June 2023: Paper 3

Mark scheme

Examiner's comment

Appearing as early as it does in the Specification, the topic of positive and normative economics is well known to almost every student, and there were almost no blank responses. The main issue was in finding a normative statement, and there was a tendency to think that something that could not be proved because it hadn’t happened was a normative statement, for example ‘Ext A Lines 8-9 the richest 10% of households… would have lost £1800’. As with every binary question such as this there were some students that confused positive with normative, and it seemed that the word positive had not really been considered, for example it ‘sounded as if it is always looking on the positive side’. However, the main difficulty for students was to pick up the analysis mark – could be tested, or subjective/objective being the most common way to develop the reasoning before mere statement of learned definitions. Many students were using the term opinion which is still not accepted by this exam board as an explanation of subjectivity, because of course opinion could be an estimated probability. Just saying an 'opinion' in the last line is not enough for a mark. However this gets all 5 marks because we have the fact-based statement, the proved or disproved distinction and the word 'subjective'. Both application marks are there. Normative statements are not opinions. They are value judgements. This answer also uses the term 'opinion' but also gets the marks because there are enough points from the mark scheme to get all the Knowledge and Analysis marks. Unfortunately this item only receives 4/5 because the chosen normative statement is not in fact a judgement, but rather a statement that could be tested but has not been tested. It's a fine distinction but important to learn that normative is not about probability or whether or not something will happen. Make sure you know what a value judgement really is. Read a few newspaper articles and you will soon get the idea.

Notes from the mark scheme and report

• positive = can be tested against facts (e.g. 1.25% rise in national insurance), normative = value judgement (e.g. 'an unfair decision', 'wrong time to do this')
• 'opinion' is not accepted for normative
• a prediction that cannot yet be proved is still positive
• analysis mark needs testable or objective v subjective

Mark scheme, including the levels grid and indicative content

Examiner's comment

This question worked very well in terms of drawing out large amounts of economics learning from the candidates. The question so clearly asked for information that there were very few that omitted the data. The main issue, as always on the 8-mark questions, is the lack of evaluation. Examine questions are always 2 K 2 Ap 2 An 2 Ev. The evaluation is best when considering one’s own answer and arguing why it might not be such a significant factor, or in fact might be an overriding factor. There are of course many ways to evaluate, but just stating the opposite is not an effective way to do this. For example, if the argument is that interest rates fall or are low, this is a good point, but if the answer says that if interest rates are high, it won’t happen, this is not a clear evaluation. It would be clearer as evaluation to say that ‘however the MPC is now raising interest rates and they have risen from 0.1% to around 5% which will be very likely to have a controlling effect on inflation’. That is the kind of response an examiner enjoys reading and awards generously. One examiner made a comment about the relationship between wages and prices, which is understandably one of the more common answers. She suggests we talk about a price-wage spiral rather than that wage-price spiral, as so much of what we are seeing in terms of wage negotiation in the economy today is a response rather than a causal factor in the very first stage. This is a typical response that scores 6/8 because there is no evaluation. The answer is good because there are two clear points, all based on the data. The logic goes off topic (a current account doesn't in itself cause inflation) and the real issue is the summary. There is no point in giving a summary as it just repeats everything that has already been said. You must evaluate for 2 marks on the 8 mark examine questions. This answer is a joy to read. Clearly 8/8. The diagrams are lovely and there is data interwoven in the answer. The final paragraph gets 2 evaluation marks. If you can, use a shift in aggregate demand AND aggregate supply.

Notes from the mark scheme and report

• cost push (gas prices in Figure 1, 20% fall in the pound raising import prices) and demand pull (tax cuts)
• quote figures, e.g. CPI 9.9%
• evaluate by weighing your own point (e.g. MPC raising rates from 0.1%), not by stating the opposite

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 this year was much more fruitful and highly awarded than in previous years because it was clearly that the impact could be singular or more than singular. This meant there was no cap on the levels of marks, and a short but well explained impact could easily reach Level 3 KAA. A little use of the data, and specific to the diagram was all that was required. However there were some significant problems. One examiner commented that the drawing of diagrams had not been sufficiently rehearsed and there is a presumption that in the classroom the use of whiteboard for drawing had greatly diminished because of the ease of finding ready made diagrams on the internet. Even the PE noted from her own classroom that when asked to draw a cost and revenue diagram, any students making notes on electronic devices would just search up a diagram. It is vital that we practice time and time again with these diagrams. The geometry is important and it is only really clear about things that can go wrong when we try to do them ourselves. The other issue that really stood out as a problem was the distinction between fixed and variable costs. Clearly for some firms such as swimming pools, gas will be a fixed cost, because once the water is heated it will not cost more for one extra swimmer, but for many firms it is a variable cost e.g. steel plants or electricity producers the extra unit needs more case. It is fundamentally important that the candidate makes it clear in her answer, as to whether fixed or variable costs are being considered, and moves the appropriate curves in connection with their choice (that is make sure that MC moves if it’s variable cost, and make sure there is a new equilibrium price and quantity).

Notes from the mark scheme and report

• Level 3 needs an accurate cost and revenue diagram: AC and MC shift up for a variable cost (AC only for a fixed cost) and the new profit area at MC = MR
• make clear whether gas is a fixed or variable cost
• use Figure 1
• evaluate with share of gas in costs, PED, shut-down point

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, including the levels grid and indicative content

Examiner's comment

Despite many attempts to tell the students, it is clear that some still think that a certain number of points must be made, and there are students that make a series of underdeveloped points and run out of time for their evaluation. Clearly at least two policies must be given because the question asks for plural policies, but there is no correct number of policies. The most important skill for candidates to show is that they can develop a sustained chain of reasoning on both the micro and macro side of the economy. This could involve one or more policies on each side and it is not a matter of how many policies but how well they are applied, shown to be relevant, and a chain of reasoning can emerge. One factor that the question could draw out was what type of inequality could be considered, and some of the excellent answers that were seen covered income, wealth, age, geographical, wage or gender-based arguments. Most answers included at least one diagram, and the use of at least one micro and macro diagram was an excellent way to pick up analysis marks. For example there were rises in the national minimum wage, some labelled with 2023 data, and on the macro side there were a large number of AD AS diagrams for example in showing the inflationary effects of expansionary fiscal policy. In evaluation it is certainly an effective approach to say why the policies might or might not be effective, whether there are adverse consequences, and the time lag they involve.

Notes from the mark scheme and report

• Level 4 needs at least one micro and one macro policy and UK data on inequality
• e.g. minimum wage, benefits uprated with inflation, progressive taxes, education
• develop a few policies in depth rather than listing many
• evaluate with incentive effects, time lags, income v wealth inequality

Mark scheme, including the levels grid and indicative content

Examiner's comment

This was a very relevant set of data, and the context could not have been more up to date. The main problem was the change in corporation tax that was mentioned in the passage, and some answers used this in relation to a shift in the cost curves. Of course, corporation tax is post-profit and some answers therefore became off track in their chain of reasoning. In general this question was far more effectively answered, with a mean of 17.74 rather than 16.46 for question 1d. It was also far more popular in a ratio of 4:1 (the split on 2d and e was 1:1). Candidates do find it easier to talk about effects rather than causes or policies, but this is probably because the diagrams are easier to link to each type of tax. The most common micro effect was the potential cut in the top rate of income tax and/or the 19% standard rate, and diagrams showing increases in demand/consumer surplus were common. It was also very common to see the discussion of corporation tax that was in Extract A, and the evaluation was often using the passage to show why at the time this was inadvisable. Many answers used the removal of the cap in bankers’ bonuses, although it was difficult to see why this was a tax. The rise in NICs was used by many although it was not clear that many people could understand the ‘levy’ was a rise in tax rather than the fall in tax asked for in the question. Some were effective in saying that the decision to use the tax was reversed, and the mark scheme allowed for this as a tax cut, although effectively it was not a rise in a tax because it was removed before it was implemented. One of the most effective ways to evaluate on this question was to use the context of the UK today. Since the fiasco described in the passage, inflation rose to over 10% in the UK and there is clearly a link between the fiscal stance and the rate of inflation. Many also discussed that the MPC raised the interest rate even further than the 2.25% mentioned in the passage, and those who showed current knowledge of the macroeconomic position were well rewarded.

Notes from the mark scheme and report

• Level 4 needs micro and macro effects and use of the proposed UK tax changes in Extract A
• corporation tax is levied on profit so it does not shift cost curves
• the national insurance levy was a tax rise
• evaluate with Laffer curve, size of multiplier, inequality, conflict with higher interest rates

Mark scheme

Examiner's comment

The breakdown of marks for a 5-mark question is 2 K, 2 Ap and 1An. After many reminders of this in examiners’ reports it seems that almost all candidates have been drilled in the need for 2 Application marks. It was a surprisingly large number of answers that confused financial markets with financial analysts. The analysts obviously look at markets, so an analyst cannot be seen as a financial market. Some of the answers taking this mistaken approach could still pick up application marks for example by referring to mortgage lenders withdrawing deals. This is a more straightforward way to earn 5/5. Do not feel you have to use all the lines in an answer to pick up the marks. The examiner is looking for brevity and clarity, and one clear step in the reasoning, e.g. 'because', 'leads to', 'allows for'. Remember to make at least one analytical chain of reasoning in your parg (a) questions. Two application marks are always available. This is a good example – there are in fact 4 ways in which this answer could have been awarded the two application marks, but the cap is the two marks for application. The knowledge mark was usually given as to ‘facilitate lending/borrowing’ as here, and the second mark was often given for referring to mortgages. The analysis mark was however harder to find in many answers, and in this example the fifth mark is finally awarded ‘outside the mark scheme’ or OMS because there is an explanation that the firms make money or profit from offering the financial products. Two marks for application – this is a maximum, but the marks are reserved for it.

Notes from the mark scheme and report

• name one role (e.g. lending to individuals through mortgages) and develop it, e.g. allows purchase of big-ticket items
• financial markets are not financial analysts
• use Extract D, e.g. fixed-rate mortgages rising from 2% to over 5.5%

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 (b) 8 mark questions take the format 2K 2 Ap 2An 2Ev. The best answers used a very straightforward, two paragraph structure: point, explain, example, evaluate. There is no point in writing really long answers, and the only reason that more than one page is available for the answer is that sometimes diagrams are useful for either the Application or Analysis (even at times used as Evaluation) and when students draw these they are encouraged to draw them as large sized as possible. This question was seen as very accessible with more than enough material in the extract. Most students chose personalised services and objectives of the firm to be something other than profit maximising. Another common answer was to refer to lack of or expensive parking, and the resultant lack of demand keeping high street shops small. However just saying that out of town shopping centres do have free and large scale parking was not actually evaluation, but rather a repetition of the same point. A more productive way to evaluate was to say that e-bikes or park-and-ride is a type of investment that might resolve this issue in future. However a very large number of answers were centred around economies of scale. Clearly a favourite topic of the student, this was a little more complex when applied in this context. Lack of economies of scale was allowed as an answer, but it needed a little more examination as to why this might prevent firms from growing. Likewise diseconomies of scale was a common response, but while valid this still had to be applied to the context of small shops on the high street. This is a very good example of how NOT to evaluate. In both instances the 'however' sentence was just saying the same point in a different way (first paragraph) or bringing in a new reason (second paragraph). This is good use of the data – charity shops, cafes and personalised services – very clearly 6 KAA. But no evaluation is valid, so 6/8 overall. Make sure you evaluate. You need to offer some critical judgement, or a point which makes your own reason look less convincing or even more convincing in certain cases. This is an example where avoiding diseconomies of scale is used accurately. The first piece of evaluation is not valid but rather weak continued analysis. However the last paragraph does have a well-developed evaluation paragraph which enables the student to just about pick up the full marks overall. 6 + 2Ev = 8 marks. Keep the 8 mark questions short, but follow the pattern 'point', 'explain', 'example', 'evaluate twice over'. This method enables even half a page of writing to earn 8/8 marks.

Notes from the mark scheme and report

• e.g. niche or local market, owner objectives, personalised service, lack of parking
• lack of economies of scale needs explaining in context
• evaluation must not just restate the point (e.g. free parking out of town), consider choice v constraint

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 main problem with this question was relating the answer to the VALUE OF SALES – that is, price times quantity rather than just quantity. Many answers simply referred to decreases in price, and while this will clearly increase quantity, the value only increases if demand is elastic. Similarly, non-price competition such as 3-for-2 only increases the value of sales if people spend more than they would have done overall. This looks as if it will be a high scoring answer... However price and non-price competition is not understood and there is no link to revenue. Scores 3 marks. Make sure you use every word in the question, and use as much economic modelling as you can from your two year course. This is an answer which is too long and is hard to read. However the senior examiners picked their way through and gave KAA L2+. The evaluation was clearly 4/4 but the points themselves did not link to revenue but profit. Make sure you underline and relate to every element of the question. This is about REVENUE not profit or number of sales. This earned 5 (max L2) and 4e = 9/12. Write clearly, use paragraphs, and remember that there are only 4 marks for evaluation on a 12-mark question and if you are L2 then the default is 4/4.

Notes from the mark scheme and report

• Level 2 cap unless both price and non-price competition
• Level 3 needs a link to the value of sales (price x quantity): a price cut raises revenue only if demand is price elastic
• answers about profit or number of sales missed the question

Mark scheme, including the levels grid and indicative content

Examiner's comment

This question on house prices falling caused some significant problems. Mean at 14.1 is the lowest any essay has had in the whole specification series. The average mean is 16 to 17. When house prices are learned about, the wealth effect is the most important factor to put in your notes. Of course the effect on confidence and on first time buyers is important. What does NOT happen is that suddenly people buy a lot more houses in general. This scores 23/25. The diagrams are clear, and the answers are in context. What it really needs is a Judgement not a Conclusion. Do not reproduce pre-learned essays, but it is good to have in mind a micro and a macro diagram that you could use in any essay, as here. Make sure the answer is fully embedded in the context. Then evaluate both the micro and macro side – at least one good argument on each side. This answer does not initially look excellent although eventually it achieves a reasonable score of 18/25. Throughout the answer does not get above L3 KAA and it is clear that the chains of reasoning are short. There is some use of data and there are links made to the diagrams, although at times – for example on page 4 – the links are tenuous and the steps in the chains of reasoning are not convincing. The points are negative wealth effects and geographical mobility, both of which work well. It does not reach Level 4 though, as the chains of reasoning have gaps or are too short to be convincing. Therefore the maximum KAA score of 12/16 is given. Throughout the evaluation is L2+Ev which means it cannot earn more than 6/9 for evaluation. Quality in your answer always surpasses quantity. Write a few points really well, and extend the chains of reasoning to make points that you could read in a quality news report. Read the BBC or similar journalism on house prices to see the most common kinds of arguments, and use some diagrams you know from your course.

Notes from the mark scheme and report

• negative wealth effect on consumption and confidence is the key macro link
• micro: builders, estate agents, negative equity and geographical immobility
• people do not suddenly buy many more houses
• evaluate with size of fall (10% to 20%), regional variation
• report: "caused some significant problems. Mean at 14.1 is the lowest any essay has had in the whole specification series"

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

A significant number misunderstood labour shortages as meaning unemployment. In this context it was rare for the answers to access many marks. Hence the standard deviation reached a high of 6.79 which is far higher than ever seen on a 25 mark question in this series. The mean was also significantly low at 14.98. Many answers began with data use, which is very effective. The use of labour market diagrams was also very common, but few (this is an exception) used the leftward shift to explain why wage rates would rise, which was a good approach. Many instead digressed and talked about why there was a shortage of labour, and a huge number wanted to talk about Brexit. Another excellent approach was to move from rising wage costs to an increase in costs, shown on a cost and revenue diagram. This could be either a fixed cost or a variable cost change, as is always the case with labour as a cost, but it must be very carefully explained in the candidate's answer about why the labour is fixed or variable. This answer does it as a fixed cost but it is not really clear why it is fixed apart from 'if firms have to pay employees a higher wage' which does imply a fixed cost by linking it to high street shops and social care. There is really only a hint of evaluation in the answer but it eventually reaches Level 2 evaluation on the fourth page, when discussing what the government might do about the problem. This does reach Level 4 of both micro and macro, and the senior examiners gave this 16/16 for KAA. There is a Judgement (J) but the overall score for evaluation is mid L2 Ev. The final mark is 16+5e = 21. Do not keep repeating diagrams and analysis. Instead devote 9/25 (or 36% of your time) to evaluation. Make an overall judgement – this can be at the start, middle or end of your essay but more often than not it is seen at the end in excellent answers. This answer includes good data, diagrams and development. There is evaluation throughout. It is clearly a top answer 23/25 but it misses out some steps on the macro side – the conclusion at the top of page 4 is reached too quickly, and its corresponding evaluation is generic. You can make just one micro and one macro point and get the top level (L4) as here. A less risky approach might be to add another point if you are at all unsure about your reasoning. Cost and revenue diagrams are a very useful way to show the effects of cost rises. However you must make the link to MC and AC if there is a change in variable costs. Section 1 A reminder to centres that it does not benefit candidates to have stock essay answers as they miss the higher marks by not using the context to guide their analysis and evaluation. It is helpful if the candidate marks the box for the essay chosen (1d or 1e) but if they do not (around 10%) then they are marked in a pool where the examiner has to decide which question has been attempted. The answer usually becomes clear very quickly when candidates put signals in their work and make it clear from the outset that they understand the question. Section 2 The majority of candidates ran short of time on the essay and the advice to candidates is to reserve 30 minutes for the final essay, and to use at least one micro and one macro point, diagrams where possible and all the data that links to the points made. Evaluation is key and we need to see developed and applied chains of reasoning within the evaluation.

Notes from the mark scheme and report

• labour shortages are not unemployment
• supply of labour shifts left so wages rise, then costs rise on a cost and revenue diagram (explain fixed or variable)
• macro: cost-push inflation, LRAS, competitiveness
• focus on effects, not causes such as Brexit
• report: "A significant number misunderstood labour shortages as meaning unemployment" and "the mean was also significantly low at 14.98"

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