June 2023: Paper 1

Mark scheme

Examiner's comment

In this question candidates were asked to give one advantage of a free market economy. There were no marks for a definition. The marks were awarded for the ability to explain how Cuba's reforms create the opportunity for market forces to flourish, thus generating a range of possible benefits for the Cuban economy. Most candidates performed well on this question, though there was a tendency for some to neglect the stem, and consequently miss the application mark. This is a strong response, which achieves all four marks. The idea of competition generating improvements in productive efficiency and improved product quality is well developed. The candidate uses quotation marks to integrate the stem into their answer, which is a good way to get the application mark. Though a breakdown of the available marks isn't noted on the question paper, it is good practice to refer to the stem in your answer in order to apply the theory. This response scored 3/4. The idea of the profit motive leading to more innovation, lower prices and better quality is well developed. However, there is no application to the stem, just an advantage of the free market.

Notes from the mark scheme and report

• one advantage (choice through consumer sovereignty, efficiency from the profit motive and competition, innovation) developed in a chain
• no marks for a definition
• report: some neglected the Cuba stem and missed the application mark

Answer

D

Mark scheme

Notes from the mark scheme and report

• Karl Marx supported a command economy (D)
• Smith and Hayek supported free markets
• Keynes favoured government borrowing to boost demand, not a command economy

Mark scheme

Examiner's comment

In this question, the focus is on having the ability to clearly calculate the opportunity cost of the decision by the farmer to harvest 6 units of wheat at point Y. Candidates were being asked to calculate this change, which is 1 unit of oats. The main issues faced by candidates were either stating the opportunity cost of 4 wheat to 2 oats at point X and 6 wheat to 1 oats at point Y. The question was asking about the reduction in the number of oats. Another issue was to discuss the increase in the production of wheat, which though rewarded, didn't score full marks. In this response the candidate has correctly calculated the opportunity cost as 1 unit of oats. Ensure you read the question carefully so that you give the correct answer in terms of the movement from point X to point Y. In this response, the candidate has calculated the opportunity cost ratios at point X and point Y but has completed an incorrect calculation. This scored 0/2.

Notes from the mark scheme and report

• moving from X (4 wheat, 2 oats) to Y (6 wheat, 1 oats) gives up 1 unit of oats
• report: some gave ratios at X and Y or stated the 2 extra wheat instead of the oats forgone

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

This question is looking for a recognition of what would happen to efficiency in the following year, when a farmer operates inside the production possibility frontier, to achieve the knowledge mark. The analysis mark is then given when the candidate explains why efficiency would fall. This was a well answered question, with the majority of candidates scoring both marks. In this response the candidate clearly tells us that point W is inefficient, which achieves the knowledge mark. The explanation that the farmer is not making use of all resources then gets the analysis mark, so 2/2. This second example achieves both marks because the candidate tells us that production at W is inefficient, leading to lower output for both wheat and oats in the following year.

Notes from the mark scheme and report

• W is inside the PPF so resources are inefficiently allocated / unemployed
• the farmer could produce more of both wheat and oats

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

Answer

B

Mark scheme

Notes from the mark scheme and report

• new farming technology shifts the PPF outward to reach Z (B)
• milk machinery is not on this PPF
• demand and price are not shown on a PPF

Answer

D

Mark scheme

Notes from the mark scheme and report

• a luxury good has a positive income elasticity greater than 1, e.g. +3.40 (D)
• negative values are inferior goods, +0.74 is a normal necessity

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

Mark scheme

Examiner's comment

There are four marks for this question, and most candidates scored at least 3 of them. Correctly identifying the brownie baker facing a downward sloping average and marginal revenue was sufficient for the first mark. The candidate then had to identify the profit maximising point where marginal revenue equals marginal cost. They then had to draw the average cost curve above the average revenue curve before correctly marking the area of loss on the diagram. Many candidates did not successfully indicate the area of loss. In another case, the candidate either drew the AC curve at a tangent to the AR, indicating normal profit, or below the AR curve, indicating supernormal profit. In this response the candidate has successfully drawn the downward sloping curves, and has marked the MC=MR as the correct output. They have then drawn AC above AR and extrapolated the profit maximising output to the point where it hits the AC curve. They have marked this point on the y axis as C to distinguish it from the Price charged at P. This is sufficient to indicate the area of loss, though it would have been better if the candidate had shaded or marked it as 'loss'. Nonetheless, this scored full marks. It is good practice to clearly label all points on your diagrams as carefully as possible. In this example the candidate has successfully drawn the downward sloping AR and MR curves. However, the marks stop there. The AVC curve gets nothing because we're looking for an AC curve. The candidate has also marked the output where MR equals AVC, when it should be MC. The comment 'P is less than AVC' is a recognition that costs are higher than revenue, but it is poorly phrased and does not link to the AR curve. This scores 1/4.

Notes from the mark scheme and report

• downward-sloping AR and MR, output where MC = MR, AC above AR, loss area shaded
• report: many did not mark the area of loss, or drew AC tangent to AR (normal profit) or below AR

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

Mark scheme

Examiner's comment

This was a straightforward percentage change question and the vast majority of candidates answered it correctly. However, around 10% of candidates either scored 0 or just 1. Again this stresses the importance of practising the quantitative skills type of question. A typical mistake was to divide the change by the new price rather than the original price. On this response we can clearly see an accurate formula, followed by the correct answer. For all the calculation questions make sure you show your workings just in case there is an error in your calculation. A calculator can make sure you get this calculation right. On this response, the candidate has entered the correct data into the formula, therefore scoring the first mark, but has then made a mistake with the calculation. As a result, it scores 1/2.

Notes from the mark scheme and report

• (5 664 - 5 044) / 5 044 x 100 = 12.3%
• report: a typical mistake was dividing by the new price rather than the original

Quantitative skills: QS 2 (calculate, use and understand percentages, percentage changes and percentage point changes)

Mark scheme

Examiner's comment

This is another 2 mark 'explain' question, which carries 1 mark for knowledge and 1 for analysis. The candidate has to say either what 'consumer' is or that consumer surplus falls for the knowledge mark. They then have to explain why 'consumer' falls. Overall, this was answered well, with the majority of candidates scoring both marks. Common issues were usually failing to explain why consumer surplus falls. In this response the candidate correctly indicates that consumer surplus will fall then goes on to explain that this happens because the difference between what they are prepared to pay and actually pay has decreased because of the rise in price. It is always good practice in the 2 mark questions to clearly justify the reason for the noted change, in this case why consumer surplus falls. In this response there is some explanation of why consumer surplus falls, which we credited, but the candidate does not state that consumer surplus falls. We did not award the idea of negative consumer surplus.

Notes from the mark scheme and report

• consumer surplus falls because the gap between what commuters are willing to pay and the price paid narrows (and fewer tickets bought)
• report: common issue was not explaining why it falls

Answer

C

Mark scheme

Notes from the mark scheme and report

• read the change in producer surplus off the minimum-price diagram: GEPeP1 (C)
• A is the change in consumer surplus, B the new consumer surplus, D the new producer surplus

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

Answer

B

Mark scheme

Notes from the mark scheme and report

• public 114 : private 118 = 1 : 1.04 (B)
• A is private relative to public
• C is the 4-point gap in the index
• D is the 14% rise in public pay since 2018

Quantitative skills: QS 1 (calculate, use and understand ratios and fractions); QS 5 (calculate and interpret index numbers); QS 9 (interpret, apply and analyse information in written, graphical tabular and numerical forms)

Mark scheme

Examiner's comment

This question on monopsony turned out to be very topical, with the whole issue of public sector wage setting headlining in the news during the spring and summer of 2023. Many candidates did well on this question, though a minority scored full marks. To score the knowledge marks candidates had to have a sense of the public or private sectors of the economy. Another knowledge mark could be achieved by recognising the process of wage determination or an understanding of monopsony. The analysis mark required an explanation of why public sector pay lagged behind that of the private sector. Finally, the application mark was achieved by either using the stem or the chart above 5(a). This response achieved full marks for the understanding of monopsony and of the private sector, then the application mark for 90% of nurses working in the NHS. The analysis mark was awarded for the explanation of 'nowhere else to work'. Again, candidates are strongly encouraged to use the stem or other supporting material to gain any available application marks. In this example there was just the one mark for application. This example shows no application of the data. The candidate scores the knowledge marks for the understanding of monopsony and a second knowledge mark for the understanding of the private sector health care. The analysis mark is achieved through the explanation of very few alternative employers.

Notes from the mark scheme and report

• the state is a near-monopsony employer of nurses (over 90% in the public sector) with few alternative employers, so it can hold down pay (national pay scales, pay freezes, budget constraints)
• use the stem or the pay index for application

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

Mark scheme

Examiner's comment

For this question, there is one mark for identifying the correct market structure as either an oligopoly or a legal monopoly. A further two marks were awarded for the correct calculation of any concentration ratio. Two analysis marks were available for a linked explanation, for example high barriers to entry or a market dominated by a few large firms. There were a few cases of candidates either not using the numerical data at all, or calculating the ratios incorrectly. In this response, the candidate achieves the knowledge mark for the identification of the market as an oligopoly. There is then a correct calculation of the 3 firm concentration ratio in the second quarter of 2022, which is 58.5%. The analysis marks are then achieved for the reference to a few big firms and high barriers to entry. This is a strong response which also makes use of a diagram, though this would not be necessary to achieve the full marks available. Again, we can see here the importance of using quantitative data to achieve the application marks, and again the importance of a calculator to aid with the process. In this second response, the candidate has correctly identified the market structure as an oligopoly, and calculated a 5 firm concentration ratio of 74% for the second quarter of 2022. It is acceptable for this question to round numbers up or down to the nearest whole number. The first analysis mark is awarded for the recognition of a few large firms dominating the market, but no further marks are achieved, so this response scored 4/5. Question (b) The assess type questions on this paper take us into levels based marking, which means that we are looking for a best fit approach to awarding marks. There are 6 marks for knowledge, application and analysis, and 4 for evaluation. This question was answered well by the majority of candidates, with many very strong responses. The usual approach was to write about why Netflix subscribers did behave rationally, for example by switching to Disney because it has a higher customer satisfaction rating. The counter view, that subscribers behave irrationally tended to centre on the idea of habitual behaviour, with subscribers paying for a service that isn't necessarily used extensively, or the idea of 'forgetful subscribers', who forget to cancel after a short term trial period. This first response is a very strong example. The candidate explains carefully how Netflix subscribers behave rationally, by cancelling their subscriptions and switching to better value alternatives like Disney+. The candidate also makes a clear link to the concept of maximising their utility. There is full use of supporting numerical data in the response, which really helps to lift the quality. The counter view is also well developed, with the candidate going on to explain a series of reasons why subscribers are behaving less rationally, such as other services being cheaper or 'not being bothered to deal with the administrative faff' of trying to switch or cancel a subscription, which is a good reference to habitual behaviour or inertia. This response scored at the top of level 3 for knowledge, application, and analysis. It also scored at the top of level 2 for evaluation. Overall, this achieved 10/10. Ensure that in levels based responses, you clearly link the analysis of concepts to data which supports your points, like the previous example. In this response the candidate develops some analysis of rational behaviour by subscribers. There is clear use of context. However, the analysis is not linked to utility, so it didn't get into level 3 for knowledge, application and analysis. The evaluation was clear, and linked to inertia and information gaps. Overall, this scored top level 2 for KAA and top level 2 for evaluation. Overall, 4 + 4.

Notes from the mark scheme and report

• oligopoly (or legal monopoly for Amazon over 25%): calculate a concentration ratio (e.g. 3-firm Q2 2022 = 58.5%) for 2 marks
• explain few large firms and barriers to entry
• report: a few did not use the data or miscalculated

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

Notes from the mark scheme and report

• rational = utility maximising: cancelling over value for money and cost of living, switching to Disney+
• irrational: nudges, auto-play and binge-watching, forgetting to cancel free trials (Extract A)
• Level 3 must refer to Netflix subscribers

Mark scheme, including the levels grid and indicative content

Examiner's comment

In the 'examine' question, the marks are allocated evenly across all four skills, so two marks each for knowledge, application, analysis and evaluation. The question specifically asks for the likely numerical value of the cross elasticity of demand between UK online streaming services. The knowledge marks are given for an understanding of XED, and for recognising that the value is positive. Application marks are available for reference to the changing market share of the different streaming services, and analysis marks for the explanation of substitute goods. As ever, the two evaluation marks are available for the recognition that the strength of the relationship between streaming services changes over time or that some may be complementary goods. Overall, this was a slightly more demanding question which caused some issues for candidates, the main one being the confusion between the numerical value of substitutes and complements. This is a strong response. The first paragraph gets a knowledge mark for an understanding of XED, and a second one for the value being positive. The application mark is achieved for the reference to the prices of Netflix and Disney+ and the first analysis mark for the explanation of them being substitutes. The first evaluation mark is given for the reference to the Netflix promotional offer which may lower XED. The second paragraph gets the second application mark for the reference to the falling market share of Netflix. The final analysis mark is then achieved by the explanation of cutting back by switching to cheaper alternatives. The last evaluation mark is then given for the last sentence of the response. Overall, 8/8. You should remember to evaluate in 'examine' questions. Many candidates didn't do this and dropped marks as a result. This response was weaker than the first, and scored 5/8. There is a knowledge mark for the recognition of the value of XED being greater than 1, and then an application mark for the changing Netflix market share figure. The analysis of substitute goods gets both analysis marks. The final sentence referring to loyal customers gets one mark for evaluation. A second mark could have been achieved through a more extensive development of the point.

Notes from the mark scheme and report

• streaming services are substitutes so XED is positive
• apply falling Netflix and rising Disney+ shares (Figure 1)
• evaluate: weak substitutes (unique content) so XED below 1, varies over time, some households take several (complements)
• report: candidates confused the signs for substitutes and complements

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 is the first of the 'discuss' type questions, and has 8 marks available for KAA and 4 for evaluation. This is a topical question, and tested the candidates' understanding of the private and external benefits of viewing educational websites and TV programmes. The question asks for both private and external benefits, so it is important to explain each separately and then evaluate the extent of them. This question was generally well answered. Common pitfalls were the failure to clearly distinguish between private and external benefits. Many candidates drew diagrams, which helped to focus the analysis, though diagrams were not expected or asked for specifically. This first response is a strong example which is clearly written and in context throughout. There is an excellent diagram which labels the size of the external benefit and is explained by the candidate. The private benefit to the viewer is clearly developed and contextualised. This achieves top level 3 for KAA. The size of the private benefits are then questioned with reference to online learning being less important when compared to face-to-face learning. This achieves level 2 evaluation. There is then an explanation of the likely external benefits, specifically the impact on the productivity of firms, which again achieves top level 3. Finally, the candidate evaluates the impact by considering the long run impact of the benefit and how this will lessen the impact on firms. Overall, this response scored 12/12. Though not asked for in the question, this response is an excellent example of how diagrams taught as part of the specification can be used to support an argument. This is another strong response, though not quite as developed as the first example we looked at. This response scored 10/12, with level 3 for KAA and level 2 for evaluation. The KAA achieved 8 marks and the evaluation 3/4. The evaluation isn't quite as developed or sophisticated as the other example.

Notes from the mark scheme and report

• separate private benefits (exam success, earnings) from external benefits (more productive workforce, less pressure on schools) of BBC Bitesize and Oak Academy
• positive consumption externality diagram optional
• report: common pitfall was not distinguishing private from external benefits

Mark scheme, including the levels grid and indicative content

Examiner's comment

The second of the 'discuss' type questions, this one has 9 marks available for KAA and 6 for evaluation. This means that more emphasis should be given to evaluation in responses. A diagram is specifically asked for, and candidates were expected to make a clear distinction between the impact on profits in price elastic markets and price inelastic markets. Many good responses did precisely this and discussed different pricing between student and non- student markets, or between UK and Indian markets. There was some confusion between price discrimination and product differentiation, so candidates are reminded that price discrimination is charging different prices for the same product to different groups of consumers. The ability to separate markets is pivotal to the success of the strategy, and good responses could explain this and then evaluate by developing the idea of 'seepage' between markets, for example when consumers share passwords. This is a very strong example which achieved 14/15, with 9 for KAA and 5 for evaluation. The diagrams are detailed and used throughout the first paragraph. There is also clear use of the information provided and the concepts are clearly explained. The evaluation is also very thorough, and considers how price discrimination may not increase a firm's profits as much as expected. The questions raised about the ethical aspects of price discrimination are valid but really need to be linked back to the impact on profits to get full marks. Again, this is a question which specifically asks for a diagram. It is always good preparation to practise drawing all of the diagrams on the specification. This second response scored level 2 for KAA, 6/9 and level 2 for evaluation, 3/6 giving a total of 9/15. The diagrams are not as well developed as the previous example, lacking any revenue or cost curves. Similarly, the areas shaded are revenue and not profit. It then goes on to discuss students against adult price elasticities of demand, but again this isn't linked to profit. The reference to the trade cycle is evaluative, but linked to revenue. The second diagram is better, with clear reference to profit and there is a useful discussion of UK and Indian markets. The evaluation is about the differing business objectives, but not linked to profit.

Notes from the mark scheme and report

• third-degree price discrimination diagram: higher price in the inelastic sub-market (UK adults), lower in the elastic one (students, India) so profit rises
• conditions: market power, separable markets
• evaluate seepage (password sharing) and costs of separation
• report: some confused price discrimination with product differentiation

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

Mark scheme, including the levels grid and indicative content

Examiner's comment

This first essay question was marginally less popular than question 8, but was, nonetheless, very accessible. Rising energy bills have been a significant issue for UK households, and this question was looking for the most likely methods to control them. The most popular proposals were energy price caps, the use of windfall taxes, and nationalisation of energy suppliers. Strong responses made full use of relevant diagrams and were able to develop them in the context of the UK market and the regulatory framework affecting it. For questions such as this, a good understanding of topical events is very important when it comes to developing chains of reasoned application. This is a strong response, which scored 20/25. This comprised level 4 KAA, at 14/16 and top level 2 evaluation, with 6/9. The candidate discussed a maximum price solution, which is supported by a clearly drawn and well referenced diagram. This achieved level 4. The evaluation of this policy achieved bottom level 3. The second method proposed is a demerger, which would enhance competition by breaking up large energy suppliers. This was well developed, though the reference to increased contestability was slightly unclear. Nonetheless, it just edged into level 4. The evaluation following the paragraph lacked application, so was awarded level 2. The recommendation at the end of the essay adds to its quality but the proposed windfall tax is not explained or evaluated. Given the time constraints affecting this paper, it is only necessary to write two well developed paragraphs to achieve full marks for KAA. Each should then be evaluated separately, so it is clear where the evaluation begins. Good signposting makes it easier for the examiner to follow your arguments and will keep you focused on the question. A conclusion is always necessary to make a justified judgement and therefore enables you to score full marks. Our second example is much weaker, and it illustrates a range of issues. The energy price gap is chosen as a method, but the diagram shows MC rather than supply. This isn't explained. The explanation of consumer surplus just lifts this response into level 2 for KAA. The plan at the top of the page refers to the National Minimum Wage (NMW) but the method is not written about in the main body of the essay. There is no evaluation. Overall, the response scores 6/25.

Notes from the mark scheme and report

• energy price cap (maximum price) with diagram, windfall tax, subsidies or direct support to households, nationalisation, promoting competition
• evaluate with shortages, firms exiting, cost to government and government failure
• topical knowledge helps application

Mark scheme, including the levels grid and indicative content

Examiner's comment

This final essay question explored solutions to another major issue of our time, global warming and the carbon emissions that are a major contributory factor. The question specifically asks about the emissions caused by road transport, so methods had to address this specifically and not wider causes. Many candidates discussed tradable pollution permits, which currently don't cover road transport in the UK but can be applied to it in the future. Some candidates discussed permits applied to car manufacturing. However, the strongest answers discussed the use of the tax system to penalise certain categories of transport or fossil fuel use, together with the subsidisation of alternative forms of transport. Other methods were congestion charging and road pricing. Many candidates used well developed supporting diagrams, which is always good to see. This is a very focused and well developed response that achieves full marks. The candidate discusses the subsidising of electric car manufacturing as the first method, and this is developed using a well- drawn if slightly small diagram. It clearly shows the producer and consumer benefits of the subsidy on the diagram. The second policy chosen is information provision. As with the first method, the analysis is crisp and clear and the contextual development very strong. Finally, the candidate discusses indirect taxation on petrol and diesel alongside ultra-low emission zones. The link back to the tax diagram earlier in the essay is apparent. Again, this is clear and the evaluation very strong. The conclusion makes a justified judgement. This second example is less secure, and achieved 14 marks. The first policy of a subsidy is explained but the diagram has the consumer and producer benefits the wrong way round. This achieved level 3 – and level 2 for evaluation of the effectiveness of the method. The second method, the use of tolls, is again less well developed and scored bottom level 3. The evaluation of the time lag is in context but not developed. The development of train lines is again relevant and gets level 3 for KAA and level 2 for evaluation. Overall, this response achieved the bottom of level 3 for KAA and level 2 for evaluation, 9+5.

Notes from the mark scheme and report

• methods must target road transport: fuel or vehicle taxes, subsidies for public transport and electric vehicles, congestion charging, regulation, tradable permits (not yet covered for road transport)
• negative externality diagrams
• evaluate with PED, valuing the external cost and government failure