Free market, mixed and command economies Theme 1

Mark scheme

Notes from the mark scheme and report

• an economy where resources are allocated by buying and selling through the price mechanism without government intervention

Answer

B

Mark scheme

Notes from the mark scheme and report

• in a free market the price mechanism allocates all resources (B)
• Marx criticised free markets, externalities exist in all systems, and the state owning all resources is a command economy

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

Many candidates were again able to identify that the mixed economy includes both private and public sectors, and the highest awarded answers used some of the information in the question stem to link this to furlough payments and how wages during the health crisis were paid between private firms and the government.

Notes from the mark scheme and report

• both private and public sectors allocate resources
• apply to furlough: government paid 80% of wages (£70 billion) while private employers paid the rest

Answer

A

Mark scheme

Notes from the mark scheme and report

• low unemployment (A) is a likely advantage of a command economy
• price signals and the profit motive are free-market advantages
• shortages from price controls are a command-economy disadvantage

Mark scheme, including the levels grid and indicative content

Examiner's comment

The second of the essay questions, this question was the least popular by a significant margin Candidates also performed substantially worse on this response than they did on 6(f). The question allows candidates to demonstrate their understanding of how a free market approach would lead to a better outcome than through government intervention. Strong candidates made a good attempt to substantiate points diagrammatically and in context. Many recognised the issues relating to a lack of intervention such as how public service broadcasting and educational programming such as CBeebies and Channel 4 would not be produced or would be under produced/ consumed within the free market as they would not generate sufficient demand – partly due to individuals not being as aware as they should be of the private and external benefits. Top level KAA marks required at least two likely reasons why the free market would produce a better overall market. Evaluation marks could be achieved by counter balancing the point(s) made and arguing for government intervention/ free market approach accordingly.

Notes from the mark scheme and report

• free market under-provides public service broadcasting with external benefits (MSB above MPB diagram), excess advertising, no content for minority groups
• evaluate with choice and competition from Netflix and Disney+, government failure
• candidates did substantially worse than on 6(f)

Mark scheme

Examiner's comment

Extract B contained plenty of information candidates could use to consider the characteristics of private ownership and once the key concepts of excludability and rivalry were applied to the situation the majority of responses were able to score marks. Better candidates could explain two characteristics using the extract effectively.

Notes from the mark scheme and report

• two characteristics each explained and applied: excludability (owners can charge or stop others using the asset), rivalry, owners accountable for and conserving the resource
• contrast with common access resources (Extract B)

Mark scheme

Examiner's comment

Candidates typically performed well on this question, with most able to identify what the key features of a free market economy are. Typically a recognition of the interaction of supply and demand or minimal government intervention were typical responses.

Notes from the mark scheme and report

• prices set by the free interaction of supply and demand, without government intervention

Mark scheme

Examiner's comment

It was important in this question to make the comparison between a free market and a command economy. Confident candidates were able to illustrate a ‘problem’ with the command economy which market forces ‘solved’, and many characteristics were clearly in evidence.

Notes from the mark scheme and report

• one advantage plus development, compared explicitly with a command economy (competition makes firms efficient and responsive
• prices carry information without costly bureaucracy
• less government failure)

Mark scheme, including the levels grid and indicative content

Examiner's comment

This question was reasonably popular and allowed candidates to consider the merits of a free market approach where state intervention is more usually the norm. the free market approach to education is explored throughout the data, and the use of tuition fees is already a move towards that outcome. Greater reliance of differential course fees is another example. Candidates did not have to consider the ‘market’ for tertiary education and could have explored schools just as easily. It is important to note that a diagram showing the price mechanism at work in this sector raises a series of questions. Schools, as we know from Finland and from the Netherlands, do not have to be exclusively state run or privately run. It is crucial, however, that candidates confidently explore the problems of an overreliance on the market in the face of significant positive externalities in consumption. The question of equality of access is also highly significant. The UK’s large independent sector is a good example in this regard.

Notes from the mark scheme and report

• price mechanism, choice, efficiency and fees by value of degree, US model
• can discuss schools as well as universities
• evaluate with positive externalities in consumption, under-consumption, unequal access and the European low-fee model

Answer

D

Mark scheme

Notes from the mark scheme and report

• Marx criticised private ownership of the factors of production (D)
• Hayek favoured free markets, not subsidies for inefficient firms or command economies
• Marx did not advocate the free market

Mark scheme, including the levels grid and indicative content

Examiner's comment

This was a highly accessible question considering the disadvantages of the free market approach to health provision. Nonetheless, perhaps because of its slightly more theoretical premises, it proved to be much less popular than 6(f). There are numerous failures alluded to in the extracts, particularly asymmetric information. This essay requires a clear exercise of critical analysis and good candidates would be expected to have a developed notion of the positive externalities generated by health care and how they may be under-provided in a free market. Good candidates used a positive externalities diagram and used it to intelligently assess why free markets would lead to a sub-optimal allocation of resources in the health care sector. This would require government intervention of some kind to correct this market failure. Another argument that was developed in relation to the question was the inequality of access to health care developing from the unequal distribution of income in free market economies. Sophisticated responses recognised that government intervention would be required to mitigate the worst excesses of this in the health care sector. There was usually at least one other argument linking in to ideas of asymmetric information alluded to in the extracts. Comparisons may be made between countries such as the UK and the USA. There could be knowledge of Obamacare. To access evaluation marks candidates could use the prompts in the extracts which discuss the advantages of competition such as the potential to drive up standards of provision and the opportunity for consumer choice. Many candidates discussed how the NHS is a state monopoly and how it could be the best case for the expansion of the free market approach to more areas of health provision.

Notes from the mark scheme and report

• free market under-provides health care with external benefits (positive externality diagram), unequal access by income, asymmetric information, missing markets
• evaluate with price signals, choice and competition (Extract B), NHS waiting lists, mixed economy

Mark scheme

Examiner's comment

This was a well-answered question with the majority of candidates able to clearly define a command economy. Typical answers stressed 'centrally planned', 'government run', or 'no or limited private sector'. Less able candidates sometimes confused the definition with that of a mixed economy, hence the stress on 'all' or 'most' of the resources being allocated by the government. This answer is typical of a clear and concise statement which establishes the government at the centre of the allocation of resources. The mark scheme accommodates a range of accurate definitions for 'command economy'. Concise accurate answers for 1 mark are the best approach. This is another strong answer, where the candidate emphasises state ownership and how it addresses the economic problem.

Notes from the mark scheme and report

• centrally planned economy where the government owns and allocates most or all resources
• report: weaker answers described a mixed economy

Mark scheme, including the levels grid and indicative content

Examiner's comment

The question required candidates to evaluate the possible advantages of a free market approach to cigarette consumption. The question was significantly less popular than 6(g) and had more polarised responses. Candidates were expected to draw on their own understanding of a free market approach and were aided by the data in Extract B. Top Level 3 or 4 responses provided well-structured balanced responses with often some evidence of planning. They made effective use of the data in Extract B in particular and applied free market theory to non-governmental solutions using market forces, typically covering signals, rationing and incentives. Diagrammatic analysis was not required but when used was accurate and well explained with a solid chain of reasoning. More able answers referred to the substitution effect happening between tobacco and e-cigarettes and made references to utility. Hardly any candidates made a direct reference to Adam Smith or Hayek but their ideas were often implicit in the candidates writing and this was to be expected and awarded a high level. Level 4 answers often drew, in a sophisticated manner, from the broad Theme 1 specification to provide logical chains of reasoning. A key differentiator was the quality of knowledge and understanding of free market approaches, often carefully applied through logical and clear chains of reasoning. Level 2 answers tended to use basic and generic supply and demand analysis or changed the focus of the question to government intervention. Evaluation tended to concentrate on information gaps or the role of government to prevent consumers being exploited and protecting third parties against passive smoking but could often be generic or common-sensical resulting in Level 1 evaluation. Level 2+ evaluation was placed in context and developed with a good chain of reasoning. Best uses of substantiated judgement were sustained throughout in candidates’ responses as they made effective use of positive economics to make judgement calls answering the question by weighing up the free market approach to come to a clear answer to the question set. 20 out of 20 marks awarded. The candidate started by defining free market and after making a confused comment about ‘publicly owned’ provided an accurate definition which was also implicit throughout the essay. The first advantage they focused on was the incentive effect for firms and consumers. The paragraph was well-structured, demonstrating a logical and coherent chain of reasoning in context to a Level 4 standard. The evaluation provided a case for government intervention against the free market which was valid and in context. The second advantage of having a free market was it makes it easier for consumers to switch; there was precise use of theory and focus on context fully integrated to earn top Level 4 (14 KAA). Evaluation was then linked to the need to regulate to prevent consumers switching to unhealthy products and the need to quit to a Level 3 evaluation. The conclusion locks in Level 3 evaluation as it offers a substantiated judgement. By carefully structuring your response it is easier to then offer a sophisticated approach to developing a coherent argument in depth and in context. 8 out of 20 marks awarded. The candidate started with a clear definition and moved on to the first advantage of considering the incentives to firms. This was not explained carefully or in context but there was elements of knowledge and understanding to achieve low Level 2. They then go on to attempt to evaluate by saying the lower cost was not assessed on to consumers but the reason for this was not explained nor was there context, thus achieving a low Level 1 EV. The second advantage provided was consumer sovereignty but this seemed to build on the incentive argument for firms already covered although there was better context here, the response achieved a Level 2 KAA. The attempt to evaluate did not answer the question so was not awarded. Overall they achieved L2 KAA (6 marks) plus Level 1 evaluation (2 EV) = 8/20. The structure is sound but it is essential to use theory and data to ensure you carefully explain it and link your evaluation back to the question.

Notes from the mark scheme and report

• price mechanism (signalling, rationing, incentive), consumer sovereignty and utility, profit motive and competition from e-cigarettes (Extract B), Smith and Hayek
• evaluate with information gaps, externalities, addiction, market power
• far less popular than 6(g) with polarised answers