June 2024: Paper 1

Mark scheme

Examiner's comment

In this question, candidates were asked to explain one likely reason for the difference in the price elasticity of demand for the 18+ student bus ticket and the adult bus ticket. Marks were awarded for an understanding of PED, the recognition that the demand for the adult bus ticket was more price inelastic, and the reason for this. Responses to this question tended to be strong, though there was some confusion regarding precisely what the numbers meant. A typical mistake was to say that the PED for the 18+ student bus ticket is more elastic, which it isn't, because it is less inelastic than the PED for the adult bus ticket. Some candidates also thought the value of –0.7 is more inelastic than –0.4, which it isn't. This is a strong response, which achieved all 4 marks. The candidate has clearly identified that differences in incomes are significant, because the cost of a bus ticket comprises a higher proportion of the students' incomes when compared to adults. The candidate clearly uses the values of –0.4 for adults and –0.7 for students. They tell us that both values are price inelastic. Although the candidate previously said that the PED for students is more 'elastic', which is untrue, we ignored this inaccuracy because of the final sentence. There is a clear recognition throughout the response that the student demand for bus tickets is more price sensitive than that for adults. Precision is essential to maximising the available marks. Student demand for bus tickets is not more elastic than that for adults. It is less inelastic. This second response achieved 3/4 marks. The candidate gains marks for the recognition of the significance of incomes and the explanation of the importance of them where the price elasticity of demand is concerned. The value of – 0.7 for the PED for student bus tickets is also creditable. However, the last sentence is incorrect because it implies that the PED for student bus tickets is more price inelastic than that for adult bus tickets, which according to the data, it isn't.

Notes from the mark scheme and report

• -0.7 is less price inelastic than -0.4, not "more elastic" or "more inelastic"
• quote the PED values for the application mark
• reasons: substitutes, share of income, necessity

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)

Answer

B

Mark scheme

Notes from the mark scheme and report

• %change in Qd = PED x %change in P = -0.4 x 4.8 = -1.92 (B)
• C uses the student PED
• A and D divide instead of multiply

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)

Mark scheme

Examiner's comment

This question asked candidates to explain one likely reason for the difference in the price elasticity of supply between New York and Texas. Candidates had to recognise that Texas was price elastic and New York was price inelastic. An understanding that PES is about the supply side is crucial and there were a significant minority of candidates who talked about demand side factors such as the size of the population in New York compared to that in Texas. Here, we were looking for an understanding of planning regulations or shortages in the factors of production, particularly land, in the state of New York compared to Texas. This first response achieves all 4 available marks. There is an implicit recognition that in Texas it is easier to increase the supply of houses, which makes supply more price elastic, demonstrating that the candidate understands what price elasticity of supply is. The candidate uses the value of PES effectively and gives a clear explanation of why supply is more responsive because there is more space available on which to build houses. This is then contrasted with New York, which has price inelastic supply because there is less available space. This response scored 3 marks. There is a recognition that the available land makes Texas more price inelastic in the supply of housing whereas New York is price inelastic. Although the reason given, the quantity of substitute housing, confused price elasticity of supply with price elasticity of demand, there is still creditworthy material here. Again, precision is key. Be sure to understand the determinants of the price elasticity of supply in relation to those of price elasticity of demand.

Notes from the mark scheme and report

• PES is a supply-side idea: demand-side reasons (e.g. population of New York) earn nothing
• planning regulations / shortage of land in New York
• say which state is elastic and which inelastic

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)

Answer

C

Mark scheme

Notes from the mark scheme and report

• %change in P = %change in Qs / PES = 12 / 1.8 = 6.67 (C)
• 1.8/12, 1.8/1.2 and 1.8 x 12 are the distractors

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)

Mark scheme

Examiner's comment

This question is looking for an accurate diagram showing the difference between profit maximisation and revenue maximisation. Candidates had to mark both the output and the price to achieve all four marks. The typical mistake on this question was a failure to mark the price accurately. Many candidates indicated profit maximisation as MR=MC, or revenue maximisation as MR=0. This would gain two marks only. On this response we can see the candidate has clearly marked the profit maximising point at MR=MC, and this point has been extended down to the x axis and labelled Q1. This point has also been extended up to the AR curve and then across to the y axis, and marked at P1. The candidate has also marked the revenue maximising point where MR=0. However, they have not extended this point up to the AR curve and the y axis. Overall, this response scored 3 marks. Always ensure that you label diagrams accurately. Practise the drawing of these systematically as you prepare for the examination. On this response the candidate has correctly indicated the point of profit maximisation and extended this point to the x and y axes. They have also indicated the point of revenue maximisation and extended it to both axes. Although the extension of the revenue maximising point indicates P2 as higher than C2, the candidate correctly recognises that this is a loss, and has marked the shaded area as a loss. As a result this response scored full marks.

Notes from the mark scheme and report

• mark price AND output for both objectives: profit max where MC = MR, revenue max where MR = 0
• showing only MC = MR and MR = 0 scores 2 of 4

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

Answer

A

Mark scheme

Notes from the mark scheme and report

• sales maximisation without a loss is where AC = AR (A)
• B is productive efficiency, C revenue maximisation (PED = -1), D allocative efficiency

Mark scheme

Examiner's comment

On this question, candidates had to explain one likely reason for the maximum price for an undergraduate university programme. The stem mentions the figure of £9250 per year for the next two years. Candidates referring to either the sum or the time period could access the application mark, with the rest of the marks being awarded for a legitimate reason and the explanation of it. Though there were no marks for a definition of a maximum price, a diagram or a definition of a maximum price was awarded as understanding. Concepts such as positive externalities in consumption could also be awarded. Note that the term 'merit good' is not on the specification. Candidates had to explain the difference between private and social benefits or give some indication that they knew what external benefits in consumption actually are. This response achieves all four marks. Although the term 'merit good' isn't on the specification, it is clear from the candidate's explanation that they know tertiary education has benefits to society which are greater than the private benefits alone. For this reason government intervenes to correct this underconsumption. The reference to a maximum price leading to increased consumption shows an implicit understanding of what a maximum price is, and there is specific reference to the cost of tuition being fixed at £9250 for the next two years. Be careful to explain any concept using the terminology of the specification. This second response scored 2 marks only. The first mark is awarded for the notion of education being made more affordable, and the second for a sense of education having external benefits in consumption, though the concept isn't developed. There is no application mark.

Notes from the mark scheme and report

• use the £9 250 fee or the two-year freeze for the application mark
• no mark for just defining a maximum price
• 'merit good' is not on the spec, explain external benefits instead

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

Answer

B

Mark scheme

Notes from the mark scheme and report

• distortion of price signals (B) is a cause of government failure
• a maximum price gives excess demand, not excess supply

Mark scheme

Examiner's comment

On this question, candidates had to use the information in the market share chart to explain the market structure of mortgage lending in the UK. The most effective method here was to calculate the n-firm concentration ratio, which was worth two marks. This calculation indicated that the market structure was oligopolistic. Marks were then available for some explanation of the characteristics of oligopoly, such as high barriers to entry or a few large firms. Some candidates mistakenly identified monopolistic competition or monopoly from this data. This response clearly recognises that the market structure of the UK mortgage industry is oligopolistic. The candidate then tells us that there are multiple large firms with significant market share. There is then a final mark for the reference to Lloyds being the largest firm. Overall, this response scored 3 marks. To maximise your marks, always refer to the stem for numerical data. Quoting the table provided or, better still, manipulating the numbers provides access to higher marks. This second response achieved full marks. The candidate informs us that this industry is an oligopoly. They have then used the numerical data to calculate the five-firm concentration ratio of 64%. They go on to tell us this is typical of oligopolistic industries. A very efficient response.

Notes from the mark scheme and report

• calculate an n-firm concentration ratio (e.g. 5-firm 64%) for 2 marks and conclude oligopoly
• some wrongly said monopolistic competition or monopoly

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)

Answer

C

Mark scheme

Notes from the mark scheme and report

• 19.5% x £1 601 billion = £312 billion (C)
• A divides by 19.5, B uses 12.7%, D divides by 0.195

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

Mark scheme

Examiner's comment

In this question, the first of our Section B examples, candidates had to use Extract A to explain the likely reasons for the change in price of electronic devices. A supply and demand diagram was specifically asked for. The most efficient approach was to draw the diagram indicating the correct shifts, then explaining why the shift occurred the way it did. The application mark was reserved for a specific data reference, such as the increase in the price of computer chips from 1. Typical issues on this question were the failure to either indicate both shifts or to not explain them in the written narrative. 0.20toover This response has correctly illustrated a right shift in demand, and explained why this has happened. The reference to the growing popularity of home entertainment gains the application mark. However, there is no reference to the shift of the supply curve referred to in the extract. Overall, this response scores 3 marks. Carefully reading the extract is essential to maximising the marks on data response questions. The data contains relevant information that candidates can use. This second response is significantly better than the first. The candidate uses the extract and quotes it directly. They pick up on the fact that higher material costs have also caused the supply curve to move inwards. The drawing of the new supply curve and the explanation of the reason gains access to all the marks available for this question.

Notes from the mark scheme and report

• show BOTH shifts (supply left from higher chip/material costs, demand right from popularity of home entertainment) and explain each
• data reference e.g. chips $0.20 to over $1

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

This question asked candidates to examine two factors which might influence the supply of labour in the electronics industry. The response had to be specific to the electronics industry to access the application marks, the best way to do this is the use of quotation marks. It is best practice to state one reason and then clearly reference it from the extract. Not clearly differentiating the two means examiners may not award the knowledge mark and the application mark separately. This is where good examination technique is important. The analysis of how or why the factor affects the supply of labour then gets the analysis mark. Remember that two factors are asked for. Many candidates erroneously discussed demand side factors. Factors such as changing wage rates had to be carefully explained to show how the supply of labour is affected. This first response scored six marks. The first knowledge mark is achieved by reference to the inelastic nature of labour supply and this is explained to achieve the first analysis mark. The first application mark is gained by the reference to the electronics industry in the final sentence of the first paragraph. However, because there is no second factor discussed, the second available knowledge and analysis mark cannot be accessed. However, there are two application marks available, and these can be achieved for separate pieces of data. The reference to production becoming more automated at the start of the second paragraph is sufficient to gain the mark. Furthermore, the quality of the evaluation is very strong, so both evaluation marks can be awarded. If two factors are asked for then two must be supplied to gain full marks. However, application and evaluation marks are not linked to just one reason. This second response is a very efficient piece of writing, demonstrating excellent examination technique. The candidate uses two separate paragraphs and achieves one knowledge, application, analysis and evaluation mark in the first paragraph. The process is replicated perfectly in the second paragraph where the other 4 marks are achieved.

Notes from the mark scheme and report

• two factors, clearly separated, each linked to the electronics industry (quote Extract B) and evaluated
• demand-side factors do not answer the question

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

Mark scheme, including the levels grid and indicative content

Examiner's comment

This question is the first of the levels-based responses, and was looking for an assessment of whether firms in the electronics industry benefit from economies of scale. The approach here was to write one paragraph on why the firms benefit and another on why they didn't. Whilst many candidates considered several factors it was possible to obtain full marks by discussing one factor on either side, in depth. Many candidates confused economies of scale with dynamic efficiency, which is about the change in productive efficiency over time. This would cause the long run average cost curve to move downwards. Economies of scale happen when the firm moves further along the original long run average cost curve, towards the minimum efficient scale. Overall, most candidates could discuss the different types of scale economies, such as financial or managerial, and then evaluate by discussing likely diseconomies of scale or whether dynamic efficiency was more significant than economies of scale, given the nature of the industry. The key point here was to assess the extent of these economies in the electronics industry. This first response is a weak response that gained only three of the marks available. The candidate only tells us that firms in the electronics industry benefit from economies of scale. The point about bulk buying discounts accessing lower costs is valid, but the candidate then goes on to discuss gains in dynamic efficiency achieved through new product development. There is no evaluation of the points made. This response achieved bottom level 3, for 3 marks. This a 10 mark question, with 6 marks available for knowledge, application and analysis, and 4 marks for evaluation. To access the marks you should aim to spend roughly 6 minutes developing the KAA and 4 for the evaluation. To access full marks you just need to develop one argument on either side. Efficient use of time is important! It is clear from this second response that the candidate has achieved considerably more in the time available. The candidate talks about the economies of scale potentially achievable through the proposed merger of Nvidia and ARM. There are two well developed points, the first concerning the financial economies of scale from being bigger, which can then be invested into the firms becoming more productively efficient. This point is then well evaluated. The candidate then discusses marketing economies of scale, again in the context of the merger, and evaluates by discussing potential diseconomies of scale. This response achieved full marks.

Notes from the mark scheme and report

• do not confuse economies of scale with dynamic efficiency (shift of LRAC down)
• one well-developed point each way is enough
• evaluate with diseconomies of scale

Mark scheme, including the levels grid and indicative content

Examiner's comment

For this question, candidates were expected to discuss two concerns of the competition authorities regarding the proposed merger. The typical pattern here was for candidates to focus in on the likelihood of impediments to the operation of competition or a substantial lessening of competition. Evaluation then focussed on the potential gains of various economies of scale which could result in lower prices for consumers, or the dynamic efficiency gains resulting in better quality products. Responses to this question tended to be very good on the whole. This first response is a well written and well developed example, which scored 9/12. The first argument is about reduced choice for firms within the industry, which will potentially reduce consumer surplus. This first argument achieved bottom level 3. The evaluation of the argument achieved bottom level 2. The second argument is in some ways a development of the first, and dives further into the notion of rising costs and lower profits. We felt this was rather confused in places, but still merited top level 2. Again, the evaluation regarding government intervention was in context and we awarded bottom level 2 for this. Overall this response achieved bottom level 3 KAA and bottom level 2 evaluation. It is important to clearly distinguish two specific concerns in this question and explain concepts with clarity and in context. In this second example, the candidate discusses how the merger could lead to a substantial lessening of competition. The candidate explains how this could lead to a fall in consumer welfare if these higher prices are passed on. The quality of the analysis, in context, is excellent. It is linked to a clearly drawn and labelled diagram. This first paragraph achieved top level 3. The first evaluative chain focusses on government intervention to mitigate the impact of the merger and considers how some consumers may not mind paying higher prices for higher quality products. This achieved level 2. The second KAA paragraph concerns another potential concern, that of the merger leading to a reduction in the number of firms in the industry as a consequence of the economies of scale achieved by the newly merged firm. This scored top level 3 due to the precision of analysis and the embedding of information from the extract. The evaluation focusses on the potential dynamic efficiency gains available to the new firm and how the competition authorities must weigh these against the potential costs. This scored top level 2. Overall, this response scored full marks.

Notes from the mark scheme and report

• two concerns needed for KAA Level 3 (substantial lessening of competition, higher prices, less choice, less innovation)
• evaluate with economies of scale and dynamic efficiency gains

Mark scheme, including the levels grid and indicative content

Examiner's comment

For this question it was important to discuss a range of possible methods of government intervention to reduce electronic waste. Extract D provided a range of these, so candidates were able to perform well on this question, though good examination technique really made the difference again. The approach was to choose two complementary methods, perhaps indirect taxation and subsidisation, and then illustrate them with clearly drawn and explained diagrams. This is a classic example of how diagrams could be used to support an answer without being specifically asked for. Having said this, full marks could be achieved without the use of a single diagram. The key was clear analysis and evaluation of the proposed methods. This response discussed two methods that the government could use to deal with the problem of electronic waste. The subsidisation of recycling initiatives was explained, followed by the launching of an educational campaign. The first argument was rather descriptive and there was only a basic development of how and why the policy might be effective. The evaluation of the policy focussed on the cost of the subsidy to the taxpayer. The second argument contained very little development at all and there was no attempt to evaluate its probable effectiveness. Overall, this response achieved level 1 KAA, 3 marks, and level 1 evaluation, 2 marks. 5 in total. In the 15 mark questions it is important to develop arguments in detail. Diagrams are helpful and will focus the analysis. There are also 6 marks for evaluation, so take the time to consider why the methods proposed may not be effective. This second response is clearly much better than the previous one, and scored 13/15. The first method is the use of a specific tax on the manufacturers of electronic devices. This is linked to a diagram which shows the negative externalities of production, and demonstrates how the tax would work to reduce them. The narrative uses the extract and clearly answers the question. This achieved top level 3. The evaluation of the method is very good, and achieved bottom level 3. However, the second method focussing on subsidies is not as well developed as the first. It just makes level 3. The evaluation of the method is also in context and gets into level 3. Overall, this response achieved level 3 KAA, 8 marks, and level 3 evaluation, 5 marks.

Notes from the mark scheme and report

• Level 3 needs two methods and at least one reference to Extract D
• indirect tax / subsidy with negative-externality diagrams
• evaluate effectiveness, e.g. valuing the external cost

Mark scheme, including the levels grid and indicative content

Examiner's comment

In this question, candidates were asked to evaluate the microeconomic effects of rising energy bills on the hotel industry or an industry of the candidates' choice. Inevitably, most responses focussed on the hotel industry because the stem provided a location, a specific real world example, and a pathway into a discussion about the buying power of larger hotels. The responses to this question tended to follow the impact of cost and quality of provision, as hotels reduced services in a struggle to balance the books. There were many imaginative responses which discussed the differential impact depending on location, time of year, and whether the hotel was small or part of a large chain. Again, the good use of accurately drawn cost and revenue diagrams often significantly enhanced the quality of many responses. Short run shutdown scenarios were particularly effective. In a 25 mark essay it is good practice to write two developed KAA paragraphs to approach the top level, and to ensure that there is in depth evaluation of both arguments. In this first example we see two KAA paragraphs, the first one regarding the impact of rising energy bills on costs. The candidate explains how rising costs will reduce profits for hotels, which will in turn reduce their ability to expand their operations. This first paragraph was awarded level 2. The candidate then makes a valid evaluative point by explaining that hotels could increase their prices to counter higher costs, but that this would depend on the price elasticity of demand of their customers. This was awarded level 2 evaluation. The candidate then makes a second KAA point about falling customer demand affecting the entire industry because of the scale of the increase in cost. This is not particularly well developed, and was awarded level 2. There was no further evaluation. Overall, this response scored level 2 KAA, 7 marks, and level 2 evaluation, 4 marks. This is 11/25 in total. Writing a 25 mark essay is a crucially important skill. There are 4 across all three papers in the series. There should be at least two KAA paragraphs to develop both the depth and breadth of argument. There should be in depth evaluation of each KAA paragraph. At the end of the essay there should be a conclusion that works towards a justified judgement. In this second example we see a very strong response. The first KAA paragraph explains how rising costs reduce abnormal profits. The analysis is deepened by a carefully drawn diagram which shows the increase in both average and marginal costs, and the reduction in profits. The candidate moves on to explain how this would reduce hotels' quality of service and lead to potential job losses. This was awarded level 4. The next paragraph then develops some strong evaluation, explaining how the negative impacts would depend on where the hotel is located, because the quality of service is less relevant when the location itself is a more important factor. This was awarded level 3 evaluation. The second KAA paragraph discusses the negative impact on competition, explaining that smaller hotels may not benefit from the scale of operations that would allow bigger hotels to absorb cost increases. There is then a discussion of the possibility of oligopolistic collusion which then leads to higher prices for consumers. This was also awarded level 4. The candidate then moves on to evaluate by saying that the government may take measures to offset the negative effects on competition. This was awarded level 2 for evaluation. Finally, the candidate then attempts a conclusion, and prioritises the negative impact on competition. However, this then brings in new material on Airbnb and contestability. Overall this response achieved 16 marks for KAA and 7 for evaluation, so 23 in total.

Notes from the mark scheme and report

• fixed-cost rise shifts AC (variable-cost rise shifts AC and MC)
• losses and shut-down points
• two developed KAA paragraphs each evaluated
• a diagram is not required for Level 4

Mark scheme, including the levels grid and indicative content

Examiner's comment

This question, quite similar to Q6(e) from 2022, expected candidates to evaluate the level of contestability in the fragrance industry. It was asking whether the level of contestability is high or low in that particular industry. Other industries could, of course, be chosen, but the approach was fundamentally the same. This was not a popular question, and the quality of responses was significantly poorer than those seen in Q7. Many candidates did not discuss contestability. A contestable market occurs when there is freedom of entry and exit into the market. It is not the same as the existing level of competition in a market. In a contestable market, it is not the number of firms that is important but the ease with which potential competition can become actual competition. When candidates talked about the extent of barriers to entry or the extent of sunk costs they were able to access marks. However, many candidates talked about perfect and monopolistic competition and neglected to mention sunk costs or hit and run competition at all. The key takeaway from this example is to only attempt questions when the content is fully understood. This first response to the question made a reasonable attempt to address the issues surrounding contestability in the fragrance industry. there is some good context and the discussion of relevant theory such as limit pricing. However, the candidate doesn't really get to grips with what contestability actually is. In this response the candidate has discussed the supermarket industry and how its barriers to entry make it oligopolistic. The evaluation is somewhat confused, hinting that the collusive equilibrium previously discussed may not be achieved because of price wars, but that this now constitutes another barrier to entry. The second KAA paragraph on limit pricing is well developed and achieved level 3 KAA. Tesco is a legal monopoly, though there are multiple large competitors, and some local monopolies. Overall, this essay mixed elements of competitiveness and contestability and struggled to fully answer the question. Overall, this response achieved bottom level 3 KAA, 10 marks, and bottom level 2 for evaluation, 4 marks, so 14 in total. Accurate understanding of theory is crucial. This question is asking whether the level of contestability in the industry is high or low. It is not asking whether the industry is competitive but whether the industry behaves as if it is competitive. This is because of the threat of potential competition becoming actual competition. If new firms can easily enter and exit the industry to compete for any supernormal profits, the industry is contestable. This second response is a much better attempt to answer the question. There is a clear definition of what contestability is. The candidate then discusses sunk coats, limit pricing, and draws a clear diagram to explain how the theory works. There are plenty of good contextual examples which illustrate the theory. There is some discussion of intervention by the competition authorities to increase contestability. A real strength of the response is the way the candidate uses clear signposting to say why their point either increases or reduces contestability. This is certainly evident when the Tesco Clubcard is discussed in the context of brand loyalty and how this constitutes a significant barrier to entry which reduces contestability. Overall, this response achieved level 4 KAA, 15 marks, and level 2 evaluation, 5 marks, giving 20 in total.

Notes from the mark scheme and report

• contestability is about ease of entry and exit (sunk costs), not the number of firms or existing competition
• many answers never discussed contestability
• limit pricing
• report: "the quality of responses was significantly poorer than those seen in Q7"