June 2019: Paper 3

Mark scheme

Examiner's comment

This was mainly well-answered, with good responses able to both explain the characteristics of a highly concentrated market (knowledge and analysis) and calculate an appropriate n-firm concentration ratio. The mean was 3.8 out of 5. Many candidates scored well on this question, showing a clear understanding of highly concentrated markets which was often developed through an understanding of the market structure being an oligopoly or monopoly power. The best answers calculated an accurate concentration ratio in order to gain both marks, although many just listed market shares to score one application mark. Weaker responses tended to make errors through confusing 'highly concentrated' and 'highly competitive', or simply listing the firms' market shares rather than using them to show the concentrated nature of the market. The data could be numerical or verbal, and it is advised to use both sources (though not required for full marks). We were strict in not awarding a mark for the observation that Walker's had or was a (pure) monopoly; rather we were looking for candidates to appreciate that it was a legal or working monopoly, or in another way showing market dominance rather than overall control. Please note the similarity with the marking on the coffee shop question in 2018 1(a). Don't list data. Use it. Try to make two separate points if you can't use the data in a calculation.

Notes from the mark scheme and report

• highly concentrated means a few firms hold a large market share, not many firms or 'highly competitive'
• calculate a concentration ratio (2-firm 78.0%, 3-firm 82.2%) for both application marks rather than just listing shares
• Walkers is not a pure monopoly
• max 1 application mark without Figure 1 or Extract A

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

Some candidates seemed not to appreciate the need to evaluate their responses in an 8 mark 'examine' question, although this was more the case for Q2(b) than for Q1(b). This question allowed candidates to draw from their knowledge of the UK economy from the last ten years mentioned in the Theme 2 specification or relevant country examples they had studied during Theme 4. It was also rich in pickings from the Theme 3 Labour Markets section. The stronger candidates on this question were able to analyse effectively by providing two clear causes of inequality, giving good examples (often from the UK but sometimes other developed countries) to support their answer. The strongest candidates gave specific numerical examples and were heavily rewarded in terms of application, although figures are not required to gain full marks. Weaker candidates gave generic answers or failed to give relevant examples that would lead to inequality in a developed country, such as a rise in the national minimum wage, or used indirect and subsidies that were not permitted in this question. Evaluation marks were often scored for counter points for the causes analysed or how they could be reduced by government intervention over time. The best candidates also developed their evaluation in context, such as the government introducing T-levels to improve educational opportunities in the UK. This was an effective method for candidates to score both evaluation marks for one point. We were strict in only awarding application marks for data/contextual references which actually supported the point being made, for example, no application mark was awarded if a candidate wrote about direct taxes being regressive or less progressive, but then gave an example of the UK's progressive tax bands/personal allowances etc. We also did not award reasons for wealth inequality unless a candidate made it explicit why this would lead to income inequality. Candidates do need to pay close attention to the question where certain lines of argument are excluded, such as indirect taxation in this question. While some candidates wrote about particular indirect taxes as they had clearly misunderstood the meaning of the term, others lost marks simply by not reading the question carefully. Factors such as unemployment or wealth need a clear link to incomes. If you are asked for causes, reasons, effects or similar, then there is no good reason to define the key terms. On short questions such as this the knowledge marks are for identifying the causes and there are no definition marks. Stronger responses were able to produce a good structure to this question, bringing in their own knowledge of a developed economy to pick up application marks. But many, as here, chose points that were not clearly income related. Education could be awarded as an application mark. Wealth is a valid cause but the link to income must be clear. It was also valid to talk about MRP (although not required) but the link was not clearly made. For application you do not need to use the passage. Any practical application, such as rising house prices affecting rents or higher education affecting incomes is good application.

Notes from the mark scheme and report

• two causes, each applied to the UK or another developed country (house prices, tuition fees, tax changes, skills, weak unions)
• indirect taxes and subsidies earn no KAA and some misread them
• evaluate with transfer payments or income v wealth

Mark scheme, including the levels grid and indicative content

Examiner's comment

Stronger answers were able to produce some excellent responses to this question showing a well-developed and applied understanding of game theory. The best responses tended to include a pay-off matrix illustrating the prisoner's dilemma, which was applied to two HFSS food producing firms (although this was not required for full marks) and a written explanation of the firms' strategies and the expected outcome in this scenario. Although it is not included in the specification and hence was not expected in candidates' answers, it is clear that many centres are teaching the kinked demand curve model, and candidates who knew this were able to make good use of it to explain firms' actions. Common reasons for not attaining full marks on this question were: producing a purely theoretical response which was not applied to the context or did not refer to the data (such responses could not achieve a Level 3 mark for KAA); errors in the production of a pay-off matrix so that it either did not show workable pay-offs, or did not represent the prisoner's dilemma game; and not referring to game theory at all. Weaker responses also tended to be confused by assuming that the dominant firms would collude to lower prices. While there is perhaps an acceptable line of argument here through predatory/limit pricing, it tended not to be successfully made and this was rather a case of candidates misapplying the theory they had been taught to the question. This answer needs high price/low price on the 'axes', and a firm on each 'axis'. There is a jump in the logic on several occasions, and the logic is muddled. Check that the figures in the pay-off matrix work. Common reasons for not attaining full marks on this question were: producing a purely theoretical response which was not applied to the context and/or did not refer to the data (such responses could not achieve a Level 3 mark for KAA); errors in the production of a pay-off matrix so that it either did not show pay-offs, or did not represent the prisoner's dilemma game; and not referring to game theory at all. This answer does both well, and very efficiently. The application is clear in the table, and also in the discussion of Gary Lineker (although prior knowledge of the market was not required and there were many other ways to earn application marks). Make sure the payoff matrix works.

Notes from the mark scheme and report

• Level 3 needs correct game theory (a prisoner's dilemma pay-off matrix applied to crisp firms) and use of Figure 1 / Extract A
• interdependence, price war lowers profits for all
• purely theoretical answers capped
• firms colluding to lower prices is a misreading
• evaluate: brand loyalty, ban only targets children, sales fall only 10%

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

The best answers used the economic toolkit of theories and diagrams incorporated into rigorous analysis to score the higher levels. For microeconomic effects, effective answers often looked at the impact on the profits of firms providing healthy and unhealthy products, with the best responses backing this up with costs and revenues diagrams. There was also well-developed analysis of solving the market failure of externalities through the provision of information but confusion between the production and consumption negative externalities diagrams was a common error. Whilst some candidates effectively illustrated negative consumption externalities for a demerit good, this is beyond the specification and often included errors. It is important to note that candidates can bring in from outside the course and will be rewarded but this is not required to achieve the top level. For example, a positive consumption externality diagram could have been an effective way of analysing the impact of the information provided by the government. On the macroeconomics side the best answers ensured they focused on government spending on promoting healthy eating. This often meant going beyond the impact of the spending on aggregate demand but also on aggregate supply through a healthier workforce. Evaluation tended to focus on how effective the government scheme would be in the context of habitual behaviour by consumers and the implications for other objectives such as inflation and the fiscal deficit. Strong informed judgements were also provided that questioned whether the issue was really an information gap or the unaffordability of healthy food, with subsidies suggested. Most candidates provided an answer that was in context to healthy eating but far too many seemed to ignore the context of education. This is a rare good exemplar. Many candidates talked generically about subsidies and assumed it was really a question about increasing government spending. This has sustained development of arguments in context, and makes informed judgements. There is a common inaccuracy shown here, however, that is the assumption that AD is rising if education spending is rising. Clearly this is an assumption and should be considered carefully. The tendency is to make a summary at the end. What is needed, however, is an informed judgement. The difference is critical. A top level response had to engage with the full question, i.e. not just to focus on the likely effects of an increase in government spending, or an increase in government spending on education, but of an increase in government spending on education as to healthy eating. Many candidates were unable to do this and produced far more generic responses, for example, the impact of an increase in government spending on aggregate demand within the UK. Equally, some candidates wrote simply about the likely impacts of healthier eating on the economy; while this was no doubt closely related to the question, a sole focus on this made it very unlikely that candidates would be awarded a Level 4 score for KAA. Perhaps given that the data was more about unhealthy foods, many candidates who chose to write about the potential for correcting market failure focused on education reducing the external costs from the consumption of unhealthy foods, rather than increasing the external benefits from the consumption of healthy foods. While this was just as acceptable a line of argument, it was far easier for candidates to support their written analysis with an externality diagram if they focused on the external benefits in consumption of healthy food. As a diagram to show the external costs in consumption of a good or service in not on the specification, many candidates drew a diagram instead showing external costs in production, which did not match their written analysis and did not therefore add to their response. In terms of macroeconomic analysis, the weakest candidates often confused the government budget/fiscal balance with the trade or current account on the balance of payments balance. Finally, it would have been good to see some appreciation of the likely significance of the impacts. For example, the extent to which this would really increase the UK's labour productivity, make exports more internationally competitive etc. Many candidates presented this policy as a panacea for all of the UK's economic issues without really showing an understanding of issues of magnitude and significance. This scored 9/16 KAA and 5/9 Eval. The KAA is low L3 on micro and macro, and is a very generic answer. It focuses on subsidies rather than spending on education. Label diagrams and make sure you relate to them in your answer, fully. Don't write about G generically if the question is on education.

Notes from the mark scheme and report

• provision of information as intervention: positive consumption externality diagram (MSB above MPB), effects on healthy and HFSS food firms
• macro: G with multiplier shifts AD, healthier workforce shifts LRAS
• Level 4 needs micro and macro
• do not confuse the fiscal balance with the current account
• production externality diagrams were a common error

Mark scheme, including the levels grid and indicative content

Examiner's comment

This was the slightly more popular essay on question 1. As with 1(d), candidates provided diagrams to help improve their analysis and there were a wide variety of diagrams that could be effective on this question to strengthen answers when integrated into valid and carefully explained chains of reasoning. Common microeconomic arguments included the impact on tax revenue and price/quantity for both healthy and unhealthy foods. There was again some confusion with the externality diagrams. Although many candidates correctly reproduced externalities diagram, this was very commonly shown on a negative production externalities diagram, which is not relevant to the context of the question. Healthy eating clearly implies it must be based on consumption, and it was difficult to see how a production diagram would add value to the answer, unless, perhaps, linked via the workforce. For macroeconomics, many candidates effectively used the extracts to develop arguments around inequality or focused on the use of tax revenue to improve UK macroeconomic performance. The best answers used an inward shift in SRAS in order to analyse implications such as inflation and reduced growth, although other logical arguments were accepted for other shifts. There was a lot of evidence of effective use of diagrams in this question including incidence of tax, cost and revenue and AS/AD. However, there was some common inaccuracy in the analysis of how the tax would be applied and the question was intended to be an application of an indirect tax, not a direct tax or tariff. Specific taxes (as in Extract C in Denmark) or ad valorem taxes (as with the UK's so called 'sugar tax') were both valid. This answer does have a good amount of context, but it is too focused on a particular type of tax and the AD arguments are tenuous. We ignored the rubbed out D+tax on the first diagram which still shows (the problem of using pencil is that it shows up well). As stated on 1(d), the best approach is to use the diagrams that candidates know well. Good responses used the tax diagram or a cost/revenue diagram to develop effective, top-level KAA microeconomic effects. Whilst a small minority of candidates could draw a negative consumption externality diagram with a tax, this was an overcomplicated and risky approach to scoring top marks, as shown here, and the first diagram was enough to take the micro to Level 4. The externality diagram did not add any marks on the micro side, being negative in production; the macro diagram is also taking the argument to Level 4. The best evaluation again used the context effectively. Candidates should practise reading the case studies under timed conditions to efficiently pick out key points and quotes that they can used in their answers, including for evaluation, as it really lifts their answers to the higher levels. Use of the Danish fat tax as an example of consumers switching to other unhealthy food could be used to make a case for government failure as an effective counter point. This data also allowed informed judgements about whether an indirect tax like this is really the best way forward. This response has been chosen to reflect the ongoing debate about negative externalities in consumption, that clearly can be used in this answer, but is not required for full marks. Certainly a diagram showing negative consumption externalities is neither expected nor required, although it would be one way to score marks if given. This is not advised as an approach, however, and there are much simpler and more effective ways to bring out analysis marks. Here are the concepts they need to know and the diagrams are the only time when they are narrowed down to consumption/production so we must presume that here we mean both types of externalities: 1.3.2 Externalities a) Distinction between private costs, external costs and social costs. b) Distinction between private benefits, external benefits and social benefits. The reason the diagram wasn’t credited is because the description in the text was about consumption and the diagram about production. If you use the negative in production then the two ideas are confused. It came across to the examiners as a confusion between to the two concepts (negative in consumption and negative in production) which the specification clearly states has to be learned. Negative in consumption has to be learned but not drawn so clearly we are saying that the mark scheme will not expect a diagram at this point. Often candidates learn or are taught more than the specification e.g. Nash equilibria, Rostow etc. The point we are making is that you do not have to know everything and there are diminishing returns in overteaching these four diagrams. A better option is a tax diagram or other diagrams such as positive in consumption of the healthy good, but in no way is anyone at an advantage if they have been taught things which are specifically not expected, and the point the senior examiners want to drive home is that you can teach what you will but the candidate cannot be marked down, ever, for not knowing something that someone in another centre has been taught as an extra.

Notes from the mark scheme and report

• incidence depends on PED (inelastic demand, consumer bears most)
• regressive (Extract B), Denmark tax abandoned after 15 months with cross-border shopping (Extract C)
• use a consumption, not production, externality diagram
• macro: inflation, SRAS, inequality, tax revenue
• Level 4 needs micro and macro

Mark scheme

Examiner's comment

This question was very accessible for most candidates. The concept of opportunity cost was understood well and knowledge of the definition well-rehearsed. The majority of candidates then developed this in terms of a choice between paying interest on debt and spending in other areas of the economy. The extract was rich with examples candidates could use to achieve the two application marks, with effective candidates quoting two relevant figures to gain these marks. Candidates could not score full marks without the use of Extract D but could score one mark for an effective example of an opportunity cost a developing country could face, such as less available to develop infrastructure around Mozambique. Few candidates showed a good understanding of what was meant by servicing a debt, in terms of paying interest as well as a proportion of the principal of a loan, but this is in fact explained in Line 2 of Extract D in full. It was one of several ways to earn the analysis mark. This is a typical excellent response, although it should be noted that the last three lines were redundant as it had already gained all the marks. 2 separate application points - high interest on debts 2010-15 and 20% of G. Knowledge of opportunity cost (1). Analysis that the money could be used elsewhere to tackle poverty - the point could have been given as Application but the full Ap marks had already been awarded. Use the data 1+1 or 2 for a significant application point on all 5 mark questions. Remember that you must do some analysis, but there is only 1 mark for this. Most candidates were able to suggest what the government of a developing country were giving up - the opportunity to spend this money on education, infrastructure etc. 2 Knowledge marks - opp cost, spend elsewhere. 2 Application marks - two uses of passage. No analysis. Don't make the examiner do the work for you. Explain why high interest rates prevent the government spending elsewhere - the rise in one means a fall elsewhere.

Notes from the mark scheme and report

• opportunity cost = next best alternative foregone: interest payments come at the expense of spending on health, education, poverty
• servicing = interest plus repayment of principal (Extract D line 2)
• max 1 application mark without Extract D (e.g. debt payments above 20% of revenue)

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

This question prompted wide-ranging responses, as reasons could originate from more macroeconomic focused causes (e.g. high interest rate, low levels of human capital etc.) or more microeconomic focused causes (e.g. low MES/lack of available economies of scale - niche markets etc.). As with question 1(b), candidates do need to be sure to read questions carefully to ensure that they are not discussing factors which have been explicitly excluded - here access to finance - although we did take 'access to finance' to mean the ability to borrow money, meaning that arguments as to the high cost of finance/credit, or falling FDI were acceptable. One of the main issues here was that candidates often failed to pick up both knowledge and application marks for a point, as they used a quotation from the data to identify a relevant reason for the small scale of 90% of Mozambique's manufacturing firms (knowledge), e.g. 'falling FDI' or 'high interest rates' and as their application. Centres should remember the distinction between knowledge and application when structuring responses. Candidates also seemed to find it fairly challenging to effectively evaluate their responses to this question, and either did not attempt any evaluation, or fell back on a benefits/costs type of approach which tended not to be relevant here, e.g. "A reason for this is the tight fiscal policy enacted by the Mozambique government... however, in evaluation it is good that the government is doing this to reduce its budget deficit as this will reduce debt servicing liabilities in the future" without relating the evaluation to the question asked. A better approach is to consider the larger firms, such as the energy firms in Extract E. Examiner pointed out that the extracts again were packed full of potential reasons why there was a large number of small manufacturing firms in Mozambique. Some candidates approached this in a microeconomics manner, drawing on the constraints of growth covered in Theme 3, whilst others focused on more macroeconomic issues faced by Mozambique and their manufacturers. Both approaches were accepted, and Paper 3 does allow a wide variety of approaches on questions. The best responses showed a very clear structure to their answer, with two points identified, explained and with context quoted from the extracts before providing one or two evaluation points. This structure really helps the examiners follow a candidate’s answer, especially on a points-based question. This is well-structured and clearly earns the K2 A2 Ap2 Ev2. Make the examiner's work easy by setting out your answer with point, explain, example and evaluate x2, if two points are required specifically in the question. Also remember that sometimes only one point might be needed for an 8-mark question, and you can earn the Ap and Ev marks in clumps of 2. When the question asks for two points, there is no point in making three (as here). The application and evaluation marks can be awarded as 2 marks each or 1+1, as on all the 9EC0 papers. In this case we mark all three (3, 2, 3) then award the best two up to a maximum of 6KAA marks. As with so many 8-mark questions, there was no hint of evaluation in the answers in many cases. Apply on 8-mark questions. It is best to make two brief points, but one well- developed point would do. Evaluate on 8-mark questions. It is best to make two brief points, but one well-developed point would do.

Notes from the mark scheme and report

• access to finance is excluded (cost of finance allowed)
• small market, poverty, lack of economies of scale, low human capital, weak infrastructure
• separate the reason (knowledge) from the data quote (application)
• evaluate e.g. gas fields will transform the economy

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

Responses to this question were of a very variable quality, with a fair number of candidates either not attempting this question or writing very little in response to it, while others were able to show an excellent understanding of the possible benefits and costs of microfinance, both as referenced in the data and from their own knowledge. The main reasons for candidates not achieving full marks on this question were as follows: The question explicitly asked about benefits to borrowers. Many candidates wrote more general responses about the benefits of microfinance to the whole economy, or to the government of Mozambique. While some credit was given for such answers, responses which did not explain the benefits to borrowers could not achieve Level 3 scores for KAA. Many candidates appeared to have been taught that microfinance loans were made at low rates of interest and continued with this argument despite evidence to the contrary in Figure 3. Arguments that a benefit to borrowers of microfinance was simply the very low rate of interest were therefore given no marks. Some answers were confused by the central bank rate of interest in Figure 2 (21.75%). The weakest answers confused borrowers and lenders, and wrote about the benefits to lenders of extending microfinance loans at high rates of interest, i.e. a very rate of return on the principal. Some candidates thought that it was the Mozambique government (relating to the £2bn default Extract D) which was borrowing money through microfinance schemes and so wrote about how this would be beneficial in terms of allowing increased state spending on education/infrastructure etc. or an ability to service existing loans more easily. More generally, many responses were made up of 50% KAA and 50% evaluation, rather than mirroring the available marks, which are 67% for KAA and 33% for evaluation. While we awarded the marks whichever way round gave candidates the best score (i.e. KAA marks could be given for either the benefits of microfinance, or the likely costs), this still meant that a good number of candidates 'maxed out' on evaluation marks but only achieved a Level 2 score for KAA. The best responses were able to integrate relevant economic theory into their applied responses, for example explaining how microfinance plugged the savings gap (reference to Harrod-Domar or the high rate of absolute poverty in Mozambique), or allowed borrowers to diversify away from primary product dependency (reference to price volatility, Prebisch-Singer theory or the recent severe drought in Mozambique). Similarly in evaluation, such candidates were able to recognise that the manufacturing industry in Mozambique appeared to be close to monopolistic competition/microfinance reduced barriers to entry/made the industry more contestable, meaning that firms were unlikely to be making supernormal profits in the long-run, which allowed them to question the benefits of microfinance to borrowers. As an aside, a fair number of candidates used the unlined space at the end of question 2(c) to plan their response to question 2(d) or 2(e). Centres and candidates should be aware that as papers are marked on a question-by-question basis, rather than as whole papers, in this case the examiner marking the essay would not see the plan and so it would not be marked. If a candidate wants the examiner to mark/see their plan, they must include it in the answer space for the relevant question. Some answers such as this did not discuss microfinance, but finance more generally. This question was similar in style to the aid question asked in Summer 2018, covering one aspect of development economics. It was not clear that all candidates precisely understood the concept of microfinance in enough depth to gain full marks. Those that did know microfinance well were able to access top level analysis by explaining the benefits in context for the borrowers. This meant focusing on the benefit for their incomes, standard of living etc. due to being able to start their own small businesses, for example. Weaker responses confused the benefit for borrowers with the benefit for lenders themselves. Others focused too much on the benefits in general or for Mozambique’s economy in terms of growth and inflation. Candidates who used the case appropriately tended to do very well, because the passages, especially Extract F, provided the information required. The other main issue with this question was candidates not focusing on borrowers but rather explaining broader macroeconomic benefits. The passages contain a quarter of the marks. Application is key. It is valid to use Theme 3 theory on development economics, especially here when the perfect competition model is used for the microfinance market. This is a well-structured response. Make sure the MC goes through the lowest part of the AC. Although this didn't cost the answer any marks (we only give marks, never take them away), it did mean the diagram's profit area was slightly incorrect.

Notes from the mark scheme and report

• Level 3 needs benefits to borrowers, not the economy or lenders
• microfinance rates are high (Figure 3, about 75% average), not low, so arguing low interest earns nothing
• plugs the savings gap (Harrod-Domar), start-ups without collateral
• evaluate with over-indebtedness, small competitive businesses

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

43% chose 2(d) rather than 2(e). Although constraints on growth and development is in the macroeconomic side of the specification, there are clearly microeconomic issues in the country, such as labour market issues from emigration. As with all the synoptic essays in Paper 3 there is flexibility on what a candidate uses as a microeconomic or macroeconomic factor, but candidates should try to make this clear in the structure of their answer. For example, one candidate may deem primary product dependence a microeconomic factor linking it to volatility of prices (using demand and supply), whilst another places emphasis on it as a macroeconomic factor in terms of the structural development of the economy as a whole. Again, some candidates referred to access to finance in their answer and were therefore not rewarded for this. However, many candidates were able to explain one microeconomic and one macroeconomic factor, often drawing this directly from the stimulus material, such as brain drain / loss of FDI / higher interest rates etc. Evaluation was often focused on how these issues could be overcome in future, such as through government intervention in the long-run or improvements in the economy (such as the development of oil and gas fields). The best answers used this as a basis for an informed judgement on the future growth prospects of Mozambique. There were some very good responses to this question, particularly in terms of the likely macroeconomic factors which influenced Mozambique's growth and development. The best candidates tended to develop ideas of primary product dependency, savings gaps, or a lack of human capital/emigration here, although there were many other ways to answer this question. Candidates tended to find it more difficult to identify relevant microeconomic factors, although this was marked leniently, in that labour market issues, primary product price volatility etc. could be used as either micro or macroeconomic factors: they were marked as presented by the candidate. The two main issues with candidate responses here were: candidates wrote about policies which could be used to promote growth and development, rather than the factors which influenced these variables; and that candidates did not explicitly develop links to both growth and development in their responses. For a Level 4 score for KAA, candidates did need to link their chosen factors to both of these at least once. As for all responses to the 25-mark questions, candidates are too often just summarising/repeating their points in their conclusions, rather than making a reasoned judgement. Without this, candidates are able to achieve a Level 3 score for evaluation, but not to be awarded full marks. This answer is all about policies rather than factors, but it was still allowed and reaches Level 4. This answer is in the context of Mozambique, and there is judgement about the importance of education. Diagrams are used as part of the argument. You can get Level 4 by using just one micro and one macro factor, if both are valid. Fewer points done well and in context, with diagrams, makes a good strategy for 25-mark questions. High interest rates are allowed as an answer, as they do not relate to access to finance. We took a very generous approach to the points allowed, in general. The answer never gets above Level 3 as explanations are under-developed, and there is a lack of context. The analysis is weak but L3 overall awarded 10/16, and evaluation L2 mid (5/9) although there is an argument for low Level 2. Do not repeat points in the conclusion. Make a critical, supported judgement.

Notes from the mark scheme and report

• access to credit and banking is excluded from KAA
• Level 4 needs micro and macro factors and both growth and development
• emigration of skilled workers, primary product dependency, drought, falling FDI, high interest rates and inflation (Figure 2), depreciating metical
• micro factors were harder to identify

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

Answers must be focused on the effects of inflation and not the causes. The Phillips Curve can be problematic and frequently it added nothing to analysis and often detracted from or contradicted what had been written, for example where candidates argued that inflation causes a fall in AD, an odd approach in itself. Also candidates must ensure that they have strong understanding of the relationship between domestic inflation and export prices. Many candidates confused a fall of the the internal value of a currency (a loss of domestic purchasing power) with a fall in the external value of a currency (a depreciation). In terms of likely microeconomic effects, most strong candidates discussed the likely impact on firms of either increased costs of production (from either higher wage demands from employees, or higher raw material prices) or lower demand from overseas. This was mostly done well, although candidates often wrote about an increase in the cost of raw materials but then illustrated an increase in fixed - rather than variable - costs. The most successful line of reasoning as to a likely macroeconomic effect of high inflation tended to be through reduced international competitiveness and hence the impact on an economy's trade balance or its current account on the balance of payments. As ever, some weaker candidates confused the latter with the government fiscal/budget balance. The most important thing here was for candidates to present a valid chain of reasoning within their arguments; simple assertions that high inflation would cause the currency to depreciate, or unemployment to fall etc., without any explanation of these effects were awarded limited marks (particularly as candidates who asserted the former often then went on to argue that the main effect of this would be increased international competitiveness for the economy experiencing high inflation). As the question was about a range of African economies, we were looking for application/reference to more than just one country in candidates' responses in order for them to receive the highest marks. This could either come from the data or from their own knowledge. This answer is light on context, and there is a huge issue with the Marshall-Lerner argument in that there is no link to the exchange rate. The answer does reach L4 twice, and the mistakes are ignored (positive marking). The evaluation is generic or under-developed, and this is the area in which the answer should be worked on to improve L2e. 14KAA + 5eval. Links to diagrams must be made explicit and used in the argument. Otherwise the examiner will tend to find it hard to credit the diagram. Some very poor answers on this essay were read, and the mean on the essay was two raw marks lower than the other three 25-mark questions. A surprising number of candidates could not form coherent chains of reasoning on the effects of high inflation. Many candidates confused inflation and interest rates, assumed that inflation caused unemployment or AD to fall (without any valid chain of reasoning), and many failed to contextualise answers to African countries. This is typical of an E-grade response. Points are generic, and the analysis under-developed. Terms such as competitiveness and unemployment are not considered carefully, and connections with inflation are just assumed. Use as much economic analysis as possible in your reasoning. Never make logical leaps. Section A Many candidates forgot to state whether they have chosen (d) or (e) in the essay. This means the essays are marked in a separate pool, but has no significance in terms of the mark scored. Teachers can reassure their candidates that they will not be affected by this. Poor handwriting, poor timing, and poor judgements about people or countries were once again a major issue for candidates. This type of answer was worryingly common. Be clear, pace yourself, and never make assumptions. Section B Many candidates forgot to state whether they have chosen (d) or (e) in the essay. This means the essays are marked in a separate pool, but has no significance in terms of the mark scored. Teachers can reassure their candidates that they will not be affected by this. Running out of time, many candidates resort to making many under-developed points. It is better to use a few points or just two, one micro and one macro. Avoid listing points. The effects of high inflation should be a well-rehearsed area for someone who has studied economics for two years. Save 30 minutes for the essays.

Notes from the mark scheme and report

• effects, not causes, of inflation
• fixed incomes and savers lose, firms' costs rise, competitiveness and exports fall
• do not confuse falling purchasing power with depreciation
• Level 4 needs context of African countries
• report: "Some very poor answers on this essay were read, and the mean on the essay was two raw marks lower than the other three 25-mark questions"

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