June 2022: Paper 3

Mark scheme

Examiner's comment

This was an accessible question which produced good answers, and the mean score was well above average for a 5-mark question across the Papers and the exam series as a whole. Many candidates benefited by including an externality diagram, although not asked for. There were a significant number of candidates who suggested a negative externality in consumption and supported this with an accurate diagram (even though this is not required by the Pearson Edexcel specification) for example in the consumption of HFSS foods without 'getting up from their sofa'. This was not essential to achieve full marks and should not be encouraged because it tends to cause confusion and incorrect analysis when diagrams not required are forced into an answer. It was much more effective to draw a negative externalities in production diagram, and then consider the effects on third parties of food delivery using fossil fuels. Generic references to 'harms the environment' did not score highly. Candidates needed to explain the impact on the third party. Note that 2 marks are available for application and referring to the information provided. Some candidates failed to use the information provided which restricted the available marks. Candidates should be encouraged to be explicit in their conclusions namely that in the presence of negative externalities the free market will over provide. This answer does not refer to a third party, and refers to workers, which are not external to the transaction. There is use of data so there is 2/2 for application. The knowledge of the meaning of the term 'externality' is identified in line 8 but the impact on the third party is too vague – the 'environment'. A specific impact, e.g. days at work lost from asthma sufferers, is more clear as to who the third party is. 3/5 total Identify a third party. There are 2 marks for application. Use a diagram if you can. This was a very clear 5/5. The diagram is correct and the one that the specification expects to see. There are two marks given for the diagram alone. There is clear use of the data (1 + 1) and the answer explains externalities clearly. There is a clear effect on the third party. A diagram saves a thousand words. No evaluation is required on any 5-mark questions. But application is always needed – at least 2 marks on every question on this paper.

Notes from the mark scheme and report

• explain the effect on a third party (plastic packaging, congestion and pollution from deliveries, obesity from HFSS food) and that the free market over-provides
• workers are not third parties
• generic 'harms the environment' scores little
• 2 application marks for Extract B data e.g. 1.4 billion plastic items

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 proved to be a difficult question with a mean mark significantly lower for the equivalent question in Section B. Most candidates had good understanding of the reasons why price elasticity might be inelastic and there were some very insightful evaluative comments which went beyond the generic. The question discriminated well between those who had a secure grasp of the concept of income elasticity and those whose understanding was less secure. The key to answering this question well is to explain price inelastic and income elastic demand in order to get analysis marks. There is no need to define PED and YED. Drawing a steep demand curve and showing a rise in price, for example, leading to a rise in TR is an effective way to earn both knowledge and analysis marks. Candidates found it more challenging to explain the concept of income elastic demand. While most candidates identified that take-away meals might be normal or inferior goods, there were a few good explanations of the responsiveness of demand changes when incomes changed. The highest scoring answers used the data effectively, and could argue evaluatively, for example that in the global health crisis there were few alternatives, or that when incomes during that time fell demand rose the effect was to make inferior goods. This was a slightly above average score, and benefits from gaining the 2/2 application marks. The diagram is limited in its usefulness, but there is no evaluation. These were the examiner's annotations: 2K 1AN 2 AP 0 EV = 5/8 It is useful to remember that for 5 and 8 mark questions there is a points based system of marking, and there is no point in writing more to illustrate certain assessment objectives than the marks available. This is a very effective answer. Full marks are awarded – note the well written evaluative paragraph at the end. Evaluation can be as two single evaluative points or one developed evaluation point.

Notes from the mark scheme and report

• explain both: few close substitutes, habit and small share of income make PED inelastic (steep demand curve, TR rises with price)
• 'cash rich, time poor' and the delivery boom suggest income elastic luxury
• no need to define PED and YED
• report: "This proved to be a difficult question", income elasticity poorly explained

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

Mark scheme, including the levels grid and indicative content

Examiner's comment

This was an accessible question and candidates were well briefed on the consequences of integration. Effects such as economies of scale and increased market share were popular with candidates. Good answers tackled the different types of integration explicitly e.g. horizontal and conglomerate, using the data and a diagram. This was a good answer, but there were weaknesses which were reflected in the L3 – and L2e – scores. L3K L2e- L3K L2e- Mid L3K = 7 Low L2e = 3 10 + 3 = 12 Make a limited number of well-developed points and evaluation arguments, and go beyond two-step chains of reasoning to reach the top levels. This is a full mark answer, which could have been shorter and still earned full marks. Diagrams and data are well integrated. Using the diagram and data as part of the answer makes this one stand out.

Notes from the mark scheme and report

• name the type of integration (Just Eat and Takeaway.com horizontal, Amazon's 16% of Deliveroo)
• economies of scale (LRAC diagram), market power, higher prices and less choice, monopsony power over restaurants
• evaluate e.g. CMA oversight, efficiency gains
• few well-developed points beat a list

Mark scheme, including the levels grid and indicative content

Examiner's comment

There were some very good essays which showed good understanding of the microeconomics of an exchange rate depreciation on the price of imported ingredients, with many showing a shift in MC as well as AC and a new profit area highlighted. In the macro context some argued effectively that when there is a depreciation, it is likely that the SRAS curve will shift left to reflect the rising cost of imported inputs. A few candidates made explicit links along the lines that a depreciation might increase the popularity of the UK as a tourist destination and so the demand for restaurant meals might increase. Restaurant meals are not typically internationally traded and so it was surprising to see the number of candidates who argued that UK restaurants will sell more meals abroad following a depreciation, or other reasons for a rise in AD. Nevertheless there were some very well informed candidates who showed excellent knowledge of recent developments in the UK economy with regard to the difficulty of attracting staff to this sector. Micro effects of exchange rate depreciation on the food delivery and/or restaurant sector were well explained and were often supported by an accurately drawn cost and revenue diagram showing a rise in AC and MC. The stronger candidates used type of restaurant to really develop their answers where ingredients would need to be sourced from abroad e.g. Japanese and Asian restaurants. Macro effects were more challenging in terms of application to food delivery and/or restaurant sector. Quite a few candidates wrote about how exchange rate depreciation could lead to food delivery companies increasing their export which was unconvincing. Candidates who developed the macroeconomics effects using the AD/AS model, typically with a well explained diagram, were able to offer more developed responses, which scored higher marks. A reminder to centres that at least one good detailed application to the context provided (i.e. the restaurant or food delivery services) was required to score highly. Generic response to the effects of depreciation, tended to score Level 3 KAA. There was good understanding shown of the Marshall-Lerner condition and J Curve in many responses. The micro side of depreciation was best linked to costs, as here. The candidate then links the costs of food in restaurants to the diagram by making it clear that variable costs shift, and therefore both MC and AC shift. This is a good answer but the candidate keeps crossing out work, which is a problem because of opportunity cost. In this case the chains of reasoning are not extended fully so this does not reach the very top of the top levels for KAA and Eval. But at 22/25 there are lessons to be learned from using the right vocabulary and tools of analysis. The economics student should not aim for perfection either in terms of wording or presentation, but instead purity of logic and strength in the links of the analysis and evaluation. This is similarly a good answer in terms of logic and the link to costs is again strong. But the noticeable difference is in terms of the chains of reasoning which stay in Level 3 KAA and Level 2 Eval. So for example the costs are not linked to the variable costs of food imports for restaurants, and that is merely assumed. 12 KAA marks and 6 Eval. This was the modal score for this question. Do not force the examiner to do the work for you. If your costs shift, say whether they are fixed or variable then link your application to the diagram that you draw.

Notes from the mark scheme and report

• micro: dearer imported ingredients raise variable costs so MC and AC shift up and profit falls
• macro: SRAS shifts left (cost-push inflation), AD effects via net trade and tourism
• restaurant meals are not exported, so do not argue they sell more abroad
• Level 4 needs micro, macro and the restaurant context

Mark scheme, including the levels grid and indicative content

Notes from the mark scheme and report

• micro: minimum wage above equilibrium (a line below equilibrium has no effect) causes excess supply of labour, higher costs and lower profit margins for restaurants
• macro: consumption and AD, cost-push inflation, less inequality and poverty
• evaluate with elasticity of demand for labour and wage share of costs
• avoid pre-learned essays

Mark scheme

Examiner's comment

Answers were quite weak on the actual theory of the Lewis model. Many were unable to do more than quote the data references, and specific models have not been requested in the past so this was probably a surprise for many. Candidates had the general idea although there were very many blank responses or an inability to articulate the theory well, and those who did understand tended to score very highly. Development models have not previously specifically tested and very few could use the specific Lewis model, even though it had been spelt out in the Advanced Information. This was a clear answer using the theory, and there is use of the context of primary production switching to secondary production in Kenya. A diagram is not necessary for any development questions. Those who knew the model wrote some excellent answers – but of those who knew the model, some did not do enough to gain 3 marks for Knowledge and Analysis as they did not understand the key point about marginal productivity in the different fields. Some even tried to evaluate the model (not necessary). Diagrams can help but they are not necessary for development economics. Candidates must remember to always include 2 data reference points (or one combined 2-stage application process) on the 5 mark question.

Notes from the mark scheme and report

• Lewis model: surplus labour with near-zero marginal productivity moves from agriculture to more productive industry at low opportunity cost
• dual economy
• two data references needed (e.g. 'industries without smoking chimneys', flower farming)
• report: "Answers were quite weak on the actual theory of the Lewis model" with very many blank responses

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 question was easily accessible. The three points that distinguished answers were those who did not know what was meant by demographic factors, and did not deal with development but merely growth and evaluation. Good answers were often let down by lack of evaluation. The other concern was often that candidates wrote too much which clearly led to timing problems later in the paper. Well answered Most candidates were able to use the extensive range of data provided well. Best responses were written really concisely Follow correct format – Point, evidence, explain, however (twice) Can achieve full marks in 8 sentences Lots of candidates spent far too much time and wrote in far too much depth The main problem with 8 mark examine questions is the lack of evaluation, as here. This scores 2 K 1 An 1 Ap = 4/8 Although two numbers are used, there is just one quote reproduced. There is no calculation or other working of the data, so it scores 1ap. Use two pieces of data if possible (or do a calculation or manipulation of the data) Remember there are two marks for evaluation. Use two simple points, or a two-step chain of reasoning for 2E. This is a good example of how to achieve full marks. This is a short answer that follows the basic formula: point, explain, example, evaluation x 2 Do not spend a long time on the 8 mark questions. 8 minutes should be the maximum and a shorter time can produce full marks.

Notes from the mark scheme and report

• two demographic factors (falling birth rate, dependency ratio, life expectancy, urbanisation) linked to development, not just growth
• use two pieces of data from Figure 2 and Extract E
• many lacked evaluation, e.g. a future demographic time bomb

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 mark scheme was forgiving and allowed comparative advantage answers to be credited when they were not the direct line of the question. Those who understood the point about trade were sometimes confused by the emphasis on absolute advantage. Some candidates did not attempt the question at all. Very challenging question which many students left blank or failed to apply the concept of absolute advantage Many answers gave vague benefits of higher exports or greater efficiency only – this answer is not perfect but stands out as one of the best. Level 3 only achieved when absolute and/or comparative advantage used within the numerical or diagrammatic analysis. The diagram and the tables perform the same task, so it is probably best to stick to the preferred method and develop the reasoning through one method. It is encouraging to see Kenya and the Netherlands in the diagram/table. Candidates must remember to evaluate – there were quite a few excellent answers with no attempt at evaluation – max 8/12 This was clearly 12/12

Notes from the mark scheme and report

• Level 3 needs a numerical table or PPF diagram showing Kenya and the Netherlands specialising and gaining from trade (comparative advantage also credited)
• use Extract F reasons (altitude, sunlight, cheap labour, no heating costs)
• report: "Very challenging question which many students left blank or failed to apply the concept of absolute advantage"

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 was the more popular of the essays where, overall, all students demonstrated the basic knowledge on the impact of low interest rates on AD and costs of borrowing. Only a few of them, though, managed to bring in good economics and to make their answers more relevant to the context with real life examples drawn not only from Kenya but also from other Sub-Saharan countries or BRIC economies. Some mentioned the lengthy process of the transmission mechanism. Most candidates who answered it managed two effects. The main problem was one of timing: some were only able to put down the briefest of answers. Many candidates are selecting too many essay points – they need to use less points and to write in more depth on those specific points. The examiners' advice: that it is better to make one point well rather than a number with brief or incorrect chains of reasoning. Accessible essay which most students responded well to More able students were able to apply a traditional interest rates questions to the LEDC e.g – use of savings gap Good answers used AD/AS diagrams within their macro analysis and cost/revenue diagrams within their micro analysis. This enabled them to analyse effectively and look at the wider impacts. Evaluation was most effective when linked to the data extract and the rates actually available in Kenya Accessible essay which most students responded well to More able students were able to apply a traditional interest rates questions to the LEDC e.g – use of savings gap Good answers used AD/AS diagrams within their macro analysis and cost/revenue diagrams within their micro analysis. This enabled them to analyse effectively and look at the wider impacts. Evaluation was most effective when linked to the data extract and the rates actually available in Kenya Make at least one micro and one macro point. If you have more time then develop the side you think is the weakest with another more convincing point. It is better to make fewer points really well argued than using a scattered approach with several relevant thoughts. Many answers were pre-learned 'interest rate' essays, and having been learnt in the context of macro they could not easily switch to micro. The micro approach is best reinforced using the price/output/profit/externalities points from the Themes 1 and 3 specification, and either D&S or cost and revenue diagrams should be expected. The macro side would probably include an AD AS diagram in a high scoring essay. Use diagrams as much as you can in the microeconomics and macroeconomics Theme 3 essays. Remember to check whether the essay is about causes or effects before you start.

Notes from the mark scheme and report

• micro: lower borrowing costs for firms, more investment and R&D, consumer demand
• macro: C and I raise AD with the multiplier, depreciation, cheaper debt servicing
• without a developing country KAA is capped at Level 3
• evaluate with the gap between the 7% central bank rate and 22% paid by small firms (Extract G), savings gap

Mark scheme, including the levels grid and indicative content

Examiner's comment

Q2e was less popular, with the large majority of students unable to make clear links between growth and development, but many candidates embedded in their answers excellent economics, theories/models (Harrod-Domar; Lewis Model from the extract; Prebisch Singer Hypthesis) and even diagrams not in the specifications such as the MEC diagram, plus a wide range of models from development economics. The weakest candidates could not go beyond corruption or time lag when evaluating (see comments at the end of this report). Some candidates did extremely well. The key point was to choose development strategies rather than to rehearse any macro policy (e.g., monetary policy is not a development policy and could not gain high KAA marks). It was also important to deal with development rather than merely growth. This was a very accessible essay with a huge variety of different strategies chosen Students seemed well prepared for this (very typical style of question used in the past in other contexts, e.g. Mozambique) The best answers not only had depth to their analysis with model/diagrams, but also had good application to LEDCs (rather than simply writing about general supply-side policies) Again lots of candidates writing too many points in insufficient depth. Many candidates ran out of time on the last essay This is Level 4 L3E L4 L3E with a solid structure. It is not too long but instead focused and applied throughout. Diagrams and data are used to good effect. Remember to give an overall judgement. The main problem with this essay was pre-learned essays that were unrelated to developing countries (or one country). Strategies tend to be generic and AD AS diagrams or demand side policies were included which are not relevant in the context. 9 + 4E There are three points made, none which get above L3: Trade liberalisation L3 – E2- FDI L3 – LE1 Tourism L2 L2E- There is no overall judgement. It is better to make two points which are clearly development strategies and not just a continuation of developed countries' macroeconomics.

Notes from the mark scheme and report

• choose development strategies (human capital, infrastructure, trade liberalisation, microfinance, aid) not generic macro policy such as monetary policy
• link to development not just growth
• Level 4 needs Kenyan or other developing-country context
• evaluate beyond corruption and time lags