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| Series | Paper | Q | Marks | Title |
|---|---|---|---|---|
| June 2022 | Paper 1 | 7 | 25 | Tesla held an 82% market share of the electric vehicle market in the United States during the first half of 2020. (Source: adapted from https://electrek.co/2020/08/21/ tesla-holds-us-ev-market-losing-federal-tax-credit/) Evaluate whether a monopoly is likely to operate efficiently. Refer to at least one monopoly of your choice. |
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A
Quantitative skills: QS 4 (construct and interpret a range of standard graphical forms)
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This question was the first linked directly to the digital markets material. It asked candidates to explain one likely impact of the growth of digital markets on allocative efficiency. The extract was full of information, and most candidates were able to identify how competition led to an increase in allocative efficiency, supported by relevant date references. This was a very well answered question, though full marks were sometimes missed because of a weak understanding of what allocative efficiency actually is. In this response, the candidate has simply not written enough. They have recognised that allocative efficiency will increase and connected this to the increase in competition. However, there is no further development. An explanation of what allocative efficiency is, a reference to the extract using the examples provided, would have been straightforward marks. As a result, this response scored only 2/5. This second example is exhaustive in the clarity of its explanation and the use of the extract. We have a clear understanding of what allocative efficiency is and the fact that it occurs where price equals marginal cost. The candidate refers to greater choice, access to higher- quality products and lower prices to maximise the marks for application. They then go on to tell us that this is attributable to the competition present in the market which increases allocative efficiency. This response scored 5 marks. When approaching the short-answer questions, a candidate can never be sure precisely how many marks are available for each skill because they are not indicated on the examination paper. It is therefore good practice to ensure that there is sufficient application to gain all potential marks, in addition to the knowledge and analysis which tend to be marked together on the SAQs.
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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.
Quantitative skills: QS 4 (construct and interpret a range of standard graphical forms)
The stem pointed students in the direction of Tesla and application of this to the question was popular with good insights into how Tesla may focus on dynamic efficiency but then, due to its dominant position, act in an inefficient manner. Unlike previous essay-based questions students were allowed to discuss other examples of monopolies and this approach was taken up as they moved on to discuss a second efficiency point, often looking at the behaviour of a natural monopoly, such as in the water industry. Students were not required to draw a diagram, but the better analytical responses often did make effective use of a precise cost and revenue diagram. The diagram in the mark scheme is for illustrative purposes and other suitable diagrams were allowed. In terms of evaluation, students did approach the question in different directions, some arguing that monopolies were inefficient and then countering this, and others vice-versa. Either approach was valid. Lastly, there were attempts at a conclusion, but this was often used to summarise points already made rather than making a clear judgement. When the latter was the focus of the conclusion, it was often done well and helped to raise the overall score. This response, whilst being knowledgeable about Tesla, lacks an effective sustained use of economic theory. Application should be anchored to knowledge and understanding, and candidates must be careful that being aware of a firm or industry in detail will not score high marks unless it is showing an ability to link knowledge and understanding in context using appropriate examples. The initial point has perhaps some isolated or imprecise understanding of specialisation and research and development, but this is at Level 1. Again, there is similar coverage of economies of scale at the end of the paragraph on the second page. The focus on infrastructure and land associated with rail being a natural monopoly displayed some elements of knowledge to get to a low Level 2 response. Likewise, the remaining analysis whilst perhaps going back over research and development does enough to lift this point to low Level 2. Lastly the attempt at evaluation makes some linkage to social efficiency. Overall, this response was awarded L2 and L1e = 5 and 1e = 6 marks. Whilst it is good to spend time on case studies looking at a specific firm, market or industry, it is essential that the focus is on showing an ability to link knowledge and understanding in context using appropriate examples. Start with the key concepts and see how they are applied to the case study you are looking at. This response starts with identifying what monopoly power is in the context of Tesla. The first part focuses on efficiency, though it is related to the UK gas and electricity distribution industry as a natural monopoly. The chain of reasoning flows well regarding productive efficiency and there is a link to the concept of productive efficiency as illustrated, although the diagram is missing the LRAC label. This paragraph secures highly at Level 3. The next paragraph attempts to evaluate by making use of x- inefficiency and the principal agent problem and is well written, securing Level 3 evaluation. The response then moves onto looking at the issue of dynamic efficiency in the context of Tesco with some attempt to link the context of Tesco lowering its average cost. Again, this was seen as a top Level 3 response in terms of Knowledge, Analysis and Application (KAA). The following section of evaluation risked being repetitive, but the point regarding diverting profits to shareholders was viewed as enough for sustained Level 3 evaluation. The conclusion adds some judgement. Overall, the response achieves L3+ for KAA (12) and L3ev (7EV) = 19 marks. Spend time planning your essay response in terms of the key points and evaluation that you want to make to avoid the risk of repetition. In terms of context, try to ensure that examples given link tightly to the economic concept you are trying to address. Remember a judgement is expected to get the very top marks for evaluation for the 25 mark questions.
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Quantitative skills: QS 4 (construct and interpret a range of standard graphical forms)
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B
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1a The market structure that was expected for this question was monopolistic competition, although the characteristics are so close to perfect competition that this model was fully acceptable. Many however wrote ‘monopolistic’ without the noun ‘competition’ and although it may seem generous, this was accepted if it was clear that the model being described was not in fact monopoly. - Allow perfect competition/highly competitive as the ID mark (Knowledge)- with follow on explanation to match - ‘Monopolistic’ is allowed this year for first time as shorthand for monopolistic competition but monopoly/oligopoly is not allowed - Allow low or no barriers to entry - 1 mark for the ID of model, 2 characteristics of model, 2 applications - Diagrams can be used as the analysis marks (up to 2 marks e.g. - price setting power and SNP/normal profit) Below is an exceptional answer worth full marks; This is not: 1b The reason for increased use of hand car washes during a period of lower income was best answered by using the data and the concept of elasticity. Falling income and rising demand is associated with inferior goods, but as with items such as chocolate, the luxury of a car wash might be just the thing to increase standards of living at a low expense. The other common argument used was that the HCW is cheaper than an automated service so this is an inferior good. Many commented on the low price (£5) to explain high demand, but it was important to explain why demand was rising rather than just not responding. - 2 K, 2 Ap, 2 An, 2 Ev - Allow diagrams as An: 2 An or 1Ap + 1 An - Many are confused with PED and YED - be careful when awarding - High utility is an acceptable reason - Reference to aspects of car washing is enough for data marks, e.g. the hoses/chemicals - Be careful for candidates losing track of the question - needs to link to incomes changing This only scored half marks; This was better; good reasons but no evaluation 1c - Answer needs to be about increased migration to UK (opposite in context of leaving the EU/shortage of staff as a result of the global health crisis was seen as EV, a good way to evaluate using the current economic context) - Any industry with large use of migrant workers is accepted as application e.g. - hospitality, nursing, construction - Higher demand for labour and MRP arguments are allowed if correctly explained, although MRP not required - Must have a valid diagram and reference to an industry for L3 - Some segments may not suit low skilled migrant workers e.g. - valeting and paint touch up - Accept variations on the axis if the explanation is correct e.g. - £ not wages - Do not need more than one point as long as ‘effects’ are considered within it. - A Level 3 diagram should be linked to the effect on wages (not confused with price of the product) - The question is the impact on the firm (not wider effects e.g. government budgets) - Application can be shown on the diagram or reference to ‘low skilled jobs’ This clearly starts well with a labour market diagram and a fairly good approach using a cost and revenue diagram: 1d - 1d was much less popular. Causes questions are more difficult to access than effects questions on this paper. - L4 response must have reference to an industry - Must link to the number of firms in the market This was a good attempt at a difficult question This was more typical: This scored quite poorly. It is imperative that the candidate focuses on the requisites of the question. 1e - Must be reference to a specific industry - Any forms of government intervention are allowed This scored 11/25 but this was more typical: This short answer was running out of time. There was an opportunity cost in the introduction here, and although it starts well with a valid idea and some application, this was all that was written, so it scored Level 1 3/25.
Quantitative skills: QS 9 (interpret, apply and analyse information in written, graphical tabular and numerical forms)
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D
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A significant number of candidates achieved zero marks for this question. This was due to them drawing monopoly diagrams showing abnormal/normal profit or perfectly competitive diagrams showing a horizontal AR curve. To secure marks for this question candidates had to first draw an AC curve tangential to a downward sloping AR curve. Candidates found it difficult to show the tangential point as just touching so we allowed this diagram as long as the touching point was not too extended along the AR slope. This answer scores two marks as it shows AC tangential to a downward sloping AR curve. Candidates found it difficult to show the tangential point as just touching so we allowed this diagram if the touching point was not too extended along the AR slope. This is not followed by an identification of the profit maximising equilibrium price and output where MC=MR. Also, AC is not equal to AR at the profit maximising equilibrium output price and output where MC=MR. This answer achieved 2+0 = 2 marks. Practice drawing accurate long run monopolistic competition diagram, as per the mark scheme. This diagram is correctly drawn. Therefore this answer achieves full marks.
Quantitative skills: QS 4 (construct and interpret a range of standard graphical forms)
Essays stuck in Level 2, or losing the easy marks in Section A? Book a trial session with Lianne, a former Edexcel examiner.
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