100 marks · 19 question parts · Paper, mark scheme and report on Pearson's site
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Quantitative skills: QS 9 (interpret, apply and analyse information in written, graphical tabular and numerical forms)
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This question specifically asks candidates to draw a diagram. There is no need for candidates to write any explanation to go along with their diagram. When drawing diagrams candidates should always double-check that the lines and axes are correctly labelled. Nearly all candidates provided the answer as illustrated in the mark scheme. The diagram is for illustrative purposes and other valid alternatives in terms of labelling were allowed. Some candidates showed supply as horizontal given it is a subscription service. This was allowed and was awarded 4 marks. The diagram is drawn accurately. The candidate has identified original and new equilibrium. Unfortunately the response also shows a shift in supply so the response does not address the main aspect of the question, but it showed some knowledge and it was awarded 3 marks. For shifts in supply and demand consider the non-price determinants as identified in the data. Do not confuse shifts in supply with extensions in supply. This diagram is correctly labelled. It also shows the shift in demand in the correct direction and illustrates the new equilibrium points. In addition, it annotates the answer given the context. Whilst this is not in the mark scheme, this is a good approach to take to ensure your answer is correct or in answering longer responses where a diagram may be useful or required. Therefore, this answer achieves full marks. Draw diagrams clearly and large enough for ease of interpretation.
Quantitative skills: QS 4 (construct and interpret a range of standard graphical forms)
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In this question the focus is on having the ability to correctly calculate the percentage change in quantity demanded and to substitute the answer into the PED formula. A mark was not awarded for the formula itself but overall, this question was well answered by candidates and nearly all carefully made use of the formula and showed their working to achieve their final answer. This response provides a correct answer and is awarded 2 marks. This response correctly manipulates the formula to identify 5 % x 1.37 for 1 mark. However, the calculation is incorrectly given as 0.0685% which negates the answer. Therefore, this response was awarded 1 mark. Ensure you make use of a calculator and double check that your final answer makes sense.
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)
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In this question the focus is on having the ability to correctly calculate the percentage change in quantity demanded and to substitute the answer into the XED formula. A mark was not awarded for the formula itself but overall this was well answered by candidates and nearly all carefully made use of the formula and showed their workings to achieve their final answer. This response gives a considerable amount of detail for a 2 mark calculate response. The final correct answer is quite obscured at the foot of the page and was rounded up to 3.2%. Whilst most candidates identified an answer of 3.15%, rounding up to 3.2% or down to 3% was accepted and the response was awarded the full 2 marks. Be careful to clearly identify your final answer. This is an example of a common response to this question and it was awared the full 2 marks. It is always worth showing your workings. This does not need to take a lot of time and can help you pick up a mark if human error creeps into your final calculation.
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)
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Quantitative skills: QS 8 (make calculations of elasticity and interpret the result)
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The diagram in the mark scheme is for illustrative purposes and there are lots of valid alternatives. Price would be allowed instead of costs and benefits, MSC and MSB can be labelled SMC and SMB and some candidates did a double shift to the left of the MSC. Some candidates also covered supply and demand but had some elements of the externalities diagram. A small number of candidates also identified negative externality of consumption in the tourism industry, whilst this is not on the specification it was viewed as a valid response. This response is awarded 1 mark for correct labelling of MSB and MSC. There is also 1 mark for correct shift and 1 mark for identifying correctly welfare loss. This response has also clearly identified a movement in price and output to remove overproduction. This response was awarded the full 4 marks. Fully label externalities diagrams. This response provides a fully annotated correct answer and was awarded the full 4 marks. The candidate has identified the social optimum price and output and the free market equilibrium.
Quantitative skills: QS 4 (construct and interpret a range of standard graphical forms)
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The diagram in the mark scheme is for illustrative purposes and other valid models were allowed. Candidates could refer to profit rather than revenue or have the top right box blank as long as the pay-off matrix worked. Likewise, some candidates had price decrease first and then price increase, with the starting position bottom right. In addition, some candidates referred to collude or not collude. A common response was awarded 3 marks. However, marks were typically awarded as follows: Often where they colluded there was a higher figure than if they engaged in a price war so securing one mark. They then indicated one firm cheated and gained financially and as a consequence the other firm lost out, so securing a second mark and potentially a third if they had a similar situation if the other firm moved first. The key jump to 4 marks was what if the second firm retaliated and where it went wrong was when they failed to show the second firm countering in their financial interest. If they ended up financially worse off then there was not a logic as the movement for the second firm was not rational. The matrix had to work for the response to be awarded the full 4 marks. Application-wise, the pay-off matrix working was key rather than use of the $361 million. This response was awarded 1 mark for correctly analysing that by colluding and setting higher prices, Tyson and Pilgrim would gain financially more than if they were to engage in a price war. A second mark was awarded for stating that Tyson, being a first mover and undercutting Pilgrim's price, resulted in them making a financial gain of £12m and Pilgrim losing out (£5m). There is similar analysis for Pilgrim being a first mover thus securing a third mark. For the fourth mark there is a logic to Pilgrim retaliating and following Tyson's price cut, as they are now achieving £7m which is more than £5m. This response is awarded the full 4 marks. Practice pay-off matrix diagrams and ensure there is a clear logic in the numbers as to what firms are doing and why this is rational behaviour. This response is awarded the full 4 marks. This response was awarded 1 mark for analysing that by colluding and setting higher prices, Tyson and Pilgrim would gain financially more than if they were to engage in a price war. A second mark was awarded for estimating that Pilgrim, being a first mover and under-cutting Tyson's price, would result in making a financial gain of $400m and Pilgrim losing out ($100m). There is similar analysis for Tyson being a first mover thus securing a third mark. The fourth mark was not awarded as there was not a logic to Tyson retaliating and following Pilgrim's price cut. They now achieved $50m which is less than the $100m. Tyson and Pilgrim are now financially worse off so there is no logic to this analysis. This response was awarded 3 marks. Double check your two firm/two outcome game theory model to ensure it makes sense.
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)
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This question was mostly well answered with common responses being purchasing economies of scale lowering average costs or unit costs. Where it was not well answered was when candidates were not clear in understanding technical economies of scale, often referring to them as technological economies or buying new technology or patents. Another area of weakness was candidates talking about the merger resulting in the removal of workers. This is rationalisation and not concerned with economies of scale. This is an example of a correct response and it was awarded the full 2 marks. By providing the example, this response is awarded the full 2 marks. An example will often help in securing a second mark.
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Many candidates displayed a secure knowledge of concerns a regulator may have about a merger and were able to go onto secure full marks by explaining how it was against the consumer interest as it would result in higher prices or loss of consumer surplus. This is an example of a correct answer and it was awarded the full 2 marks. This is an example of a correct answer and it was awarded the full 2 marks.
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Candidates were asked to calculate the concentration ratio with the majority taking a straightforward approach. The candidates were allowed to round up or down the answer of 52.96%. Candidates were also allowed to write as a ratio but there was little evidence of this happening. As a calculate-type question, the expectation was for a numerical answer but a definition was allowed as a knowledge mark. This response is awarded 4 out of the 5 marks available up until the final answer. By writing the final correct answer this response is awarded the full 5 marks. It is important to show your workings to secure marks in case your final answer is incorrect. This response correctly identified the answer '4354' and was awarded 1 mark. The response is also awarded 1 mark for knowledge for an accurate definition. As a consequence, this response is awarded 2 of the 5 marks available. For calculate questions, numerical responses are the most simplest expected answer.
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)
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This question proved to be most challenging for candidates. The response was to identify that a rise in incomes would increase demand which would cause a significant rise in price if supply was price inelastic. However, as there are more plantations grown supply may become less price-inelastic and there would be less volatility. Some candidates chose to look at the factors and then to consider price-elasticity and this was marked positively. Some candidates made use of a diagram that enhanced their written explanation or evaluation. At least one reference to Figure 2 was required for application. As a points-based question, these are marked following the marking criteria Knowledge (K), Analysis (AN), Application (APP) and Evaluation (EV). In this response, the first point identified is price inelastic demand (1K). This is followed by two numerical references (2APP max). The next part was not seen as an effective evaluation. Another factor was price inelastic supply (1K) with reference then to income rising (1AN). Overall, this response is awarded 1K + 2APP + 1K +1AN and achieves 5 of the marks 8 available. Make effective use of the data. 2 marks are always reserved for application on 8 mark responses. This response is awarded 2 marks for application from the start. 1 mark is awarded for identifying supply is price inelastic for knowledge. A further mark is awarded for analysis for explaining how a significant increase in price will have a small increase in demand. The response is further supported by use of the diagram. Two evaluative marks are then awarded for identifying how and why supply may become less price inelastic in the long run. A second factor regarding a good harvest is also provided as a non-price determinant of supply (1K) with a written explanation that is again supported by the use of an accurate diagram (1AN). Overall, this response is awarded the full 8 marks. Making effective use of supply and demand diagrams can help lock in knowledge and analysis marks or may provide a way into evaluation.
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)
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The expectation of this question is that candidates would start with an evaluation of the profit maximisation position. However, a vice-versa approach was also valid, especially since some candidates argued that profit maximisation would be the long-term objective. To access Level 3, candidates were required to apply this position to the coffee shop owners. Therefore, some very thorough purely theoretical answers were not awarded marks in the top Level. This response starts with a clear definition and uses a diagram in context to argue why branded stores like Costa will want to profit maximise for their owners (L3+). The following evaluation regarding the use of sales maximisation pricing to deal with hit-and-run competition is also well applied (L2e). The candidate provided another reason, that of niche independent stores relying on consumer loyalty but being subject to low profit, as drawn from the data (L3 & L2e). Overall, this response achieved L3 (6KAA) and L2e (4ev) and was awarded the full 10 marks. Try to evaluate in context. This response is awarded a low Level 3 for Knowledge, Application and Analysis (KAA) as it is a very narrow response. No marks were awarded for evaluation (3/10 marks). There is a lack of precision in this response in identifying the alternative objective to profit maximisation. As a result, the candidate displays elements of knowledge and understanding of the concept and there is some understanding in context, but it has not been explained clearly in the response. By not considering profit maximisation, the candidate has not focussed on the broad elements of the question. Ensure you have mastered key knowledge of economic terms and concepts to avoid generic responses.
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This question required candidates to use a cost and revenue diagram in order to achieve Level 3. The diagram in the mark scheme is only for illustrative purposes and alternative correct diagrams were also allowed. To secure top marks, diagrams needed to match against written explanations. For example, a rise in fixed costs would shift AC and not MC and a rise in variable costs would shift both AC and MC upwards. Candidates were required to accurately identify the change in fixed costs or variable cost in the context of the data. The diagram in this response shows a rise in AC and MC and lower profitability box and achieves Level 3 for KAA for the diagram. However, the response does not identify why costs and variable costs increased in this case. The response provides some explanation of the diagram and a sophisticated sense of using the data to say why quantity is limited, but the lack of reason for the increase in costs places it borderline Level 2 and Level 3. The evaluation linking higher wages to productivity is done well and secures Level 2ev. Overall, this response achieves L3-(6) and L2e-(3ev) and is awarded 9 marks of the 12 marks available. Ensure that you have a precise understanding of why costs curves shift. Further development of evaluation is welcome but it is best to try to make two evaluative points. Evaluating the diagram would have made sense here. Perhaps the firm does not pursue profit maximisation. This is an example of a well developed responses which is awarded the full 12 marks. Ensure that in planning your response you place more thinking time into the marks for Knowledge, Application and Analysis (KAA) rather than Evaluation.
Quantitative skills: QS 4 (construct and interpret a range of standard graphical forms); QS 6 (calculate cost, revenue and profit (marginal, average, totals))
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This question concerned contestability and the majority of candidates responded well to the key concept of looking at barriers to entry and exit. Where candidates underperformed, responses tended to confuse contestability with competitiveness. To obtain Level 3, candidates had to ensure they applied the theory to the coffee shop market. Candidates could argue either way whether the market was contestable or not, and vice versa. As always on level-based answers the mark scheme is indicative and provides the most obvious and most likely answers. In this response, the first part argues that it is contestable over two- sides but does not directly address barriers to entry and exit so achieves Level 2 for KAA. This is then evaluated by arguing that small independents cannot achieve economies of scale as evidenced by 2% profit margins indicating problems with contestability and thus securing Level 2 evaluation. The second point is better evaluated as it argues that again the market is contestable, but this is due to low sunk costs and so achieves L3 for KAA, with good reference to independents. The candidate expands the response by evaluating the use of Greggs heavy sunk costs involved with advertising as not contestable and achieving Level 3ev. Overall, this response secures L3 and L2e+ = 7+4e. This response is awarded 11 marks of a total of 15. Allow yourself thinking time to address your understanding of the key concept and to plan out a relevant answer. Feeling your way through an answer risks an overlong first paragraph which lacks a precise understanding of the key concept. Whilst this can be addressed later on it can bring about time management issues. Practice relating the key concept in the question to the data provided. This is a well-written answer to this question, particularly in terms of logical and coherent chains of reasoning in both KAA and Evaluation. The first point shows precise knowledge and understanding and whilst making effective use of the data, the candidate applies the concept well to the basics of setting up a coffee store. The price setting power of Costa as a barrier to entry makes again good use of the data but it would have been better to refer to limit pricing. The second point is based well in evidence and theory, and it is well evaluated as well as counter evaluated. Overall, this response achieves Level 3 for KAA and Level 3 for evaluation = 8+5e. This response is awarded 13 marks of the 15 marks available. In application, try to apply yourself to the context of the question, in this case, the practicalities of opening a coffee shop. Imagine yourself problem solving as an economist. Contexts are often chosen that are relatable to you.
The stem pointed students in the direction of Tesla and application of this to the question was popular with good insights into how Tesla may focus on dynamic efficiency but then, due to its dominant position, act in an inefficient manner. Unlike previous essay-based questions students were allowed to discuss other examples of monopolies and this approach was taken up as they moved on to discuss a second efficiency point, often looking at the behaviour of a natural monopoly, such as in the water industry. Students were not required to draw a diagram, but the better analytical responses often did make effective use of a precise cost and revenue diagram. The diagram in the mark scheme is for illustrative purposes and other suitable diagrams were allowed. In terms of evaluation, students did approach the question in different directions, some arguing that monopolies were inefficient and then countering this, and others vice-versa. Either approach was valid. Lastly, there were attempts at a conclusion, but this was often used to summarise points already made rather than making a clear judgement. When the latter was the focus of the conclusion, it was often done well and helped to raise the overall score. This response, whilst being knowledgeable about Tesla, lacks an effective sustained use of economic theory. Application should be anchored to knowledge and understanding, and candidates must be careful that being aware of a firm or industry in detail will not score high marks unless it is showing an ability to link knowledge and understanding in context using appropriate examples. The initial point has perhaps some isolated or imprecise understanding of specialisation and research and development, but this is at Level 1. Again, there is similar coverage of economies of scale at the end of the paragraph on the second page. The focus on infrastructure and land associated with rail being a natural monopoly displayed some elements of knowledge to get to a low Level 2 response. Likewise, the remaining analysis whilst perhaps going back over research and development does enough to lift this point to low Level 2. Lastly the attempt at evaluation makes some linkage to social efficiency. Overall, this response was awarded L2 and L1e = 5 and 1e = 6 marks. Whilst it is good to spend time on case studies looking at a specific firm, market or industry, it is essential that the focus is on showing an ability to link knowledge and understanding in context using appropriate examples. Start with the key concepts and see how they are applied to the case study you are looking at. This response starts with identifying what monopoly power is in the context of Tesla. The first part focuses on efficiency, though it is related to the UK gas and electricity distribution industry as a natural monopoly. The chain of reasoning flows well regarding productive efficiency and there is a link to the concept of productive efficiency as illustrated, although the diagram is missing the LRAC label. This paragraph secures highly at Level 3. The next paragraph attempts to evaluate by making use of x- inefficiency and the principal agent problem and is well written, securing Level 3 evaluation. The response then moves onto looking at the issue of dynamic efficiency in the context of Tesco with some attempt to link the context of Tesco lowering its average cost. Again, this was seen as a top Level 3 response in terms of Knowledge, Analysis and Application (KAA). The following section of evaluation risked being repetitive, but the point regarding diverting profits to shareholders was viewed as enough for sustained Level 3 evaluation. The conclusion adds some judgement. Overall, the response achieves L3+ for KAA (12) and L3ev (7EV) = 19 marks. Spend time planning your essay response in terms of the key points and evaluation that you want to make to avoid the risk of repetition. In terms of context, try to ensure that examples given link tightly to the economic concept you are trying to address. Remember a judgement is expected to get the very top marks for evaluation for the 25 mark questions.
This question drew on candidates’ knowledge from the topic area of Supply of Labour, as indicated on the Advance Information for Paper 1. An accurate drawing of the labour market diagram was not required, but some candidates did identify suitable labour market diagrams to aid their explanation. Candidates did not have to focus on one occupation and answers to any occupation were allowed, as well as to more than one occupation to make both questions equally accessible. This question was very topical, but it was less popular than question 7. On the whole, responses were not as strong for this question. Despite the topic being current, many responses were very context rich, but candidates needed to ensure they spent time on the theory. However, there were some particularly good theoretical answers that were well applied. In some cases, there was evidence of candidates only briefly covering a wide range of factors that influence supply, but with limited evaluation. Candidates do not have to offer three points or more, and typically the best performing responses covered in-depth two points with coherent chains of reasoning that were well evaluated. The first factor in this response concerns training in the NHS and time lags that may result in rational behaviour taking workers elsewhere. This factor secured Level 2 for KAA. The following factor relating to geographical mobility also secured Level 2 for KAA. There is some evidence of evaluation concerning workers wanting to work overseas, but this could have been better phrased and, as such it was awarded Level 1 for evaluation. The reference to barriers to work, such as disability, lacked a detailed theoretical explanation and was therefore awarded Level 2 as it was limited to two stage chains of reasoning. Finally, the response refers to wages but knowledge is imprecise and therefore is awarded Level 1. Overall, this responses was awarded L2 (7 KAA) and L1ev (2EV) = 9 marks. Try to avoid narrow responses or superficial answers by practising going beyond two stage chains of reasoning. Do so both for developing your point (KAA) and evaluation. Ensure you are evaluating what you have written in the context of the question set. Make effective use of a knowledge organiser so that your knowledge and understanding is precise. In this response, factors influencing supply is dealt with richly in terms of precise economic knowledge and understanding using appropriate examples. The first reason is set in the context of the health industry making effective use of a good diagram which was awarded L4 for KAA. The following section evaluates making use of the price elasticity of supply concept. The switch in occupation focus to cleaners is appropriate. The diagram would have been better if it had shown a shift in demand, but the written explanation is secure to achieve Level 3 for evaluation. The second factor regarding the issue of occupational mobility and miners is well addressed, and achieved highly in Level 3. The intervention of government as an evaluation achieved L3 for evaluation. Finally, the consideration to non-monetary factors was awarded Level 4 for KAA. Overall, this response was awarded the full 16 marks for KAA and 8 marks for evaluation. The judgement needed to be more secure to obtain full marks. Ensure that you offer a clear judgement that answers the question. Draw upon your wide-ranging knowledge of economic concepts and terms to provide a coherent chain of reasoning.
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