notes from the mark scheme and report

• 4-firm CR fell from 76.1% (2010) to 72.5% (2015), a fall of 3.6 percentage points not 3.6%
• reason: shoppers switching to discounters Aldi and Lidl and online (Extract A)
• define or show understanding of a concentration ratio

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, including the levels grid and indicative content

Examiner's comment

This question demonstrates the importance of candidates carefully reading the question and making sure they understand precisely what is being asked of them. Far too many candidates failed to focus on food suppliers and consumers. Also key with this question was understanding the concept of monopsony, bearing in mind this was in the context of supermarket monopsony power. Low scoring responses either did not understand monopsony or confused it with monopoly and did not go beyond quoting the data. Whilst many candidates were able to use the extracts and data effectively, linking the information provided to specific economic theories would have yielded better rewards. (Dis)economies of scale were generally recognised but a failure to develop answers by referring to specific types weakened a number of arguments. However overall, candidates did well with this item achieving a mean mark of 7.73. This answer achieves a mark of 12/12. It achieves Level 3+ (8/8) and Level 2 EV (4e/4e). All reasons are relevant, explained and applied to the context rather than generic. To get to Level 3 on KAA the candidate has a clear understanding of monopsony, has done both consumers and food suppliers, has applied to the case (and also concentrated on the ‘impacts’). Weaker responses focussed on the ‘cause’ rather than impacts. Read the question carefully to ensure you meet the full demand of the question and focus on the effects rather than the cause in this case. Ensuring you understand whether the question is asking you to look at the causes or effects/ impacts is essential for exam success. This answer achieves a mark of 5/12. After accurately defining monopsony in context the candidate addresses the impact on the supplier to a borderline level 2/3 but unfortunately the analysis digresses away from answering the question in considering the impact on government. It is not clear how the diagram and its explanation answers the question but there is some coverage of the impact on consumers and their disposable income to a Level 2 standard. Unfortunately, there is no attempt to evaluate. It is essential that you practice making well-structured responses, which carefully evaluate each impact made.

Notes from the mark scheme and report

• report: many did not focus on BOTH food suppliers and consumers, or confused monopsony with monopoly
• suppliers: delayed payments, lower prices and profits, packaging and promotion costs (Figure 2, Extract A)
• consumers: lower food prices (1.7% fall) but less choice and quality
• evaluate with Groceries Code Adjudicator and supplier size

Quantitative skills: 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

Two correct measures explained in context with either two evaluative comments per measure, or one evaluation point well developed was required here. Weaker responses tended to either only cover one measure, provide one relevant measure and one non-relevant measure or did not provide evaluation. Minimum price schemes were used effectively as methods to restrict monopsony power with many candidates developing their arguments as to how this would benefit suppliers and evaluating why such schemes effectiveness may be limited. Additionally, regulatory measures usually linked to fines or mergers of suppliers or de-mergers/blocked mergers of supermarkets were well argued. A common error was to provide a subsidy – this was often a confused response lacking in relevance. This answer achieves 8/8 marks. 8 mark questions are points based – up to EV2 for one point of evaluation is awardable – but the remaining six marks are split across the two measures i.e. 1K+1AP+1AN. The candidate includes two relevant measures which are well applied, analysed and evaluated; and as such earns the maximum mark of 8/8. A well-structured response creates a suitable framework to earn top marks. Don’t spend too much time on long introductions when a question has only asked to, for example, ‘examine measures...’. Here, marks will only be awarded for your explanation and evaluation of the measures so you should start immediately with your first measure. This answer achieves 2/8 marks. The first paragraph does not answer the question so does not pick up any marks. One mark is then awarded for regulation (1K) and one for profit cap (1AN).

Notes from the mark scheme and report

• two measures each identified, explained and applied (e.g. GCA fines up to 1% of revenue, regulating payment times, blocking supermarket mergers, minimum prices for suppliers) plus evaluation
• report: a subsidy was a common confused answer
• do not waste time on long introductions

Mark scheme, including the levels grid and indicative content

Examiner's comment

This question proved to be a challenge. Information gaps were not well explained and irrational behaviour beyond habitual shopping habits was badly explained. A lack of understanding of irrational behaviour meant that many candidates failed to secure high marks as did an over-reliance on aspects of the text without explaining or considering whether these were truly examples of information gaps. Many candidates picked up marks by exploring other causes of food waste that they were more able to explain like substandard packaging. They also picked up marks for considering the future with better technology and forecasting. This answer achieves a mark of 10/10. This candidate displays an excellent ability to link knowledge and understanding in context using relevant and focused examples which are fully integrated and as a result achieved a top Level 3 KAA award (6/6). Other candidates were stronger on theory than this but both approaches apply their economic ideas to the broad elements of the question. The evaluation is also to a top level in displaying relevant reasoning and appropriate reference to context as well as being critical of the evidence. Try to fully integrate theory and context in both your KAA and evaluation to guarantee top level marks. This answer achieves a mark of 3/10. The candidate provides a narrow response with a limited use of context, achieving lower level for KAA and no evaluation. Best practice with the full A Level exams is to ensure you have covered the entire specification. Make sure in advance of the exam that you know which questions, such as this one, require evaluation.

Notes from the mark scheme and report

• information gaps: suppliers and supermarkets cannot forecast demand and harvests (4.1m tonnes before supermarkets)
• irrational behaviour: habit, weak computation by consumers (7m tonnes)
• evaluate with other causes e.g. packaging, use-by dates
• report: "This question proved to be a challenge" and irrational behaviour was badly explained

Mark scheme, including the levels grid and indicative content

Examiner's comment

This question clearly differentiated between the candidate that understood the theoretical problems of mergers in context, with a coherent chain of reasoning and responses which were theoretically light. Full marks were not always accessed when the answer did not consider carefully the context of the question and data available. Candidates who focused on the question and provided ‘problems for Sainsbury’s and Morrisons’ rather than to other agents achieved much higher scores and were generally able to develop these using the context and wider knowledge of issues of oligopolistic mergers effectively. The mean mark was 8.65. Use this as a model for your writing, along with other high scoring responses. Carefully unpick where the economic ideas are concisely linked together in context with both the problems and their evaluation. This answer achieves a mark of 15/15. This candidate achieves top level KAA and Evaluation. The further chains of reasoning are very impressive in looking at the two problems in context with concise use of theory and likewise with the linked evaluation. Ensure your evaluation is well-balanced against what you have previously written. This answer achieves a mark of 13/15. The candidate just secures maximum KAA but the chains of reasoning are not as fully developed as in the previous example and if this was an essay they would not have secured Level 4. The evaluation is a little disjointed and receives 4 marks for Level 2 evaluation.

Notes from the mark scheme and report

• problems for the two firms: CMA may block a horizontal merger (combined share 27.4% exceeds 25%), diseconomies of scale from overlapping stores, co-ordinating staff and a new IT system
• report: answers focused on problems for other agents scored lower
• evaluate with economies of scale and growth of Aldi and Lidl

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, including the levels grid and indicative content

Examiner's comment

Responses generally focused on a number of relevant microeconomic issues effectively and broke down the various impacts on different agents to provide effective analysis of a range of microeconomic effects. High scoring responses were well structured and at times provided clear evidence of planning. They made effective use of Theme 1 and Theme 3 theory, going beyond the mostly Theme 1 theory of lower scoring candidates. Diagrammatic analysis is not required but when done well was accurate, well labelled and well explained with a solid chain of reasoning. Candidates at the top end used supply and demand diagrams to consider the tax burden or welfare effects and many candidates used theory of the firm diagrams eloquently to explore the cost and revenue implications. In addition candidates who recognised a negative consumption externality and were able to provide a correct diagram provided well developed responses. This answer achieves a mark of 22/25. Whilst still marked as a level based response the analysis marks are much more heavily weighted in the essays compared to other questions. The candidates diagram is to a Level 3+ standard with the shift in tax being ‘ad valorem’ and careful labelling which is then integrated in context to achieve Level 4. The welfare analysis of the tax revenue raised is also impressive. They have also included a number of good evaluative points, including unintended consequences, for example. Overall this answer secures Level 4 KAA (15 marks) and Level 3 evaluation (7 marks). To achieve Level 4 analysis candidates need to offer a depth of thinking which is best secured with two, or three, major points rather than attempting to do so through a wide range of points. This answer achieves a mark of 14/25. In this answer the candidate has used a diagram but it has basic analysis to a Level 2 standard in the written explanation and the evaluation is limited to considering the rice elasticity of demand (Level 2e). The effect of the tax on internalising the external cost, with a benefit of doubt given on deforestation, just secures Level 3 but the evaluation here referring to unintended consequences lacks balance (Level 1e). Overall therefore this answer is a low level 2 for KAA (9 marks) and a mid level 2 for evaluation (5e). Remember if you are going to use a diagram try to ensure it is fully labelled and used in context. Evaluation also needs to be well balanced to offer an alternative viewpoint to the one already made.

Notes from the mark scheme and report

• ad valorem tax shifts supply by a widening gap
• incidence depends on PED
• loss of consumer and producer surplus
• internalises the external cost of sugary drinks
• effects on firms' costs and profits (Theme 3 diagrams)
• evaluate with inelastic demand, regressive effect, substitutes and unintended consequences
• two or three developed points beat a wide list

Mark scheme, including the levels grid and indicative content

Examiner's comment

Diagrams for this were clear as was the concept but beyond the argument that shareholders expect MC=MR because they want dividends and managers want MR=0 because performance bonuses are often linked to turnover, the candidates struggled to think of reasons. Stronger candidates examined the idea that MR=MC was quite hard to calculate and the shareholders wouldn’t really have a clue given their proximity to the daily operation and inside workings of a business. Effective evaluation often went on to be critical of revenue maximisation along the lines indicated in the mark scheme as well as the principal-agent problem. There was clear differentiation in approach from confused diagrams to fully labelled and annotated diagrams. Candidates struggled to develop chains of reasoning which explained why one objective might be more suitable for firms in a specific industry. The lack of effective application to an industry led to a number of responses failing to develop arguments and to build on a technical understanding of the conditions for the two different objectives. This answer achieves a mark of 20/25. This answer focuses primarily on the theoretical arguments to an advanced level. However there needs to be a consistent focus on an industry of choice and this answer was too focussed on ‘Walmart’ in early parts and then later on it focuses on ‘supermarkets’ but not consistently; hence top level 3 KAA (12) plus L3e (8e). An industry focus is key to answering this question. Remember to ensure you answer the question in context i.e. an industry of your choice. This answer achieves a mark of 4/25. The candidate correctly alters the chosen question number. The crossed out work clearly took up some time and the candidate would have been in a better position if they had planned out possible answers and came to a decision before they started their write up. For some candidates it might be effective to briefly look at the essay options at the start of the exam and to consider possible planned approaches before making your decision.

Notes from the mark scheme and report

• revenue max where MR = 0, profit max where MC = MR (diagram may be used)
• principal-agent problem: managers' bonuses linked to sales revenue
• MC and MR hard to know in practice
• report: candidates struggled to give reasons and to apply consistently to one industry of choice