Diagram questions

Mark scheme

Examiner's comment

This question required candidates to show/draw the likely impact of a reduction in indirect tax in the context of an AD/AS diagram. Marks were awarded as 1 mark for a rightward shift in AD/SRAS and 1 mark for equilibrium showing new price level and new real output. Most candidates achieved the 2 marks on this question.

Notes from the mark scheme and report

• lower indirect tax cuts firms' costs so SRAS shifts right: lower price level, higher real output (AD shifting right also accepted)

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

Mark scheme

Examiner's comment

In this question, candidates were asked to draw an externalities diagram to identify the welfare gain from the consumption of dental care in the UK. Marks were awarded for identifying the positive externality in consumption, illustrating the correct position of the relevant curves, the relevant optimum outputs, and finally the correct area of welfare gain. This question was answered correctly by a large majority of candidates, though there were several common pitfalls. Many candidates were able to show MSB above MPB, but then marked the welfare gain in the wrong place. Others still illustrated MSB = MSC on the same curve and multiple confused combinations. In this response, the candidate has clearly indicated the MSB curve above the MPB curve. The original equilibrium is marked at Qe and the social optimal equilibrium at Q*. The area of welfare gain is indicated by the shaded area ABC. This response achieved all 4 marks. In this response, the candidate has not specifically differentiated the market equilibrium from the social optimal equilibrium. They have obtained the marks because it is obvious which is which because of the area of welfare gain. However, it would have been more precise to have labelled them as such. In this second example, we can see the candidate has the MSB and MPB curves in the right places. The market and social optimal equilibria are also clearly annotated. However, the area of welfare gain is drawn in the wrong place. This response scored 3/4 marks.

Notes from the mark scheme and report

• MSB above MPB
• market equilibrium where MPB = MPC, social optimum where MSB = MSC
• shade the welfare gain triangle between the two quantities
• common errors: welfare gain in the wrong place, MSB = MSC on the same curve

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

Mark scheme

Examiner's comment

This question asked candidates to draw a labour market diagram to show the likely impact of an increase in the National Minimum Wage. Marks were awarded for identifying the correct axes and curves, the upward shift in the wage, and the increase in labour surplus. This question was answered generally well, but there were several common areas of confusion. Many candidates drew the original NMW at the free market equilibrium, rather than above it. Others failed to indicate the excess supply of labour. More concerning is that some candidates drew a minimum price diagram with no reference to the labour market at all or drew the minimum wage below the free market equilibrium. In this first example, the candidate has correctly labelled the curves and axes. They have also drawn the new minimum wage (£10.42) above the free market equilibrium and indicated the excess supply on the x-axis. However, the original wage is at the free market equilibrium (P1), so this response achieves 3/4 marks. In this second response, the candidate has correctly labelled the axes and the curves. They have also drawn the original minimum wage at NMW1 and the new minimum wage at NMW2. The area of excess supply has been clearly annotated at the top of the diagram. This response scored 4 marks. Whilst the annotation on the x-axis would have been sufficient to gain the final mark, this candidate has gone above and beyond by clearly annotating the diagram. Whilst not completely necessary there can be no ambiguity here. Often times, there is simply too little annotation to know precisely what the candidate means.

Notes from the mark scheme and report

• label wage and quantity of labour axes with D and S of labour
• original NMW must already be above equilibrium and the new NMW higher
• show the wider excess supply of labour
• drawing the first NMW at equilibrium or below it loses marks

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

Mark scheme

Examiner's comment

Candidates were confident in drawing a diagram showing a rightward shift in supply. However, some were unable to indicate the price the producer receives, and as a result, not many were able to show the cost of the subsidy in terms of what the government pays. • Many examiners observed that some candidates who were able to draw a more complex subsidy diagram, correctly showing the total area of government cost, were sometimes receiving 4 marks when they only quoted once from the data than others who got 5 but who only drew the simpler supply curve shifts right diagram but then had quoted the 2 billion cost in the drop in poverty figure and then knew that a subsidy was a grant paid by the government. • It was surprising to see so many candidates draw the subsidy diagram incorrectly. An effective method for application to a diagram is to show the monetary cost of subsidy but surprisingly few could do this, by showing the value of the subsidy per unit, multiplied by the new number of units sold. • Use of data gained a relatively easy 2 marks although for some it was hard to find the second application mark. • Most candidates identified opportunity cost and understood what a subsidy is. The effect of the subsidy was generally well answered and annotated on the diagram, although some had difficulty identifying the total subsidy area. This diagram clearly shows the cost of the subsidy. K/An diagram 2 - right shift (1) lower price (1) cost area to gov (1) - maximum of 2 diagram marks achieved. 1 Ap for $2.3 million (1) K/An change of the gov area written analysis (1) 3 K and An 1Ap Short answers can be very effective. This one just cut short the application (1/2 AP). A good diagram such as this is very pleasing to see, as a marker. K/An definition of subsidy (1) K/An diagram 2 - right shift (1) cost to gov area (1) lower price (1) subsidy per unit (1) - maximum of 2 diagram marks achieved 2 Ap marks - “$2.3 million” (1) 14.6% improvement (1) Note - if these numbers had been shown on the diagram they could still be awarded. K/An 3 Ap 2 Use the diagram to illustrate your point. Make the diagram answer the question about the cost and not a different question - many just showed what a subsidy is. K/An clear definition of subsidy (1) K/An diagram 2 - right shift (1) lower price (1) cost area to gov (1) - maximum of 2 diagram marks achieved “$2.3 million” (1) 14.6% improvement (1) K/An 3 Ap 2 Short answers such as this easily earn the 5 available marks.

Notes from the mark scheme and report

• supply shifts right by the subsidy per unit
• the cost to government = subsidy per unit x new quantity (area between the two supply curves)
• opportunity cost
• quote the $2.3 million subsidy
• report: "not many were able to show the cost of the subsidy in terms of what the government pays" and "so many candidates draw the subsidy diagram incorrectly"

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 was diagrammatical and targeted the production of a new equilibrium point, given a shift in supply to the left. In addition, with a subsequent increase in price and fall in in quantity demanded. Students that lost marks did not label the axes, show the change in price or quantity, or shifted the demand curve instead.

Notes from the mark scheme and report

• draw and label the new supply curve shifted left and the new equilibrium with a higher price (and lower quantity)
• marks lost for no labels, not showing the price change, or shifting demand instead
• command word is 'Annotate'

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

Mark scheme

Examiner's comment

This question requires candidates to show/draw the likely impact of a fall in business investment in the context of an AD/AS diagram. Marks were awarded as 1 mark for leftward shift in AD and 1 mark for equilibrium showing new price level and new real output. Most candidates achieved the 2 marks on this question.

Notes from the mark scheme and report

• shift AD left and mark the new equilibrium with lower price level and lower real output

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

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)

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

Examiner's comment

This question requires candidates to show/draw the likely impact of a fall in business investment in the context of an AD/AS diagram. Marks were awarded as 1 mark for leftward shift in AD/AS and 1 mark for equilibrium showing new price level and new real output. Most candidates achieved the 2 marks on this question.

Notes from the mark scheme and report

• lower investment shifts AD left: lower price level and real output at the new equilibrium (a leftward AS shift with higher price was also accepted)

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

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 question asked candidates to 'draw' an AD/AS diagram. As such that is all they need to do. There is no need for words to explain the diagram. This question was generally well answered by most candidates who drew a diagram shifting either AS or AD (or in some cases both) to the left, showing a decrease. This answer only gets 1/4 for correct labels on axes/lines. The candidate has shown an increase in AS rather than a decrease. Practice drawing AD/AS diagrams to illustrate a range of economic scenarios, so you can correctly answer questions such as this. This answer correctly shows a decrease in AD to the left and what would happen to price level and real output in that situation, and as such gains full marks.

Notes from the mark scheme and report

• higher interest rate shifts AD left: lower price level and real output (a fall in AS also accepted)
• shifting AS right scores only the label mark
• no written explanation needed

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

Mark scheme

Examiner's comment

This question required candidates to consider the impact of the new Total Allowable Catches (TACs) on the market for fish. Most candidates were able to clearly draw a supply and demand diagram and used the extract fully to support their answers. Almost half of the candidates scored full marks on this question.

Notes from the mark scheme and report

• TACs cut the cod catch by 50%, so supply shifts left and price rises
• diagram with original and new equilibrium
• apply the 50% cut or Figure 1 data
• almost half scored full marks

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

Mark scheme

Examiner's comment

This question requires candidates to show/draw the likely impact of an improvement in net trade in context of an AD/AS diagram. Marks were awarded as 1 mark for rightward shift in AD and 1 mark for a new equilibrium showing higher price level and higher real output. Most candidates achieved the 2 marks on this question.

Notes from the mark scheme and report

• improved net trade shifts AD right
• mark the new equilibrium with a higher price level and higher real output

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

Mark scheme

Examiner's comment

This question specifically asks candidates to draw a diagram. There is no need for candidates to write any explanation to go along with their diagram. When drawing diagrams candidates should always double-check that the lines and axes are correctly labelled. Nearly all candidates provided the answer as illustrated in the mark scheme. The diagram is for illustrative purposes and other valid alternatives in terms of labelling were allowed. Some candidates showed supply as horizontal given it is a subscription service. This was allowed and was awarded 4 marks. The diagram is drawn accurately. The candidate has identified original and new equilibrium. Unfortunately the response also shows a shift in supply so the response does not address the main aspect of the question, but it showed some knowledge and it was awarded 3 marks. For shifts in supply and demand consider the non-price determinants as identified in the data. Do not confuse shifts in supply with extensions in supply. This diagram is correctly labelled. It also shows the shift in demand in the correct direction and illustrates the new equilibrium points. In addition, it annotates the answer given the context. Whilst this is not in the mark scheme, this is a good approach to take to ensure your answer is correct or in answering longer responses where a diagram may be useful or required. Therefore, this answer achieves full marks. Draw diagrams clearly and large enough for ease of interpretation.

Notes from the mark scheme and report

• demand shifts right: price and quantity rise, label original and new equilibria
• a horizontal supply curve was allowed
• shifting supply as well capped answers at 3 marks
• no written explanation needed

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

Mark scheme

Examiner's comment

The diagram in the mark scheme is for illustrative purposes and there are lots of valid alternatives. Price would be allowed instead of costs and benefits, MSC and MSB can be labelled SMC and SMB and some candidates did a double shift to the left of the MSC. Some candidates also covered supply and demand but had some elements of the externalities diagram. A small number of candidates also identified negative externality of consumption in the tourism industry, whilst this is not on the specification it was viewed as a valid response. This response is awarded 1 mark for correct labelling of MSB and MSC. There is also 1 mark for correct shift and 1 mark for identifying correctly welfare loss. This response has also clearly identified a movement in price and output to remove overproduction. This response was awarded the full 4 marks. Fully label externalities diagrams. This response provides a fully annotated correct answer and was awarded the full 4 marks. The candidate has identified the social optimum price and output and the free market equilibrium.

Notes from the mark scheme and report

• negative production externality: MSC above MPC, market output above the social optimum where MSC = MSB, external cost and welfare loss area shown
• MSC and MSB may be labelled SMC and SMB

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

Mark scheme

Examiner's comment

The diagram in the mark scheme is for illustrative purposes and other valid models were allowed. Candidates could refer to profit rather than revenue or have the top right box blank as long as the pay-off matrix worked. Likewise, some candidates had price decrease first and then price increase, with the starting position bottom right. In addition, some candidates referred to collude or not collude. A common response was awarded 3 marks. However, marks were typically awarded as follows: Often where they colluded there was a higher figure than if they engaged in a price war so securing one mark. They then indicated one firm cheated and gained financially and as a consequence the other firm lost out, so securing a second mark and potentially a third if they had a similar situation if the other firm moved first. The key jump to 4 marks was what if the second firm retaliated and where it went wrong was when they failed to show the second firm countering in their financial interest. If they ended up financially worse off then there was not a logic as the movement for the second firm was not rational. The matrix had to work for the response to be awarded the full 4 marks. Application-wise, the pay-off matrix working was key rather than use of the $361 million. This response was awarded 1 mark for correctly analysing that by colluding and setting higher prices, Tyson and Pilgrim would gain financially more than if they were to engage in a price war. A second mark was awarded for stating that Tyson, being a first mover and undercutting Pilgrim's price, resulted in them making a financial gain of £12m and Pilgrim losing out (£5m). There is similar analysis for Pilgrim being a first mover thus securing a third mark. For the fourth mark there is a logic to Pilgrim retaliating and following Tyson's price cut, as they are now achieving £7m which is more than £5m. This response is awarded the full 4 marks. Practice pay-off matrix diagrams and ensure there is a clear logic in the numbers as to what firms are doing and why this is rational behaviour. This response is awarded the full 4 marks. This response was awarded 1 mark for analysing that by colluding and setting higher prices, Tyson and Pilgrim would gain financially more than if they were to engage in a price war. A second mark was awarded for estimating that Pilgrim, being a first mover and under-cutting Tyson's price, would result in making a financial gain of $400m and Pilgrim losing out ($100m). There is similar analysis for Tyson being a first mover thus securing a third mark. The fourth mark was not awarded as there was not a logic to Tyson retaliating and following Pilgrim's price cut. They now achieved $50m which is less than the $100m. Tyson and Pilgrim are now financially worse off so there is no logic to this analysis. This response was awarded 3 marks. Double check your two firm/two outcome game theory model to ensure it makes sense.

Notes from the mark scheme and report

• pay-off matrix: both high price gives $361m each, more than both low price (e.g. $300m)
• the cheat who cuts price first gains more and the other less, so collusion beats a price war
• report: the 4th mark was lost when the second firm's response was not in its own interest

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

The Lorenz curve was the focus of this question. Candidates were asked to explain how income inequality is measured using the Gini coefficient. Candidates were awarded 2 marks for a correctly drawn and labelled Lorenz curve diagram. The remaining marks were awarded for explaining how the Gini coefficient works and for some application to the data. Referring to the fact that the UK’s Gini coefficient is 0.34 was the key piece of application, and the majority of candidates gained the mark. However, many candidates lost marks for incorrect labels on the diagrams. This response was awarded the full 5 marks. The candidates has given a clear and correctly labelled Lorenz curve diagram and it was clearly explained in the written response. Make sure you correctly label the axes on diagrams, such as a Lorenz curve. This response was awarded 2 mark. The candidate gained 1 mark for application for the Lorenz curve diagram (only 1 mark as the axes are not correctly labelled), and 1 mark for analysis.

Notes from the mark scheme and report

• Gini = A/(A+B) from the Lorenz curve
• label axes cumulative % of income and cumulative % of population/households
• quote UK Gini of 0.34 (Extract A)
• maximum 3 without a Lorenz diagram
• many lost marks for incorrect axis labels

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

Notes from the mark scheme and report

• BOTH shifts needed: supply right (new DRC mines) and demand left (China cut electric-car subsidies)
• new lower equilibrium price
• report: the common mistake was showing only one shift for half marks

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

Question 3a consists mainly of a price-discrimination draw question. The vast majority of candidates demonstrated a very good understanding, but a significant number of candidates were not able to complete this successfully perhaps indicating gaps in their knowledge. Most candidates answered the multiple-choice question accurately. In Question 4 there was a lot of accurate answers to the quantitative-skill based 2-mark questions. Most candidates showed their working, allowing them to pick up at least one mark if they had made a computational error. The overwhelming majority of candidates then went on to correctly answer the revenue maximisation multiple choice question. The first part of Question 5 asked candidates to identify using the data that this was a long run perfect competition scenario. Most candidates had some understanding of the perfect competition model but some struggled to fully complete the diagram accurately in order to achieve full marks. A common error was not identifying the profit maximization output level. Having said that, there were some confident answers that did this with comparative ease. Whilst the majority of candidates did correctly answer the multiple-choice question there was a significant number of random wrong answers. It is possible that less time had been spent on perfect competition than in previous years. Section B, the data response section, was based on data from the travel and tourism industry. This included two figures and three extracts, which high-scoring candidates drew on extensively.

Notes from the mark scheme and report

• third-degree price discrimination with constant AC = MC: MR = MC in each sub-market, lower price Pa for students (more elastic) and higher Pb for non-students, profit area in each
• report: a significant number could not complete it

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

Mark scheme

Notes from the mark scheme and report

• two side-by-side diagrams: market price set by industry S and D
• firm faces horizontal AR = MR at that price
• MC = MR output with AC = AR (normal profit) at minimum AC
• report: a common error was not identifying the profit-maximising output

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

Mark scheme

Examiner's comment

This question requires candidates to illustrate the shape of the Classical long-run AS curve. A few candidates were not able to distinguish between the classical and the Keynesian AS curves.

Notes from the mark scheme and report

• Classical LRAS is vertical at full-capacity real output
• some drew the Keynesian (reverse L) shape

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

Mark scheme

Examiner's comment

This question requires candidates to draw the likely impact of a rise in the base interest rate in context of an AD/AS diagram. Marks were awarded as 1 mark for the leftward shift in AD/SRAS and 1 mark for a new equilibrium. Most candidates achieved the 2 marks on this question.

Notes from the mark scheme and report

• shift AD left (a SRAS shift is also accepted) and mark the new equilibrium with lower real output and price level

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

Mark scheme

Examiner's comment

This question was generally answered well, with many candidates able to accurately draw a diagram showing for a specific tax a parallel shift left in supply to secure the two knowledge marks. A minority illustrated the shift as it was an ad-valorem tax and thus only secured one knowledge mark. The majority were also able to accurately apply the consumer and producer tax incidence. This answer scores the full 4 marks - it clearly shows a parallel shift to the left in supply and the resultant tax incidence carefully annotated to the right of the diagram as best practice, given the writing inside the boxes is not clear. Everything is also correctly labelled - all axes and lines. In addition, they have also applied accurately the tax per litre. This answer scores the 2/4 marks. Again, it clearly shows a parallel shift to the left in supply, but the resultant tax incidence is labelled incorrectly.

Notes from the mark scheme and report

• specific tax is a parallel leftward shift of supply (a pivot is ad valorem and loses a knowledge mark)
• label consumer and producer incidence
• application mark for showing the 58p per litre tax
• report: some labelled the incidence areas the wrong way round

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

Mark scheme

Examiner's comment

This question was generally answered well, with many candidates able to accurately draw a diagram showing MPB, MSB and MSC. The main reason for candidates scoring 2/4 marks as opposed to 4/4 marks was not correctly identifying the external benefit/welfare gain/new social optimum equilibrium. This answer scores the full 4 marks - it clearly shows the welfare gain as well as the free market (Qfm) and social optimum (Qso) outputs. Everything is also correctly labelled - all axes and lines. This answer also scores 4/4 marks. This time there is additional annotation regarding the under-provision with both axes applied.

Notes from the mark scheme and report

• MSB above MPB with MPC = MSC
• market equilibrium at MPB = MPC, social optimum at MSB = MSC
• mark the external benefit and the welfare gain area
• report: the usual loss of 2 marks was not identifying the welfare gain or social optimum

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

Mark scheme

Examiner's comment

In this question most students were able to access close to full marks. There was, in most cases, an accurately labelled diagram accompanied by a relevant explanation. However, a significant number of responses ignored the requirement to refer to Figure 1. This answer secure 5/5. A correctly labelled diagram annotated to show a shift right in supply is explained with reference to the data in Figure 1. There is also some explanation of the effect being a rise in consumer surplus and in the diagram of the financial gains to the producer and consumers of the subsidy illustrated in the diagram. This is an excellent answer to this question scoring full marks. An accurate diagram is provided showing a double shift right indicating an increase in subsidy, as allowed in the mark scheme. Accurate reference to the data in Figure 1 is also provided within the careful explanation of the diagram.

Notes from the mark scheme and report

• higher subsidy (£277m to £287.9m, about 3.9%) shifts supply right so fares fall (or rise less than they would with RPI-linked fares)
• 2 KAA marks reserved for an accurate diagram
• report: a significant number ignored Figure 1

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

Question 5 consists mainly of a draw question, and the vast majority of students demonstrated a very good understanding of what an AD/AS diagram should look like, and what should be happening on it in this case study- i.e. an increase in either aggregate supply and/or aggregate demand. Section B, the data response section, is based on information provided in the exam paper about trade and development issues in Africa. This includes 2 figures and 2 extracts on different issues.

Notes from the mark scheme and report

• labels on axes (price level, real output) and curves for 2 marks
• government-funded infrastructure can shift AD right, LRAS right or both
• show the new price level and real output

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

Mark scheme

Examiner's comment

This question requires candidates to illustrate the shape of the Keynesian long-run AS curve. A few candidates were not able to distinguish between the classical and the Keynesian AS curves.

Notes from the mark scheme and report

• Keynesian LRAS is horizontal at low output, upward sloping, then vertical at full capacity
• report: a few drew the classical vertical LRAS instead

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

Mark scheme

Examiner's comment

This question requires candidates to draw the likely impact of government policy to promote business competition in context of an AD/AS diagram. Marks were awarded as 1 mark for the rightward shift in LRAS and 1 mark for a new equilibrium showing lower price level and higher real output. Most candidates achieved the 2 marks on this question.

Notes from the mark scheme and report

• competition policy shifts LRAS right
• the new equilibrium has a lower price level and higher real output

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

Mark scheme

Examiner's comment

This question specifically asks candidates to draw a diagram. There is no need for candidates to write any explanation to go along with their diagram. When drawing diagrams candidates should always double-check that the lines and axes are correctly labelled. Nearly all candidates provided the answer as illustrated in the mark scheme. The candidate received two marks for drawing a supply and demand diagram annotated to show a left shift in the supply curve. An arrow was not required in this case since the candidate had indicated S1 shifting correctly to S2. A large number of candidates did make use of arrows and this did help overcome the rare occasion whereby they had mistakenly drawn two supply curves with both annotated as S, or likewise with equilibrium points labelled P and/or Q on two occasions. This candidate did not obtain the two application marks as they did not indicate the new equilibrium price or quantity. They obtained 2+0 = 2 marks overall. Always ensure you fully annotate your diagrams and double check that you have done so. This diagram is correctly labelled. It also shows the shift in the correct direction and illustrates the new equilibrium points. In addition it annotates the answer given the context. Whilst this is not in the mark scheme, this is a good approach to take to ensure your answer is correct or in answering longer responses where a diagram may be useful or required. Therefore this answer achieves full marks. Draw diagrams clearly and large enough to be easy to interpret, like in this answer.

Notes from the mark scheme and report

• supply shifts left (2 marks)
• label the new higher equilibrium price and lower quantity for the application marks
• no written explanation needed
• label curves S1 and S2, not both S

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

Mark scheme

Examiner's comment

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.

Notes from the mark scheme and report

• AC tangential to a downward-sloping AR (2 marks), MC = MR output and price, AC = AR at that output (normal profit)
• report: "A significant number of candidates achieved zero marks" by drawing monopoly or perfect competition (horizontal AR) diagrams

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

Mark scheme

Examiner's comment

This question was generally answered well, with many candidates able to accurately draw a diagram showing either AD or AS increasing, or both. The main reason for candidates scoring 3/4 marks as opposed to 4/4 marks was labelling the vertical axis as price rather than price level. This answer scores the full 4 marks - it clearly shows AS shifting out to the right and the resultant effect on price level and real output. Everything is also correctly labelled - all axes and lines. There is no need to write anything for these questions - just draw the diagram. This answer also scores 4/4 marks. This time the candidate has shifted out AD, showing an increase in price level and real GDP. Again everything is correctly labelled.

Notes from the mark scheme and report

• AD shifts right (and/or LRAS shifts right) with new price level and real output marked
• the usual lost mark was labelling the vertical axis 'price' not 'price level'
• no writing needed

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

Mark scheme

Examiner's comment

A small majority of candidates achieved full marks on this question. Most were able to identify a point to the right of W for 1 mark. However, many did not properly indicate the opportunity cost of providing more educational programmes. Some answers also shifted the curve outwards to indicate more educational programmes. This response answers the question precisely, showing a point to the right of W, whilst clearly indicating the opportunity cost of providing more educational programmes. Clearly annotate your diagrams. Opportunity cost is measured on the relevant axes. While this answer shows X as the new output it fails to identify the opportunity cost and only scores 1 mark. Clearly annotate the diagram to show the opportunity cost.

Notes from the mark scheme and report

• mark a new point to the right of W along the PPF and show the fall in popular entertainment output as the opportunity cost on the axis
• report: many did not show the opportunity cost or wrongly shifted the curve outwards

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

Mark scheme

Examiner's comment

This proved to be a reasonably accessible question with most candidates scoring at least 3 marks, though only a small number were able to access all 5 marks. The question asked for a supply and demand diagram, and while candidates were able to do this most only drew a supply shift, thus missing the final analysis mark which required them to show a correct shift in demand and supply. Extract A and Figure 1 offered plenty of scope for the application marks, and candidates were able to identify both supply-side factors, such as Kazakhstan's stockpiles of uranium; and demand-side factors, such as falling public confidence in the nuclear industry following the Fukushima disaster. This answer achieved 5 out of 5 marks. The knowledge mark is achieved in the second sentence with decreased demand for uranium. The candidate develops this in the context of the Fukushima disaster, thus accessing the first application mark. The candidate then goes on to discuss the stockpiling of uranium, accessing the second application mark. The diagram show both a price fall and the shift in both demand and supply for the second analysis mark. Both must be shown to get this second mark. Always use the data to substantiate your points. Here the candidate does that sufficiently well enough to gain the available application marks, while gaining the analysis marks by showing shifts in both demand and supply. Be sure to correctly label the direction of the shifts. This answer achieved 3 out of the 5 marks. The candidate begins by drawing a supply and demand diagram which shows a rightward shift in supply and a price fall. The supply shift gets the knowledge mark, while the fall in price achieves the first analysis mark. The candidate then goes on to discuss the stockpiles of uranium. There is no discussion of demand-side factors whatsoever. Consequently, the opportunity to achieve further application or analysis marks is missed. Simply re-stating the question is not sufficient to pick up application marks. Make sure you use the data and think how you can develop your answer analytically.

Notes from the mark scheme and report

• show BOTH supply right (Kazakhstan output, stockpiles, 2016 surplus about 7 million kg) and demand left (Fukushima, Japan closing reactors)
• report: most showed only a supply shift and missed the last analysis mark

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 requires candidates to draw the effect of a rise in the cost of raw materialsin context of an AD/AS diagram. Marks were awarded as 1 mark for the leftward shift in SRAS and 1 mark for a new equilibrium showing higher price level and lower real output. Most candidates achieved the 2 marks on this question. This candidate achieves 2/2 marks. The shift in SRAS is correct and they have illustrated the new equilibrium and the change in price level and real output with the dotted lines. This candidate achieves 1/2 marks – the shift in SRAS is correct but they have not illustrated the new equilibrium and the change in price level and real output.

Notes from the mark scheme and report

• shift SRAS left and mark the new equilibrium with a higher price level and lower real output
• missing the new equilibrium loses a mark

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

Mark scheme

Examiner's comment

This question specifically asks candidates to draw a diagram. There is no need for candidates to write any explanation to go along with their diagram. When drawing diagrams candidates should always double-check that the lines and axes are correctly labelled. In this question half of the marks are awarded for this. This diagram is correctly labelled. It also shows the shift in the correct direction and illustrates the impact on the price level and real output. Therefore this answer achieves full marks. Draw diagrams clearly and large enough to be easy to interpret, like this answer. This answer has correct labels and the shift of AD is in the correct direction, but the candidate has not illustrated the change in price level or real output, and hence scores 3/4.

Notes from the mark scheme and report

• half the marks are for labels on axes (PL, real output) and curves
• shift AD left and show the fall in price level and/or real output
• showing the shift without marking the new PL or Y scored 3 of 4
• no written explanation needed

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

Mark scheme

Examiner's comment

Just over eighty percent of candidates had little trouble in obtaining full marks by making effective annotations of the diagram. A significant number of candidates lacked precision, losing a mark for not labelling the new curve or equilibrium points. This candidate achieved 2 out of 2 marks. Clear and confident annotations was provided identifying the new supply curve drawn and labelled, showing a shift inwards, and the new equilibria labelled showing a rise in price and decrease in quantity. Ensure you fully label accurate diagrams to obtain full marks. This answer achieved 1 out of 2 marks. The shift inwards in supply was accurate but not labelled. The new equilibria points were more than fully obtained and were awarded 1 mark. Ensure when you practice drawing diagrams they are always fully labelled.

Notes from the mark scheme and report

• draw and label the new supply curve shifted left and label the new equilibrium (higher price, lower quantity)
• a significant number lost a mark for not labelling the new curve or equilibrium
• command word is 'Annotate'

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

Mark scheme

Examiner's comment

The question required candidates to explain why ‘bans on tobacco advertising’ may result in a fall in revenue. Most candidates started with a diagram and explained how the ban would shift demand to the left. More able candidates then clearly defined revenue in their written explanation or by identifying in their diagram and went on to explain or clearly illustrate the fall in revenue. Almost all candidates drew a well-labelled and accurate diagram showing the shift but marks were lost by failing to define revenue or show the effect on revenue in the diagram, in some cases there was confusion with profit. 5 out of 5 marks awarded. The answer began with applying the ban to a shift inwards in demand as illustrated (awarded 1 mark for Application). There then followed further relevant application regarding consumers but this had already been awarded. The candidate then defined revenue (1 Knowledge). Finally the candidate explained the decrease in revenue with a careful reference to a relevantly shaded diagram (+1 Application as well as identifying revenue worth 1 Knowledge). The diagram clearly showed the shift left in demand and the new equilibrium, aided by relevant arrows (1+1 Analysis). Always make explicit use of your diagram when asked to draw one to answer the question set; in this case illustrating the decrease in revenue of tobacco firms. 3 out of 5 marks awarded. The candidate started by mostly repeating the question set before finally linking the ban to a decrease in demand (1 Application mark). The candidate then illustrated the shift in demand and explained the new equilibrium (1+1 Analysis). There was no attempt to define or identify diagrammatically the fall in revenue so there was no mark for Knowledge and no additional mark for Application. Ensure you provide a clear definition of the key term required and make it central to your answer.

Notes from the mark scheme and report

• the ban reduces consumption, shifting demand left
• define revenue (P x Q) and show the smaller revenue area on the diagram
• marks were lost for not defining revenue or confusing it with profit

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

Mark scheme

Examiner's comment

There is 1 mark available for this question, for showing an output gap on the diagram. Whilst a lot of candidates did get this correct there was also a significant number who clearly didn't know what to do to answer this question. This answer does not illustrate an output gap and so therefore scores no marks. This candidate has correctly identified an output gap as the difference between full employment and the current level of output, and thus achieves the 1 mark available.

Notes from the mark scheme and report

• mark the gap between current real output Y1 and full-capacity output where AS becomes vertical
• many did not know what to show

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

Mark scheme

Examiner's comment

This question requires candidates to draw the effect of the increase in the personal allowance in terms of an AD/AS diagram. Marks were awarded as 1 mark for the rightward shift in AD and 1 mark for a new equilibrium showing higher price level and real output. Most candidates achieved the 2 marks on this question. This answer achieves the full 2 marks – the shift in AD is correct and they have illustrated the new equilibrium and the change in price level and real output with the dotted lines. This answer achieves 0 marks – there is no shift in aggregate demand and also therefore no appropriate new equilibrium and impact on price level and real output.

Notes from the mark scheme and report

• a higher personal allowance raises disposable income and consumption so AD shifts right
• show the new equilibrium with higher price level and real output (an AS shift right is also allowed)

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

Mark scheme

Examiner's comment

This was a straightforward question from Theme 3 that required candidates to fully annotate carefully and correctly. One issue that some candidates faced was incomplete labelling and not carefully identifying the smaller profit/loss box. This answer achieves a mark of 4/4. Full marks are awarded for a fully labelled cost and revenue diagram carefully annotating the fall in profits. . This answer achieves a mark of 0/4. Whilst the shift left in demand is indicated, this answer receives no marks as a cost and revenue diagram was requested. A decrease in Average Revenue and Marginal Revenue would have received one mark. Make sure as you identify whether a Theme 3 cost and revenue diagram or a supply and demand Theme 1 diagram is required. Remember diagrams are an effective way to concisely apply economic theory.

Notes from the mark scheme and report

• cost and revenue diagram: AR and MR shift (or pivot) left, new MC = MR output and price, original and smaller supernormal profit (or loss) areas
• report: a supply and demand diagram scored 0
• label the smaller profit box carefully

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

Mark scheme

Examiner's comment

Candidates that gave a clear diagram showing an output gap and referred to the situation evident in the UK as shown by Extract D scored well on this question. An extraordinarily large number drew the output gap incorrectly as a triangle bounded by the LRAS, SRAS and AD, or just drew a shift in AD or a static AD/AS without showing full or potential output. If candidates understood an output gap, most were able to define and show such a gap on an AD/AS diagram successfully. Many candidates failed to use the data at all and did not focus on the evidenced negative output gap. This was a surprisingly common answer, providing theory only and no use of the data provided. 4/5 marks awarded. There is no sense of full capacity (AS) or reduced demand (AD) as evidenced in the passage. Another very common approach. Use the data, especially in this question where the Extract and line are clearly indicated. Zero marks are awarded here. This is a good example of how to earn full marks. Show the output gap on the horizontal axis as the difference between potential and actual output (or similar). 2K: 2 clear explanation 1AN + 1AP: clear diagram showing the gap on the horizontal axis meeting the full employment level 1 AP: clear use of data – immobility of labour 5/5 marks Short answers can be very effective. There is no need to fill all the space.

Notes from the mark scheme and report

• show the gap on the horizontal axis between actual and full-capacity output, not a triangle between LRAS, SRAS and AD
• 2 marks reserved for the AD/AS diagram
• max 4 of 5 without using Extract D (weak demand, immobility of labour)

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

The question on explaining the likely impact on producer surplus of an increase in the demand for housing was awarded as a low cognitive question balanced against the challenge questions asked elsewhere. Candidates were asked to draw a diagram to illustrate their answer. The more able responses could to quickly access full marks by defining producer surplus and then using a carefully labelled diagram explain how the increase in demand resulted in a change in producer surplus in the housing market. Less able responses provided poorly labelled diagrams and often were not confident in identifying what producer surplus was. 6 out of 6 marks. The candidate has provided a secure understanding of the theory and applied the diagram well to the question. Knowledge marks are secured with an initial accurate definition of producer surplus and a diagram, which is well annotated and explained, showing the original equilibrium and producer surplus. The candidate is then able to analyse through explaining their diagram, the increased producer surplus resulting from demand shifting out. For application marks they pick up the 2 marks by applying the diagram to illustrate there is an increase in prices and producer surplus as demand for houses rises. The answer is a full and accurate response and as a result deserves full marks. Application can be secured through applying theory and diagrams to answer questions but has in Economics more traditionally been associated with application of data and context. To guarantee full marks candidates are still to be encouraged to write in context and to try to use data when available. In this case there was the opportunity to explain house builders would extend supply by building new houses up to the new market prices of new houses at P2. The technical nature of existing housing stock not being referred to as increasing producer surplus, as the seller still has to find a home to live in, meant that application was more theoretical in this question. Secure application marks can be obtained by applying theory, diagrams and data to the context of the question.

Notes from the mark scheme and report

• define producer surplus
• diagram with demand shifting right, higher price and quantity, larger area above supply and below price
• it applies to new housing (builders), not existing owners who must buy again

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

Mark scheme

Examiner's comment

This was a straightforward question that the majority of candidates annotated correctly. One issue that some candidates faced was where they did not show economic growth on the diagram, to get the mark there needed to be an outward shift of real output. This correct answer achieves 1/1- AD has been correctly shifted out and the new equilibrium point has been shown, with Y2 further out than Y1. Do remember to use a black pen throughout your exam paper, including for diagrams. This answer is incorrect as they have not labelled the new equilibrium point at the correct place, where the new AS curve crosses the original AD curve.

Notes from the mark scheme and report

• shift AD (or LRAS) right and mark the new equilibrium with real output Y2 beyond Y1
• report: some placed the new equilibrium wrongly

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