MS GENERAL CERTIFICATE OF EDUCATION TYSTYSGRIF ADDYSG GYFFREDINOL MARKING SCHEME. ECONOMICS AS/Advanced

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1 MS GENERAL CERTIFICATE OF EDUCATION TYSTYSGRIF ADDYSG GYFFREDINOL MARKING SCHEME ECONOMICS AS/Advanced JANUARY 2009

2 INTRODUCTION The marking schemes which follow were those used by WJEC for the January 2009 examination in GCE ECONOMICS. They were finalised after detailed discussion at examiners' conferences by all the examiners involved in the assessment. The conferences were held shortly after the papers were taken so that reference could be made to the full range of candidates' responses, with photocopied scripts forming the basis of discussion. The aim of the conferences was to ensure that the marking schemes were interpreted and applied in the same way by all examiners. It is hoped that this information will be of assistance to centres but it is recognised at the same time that, without the benefit of participation in the examiners' conferences, teachers may have different views on certain matters of detail or interpretation. WJEC regrets that it cannot enter into any discussion or correspondence about these marking schemes. CONTENTS EC1 Page 1 EC2 Page 4 EC3 Page 6

3 EC1 GENERAL MARKING GUIDANCE Positive Marking It should be remembered that candidates are writing under examination conditions and credit should be given for what the candidate writes, rather than adopting the approach of penalising him/her for any omissions. It should be possible for a very good candidate to achieve full marks and a very poor one to achieve zero marks. Marks should not be deducted for a less than perfect answer if it satisfies the criteria of the mark scheme, nor should marks be added as a consolation where they are not merited. 1. Using the information explain the concept of opportunity cost. [3] Candidates defines opportunity cost - best alternative foregone. (2) Application of the data (1) Define in terms of resources not money. 2. The diagram shows the market for potato crisps in equilibrium at price p and quantity q. (a) On the diagram shade the area, which represents the producer surplus. [1] The triangle below equilibrium should be shaded. (1) Identify two factors, which could cause the market supply curve to shift to the left. [2] Rises in costs (wages, raw materials, etc) Exit of firms. Imposition of a sales tax. Poor crop yields due to weather, pests, natural disasters, etc in agriculture. 2 x 1 mark. 3. Study the data below which concerns carbon emissions from aeroplanes. (a) Using the above data explain what is meant by external costs. [3] Definition of external costs (2). Use of the data (1) Evaluate one policy a government could introduce to reduce carbon dioxide emissions from aircraft. [3] Policy explained e.g. airline taxes per passenger/per plane/on jet fuel, controls on aircraft movements, runaway building, regulations on engine emissions, etc (2) Evaluation (1) 1

4 4. (a) Define price elasticity of demand. [2] Definition of equation. (2) Explain one reason why the government imposes high taxes on alcohol. [2] Identification of external costs resulting from the consumption of alcohol (1). Demerit goods (1). Examples crime, health costs, absenteeism, illness, reduced productivity (2). Taxes are used to raise revenue (1) because the products are price inelastic in demand (2). (c) Discuss the view that further tax rises will yield little extra money for the government but will hit the industry hard. [6] Ped is 1.5 (elastic) which means that rises in the price of beer through tax leads to lower tax revenue (demand falls by more than the price rise). Large falls in the demand for beer will the reduce revenues and profits in the pub trade and lead to redundancies and pub closures (3). BUT if demand is price inelastic tax revenue will rise and fall in demand will have less of an impact on the pub trade (3). Max 3 without evaluation. 5. (a) From the data identify (i) one direct tax and (ii) one indirect tax. [2] (i) Corporation tax, income tax, council tax, business rates. (1) (ii) VAT, excise. (1) From the data identify a public good and explain why the government provides public goods. [4] Identifies public goods (defence, public order) (1). Explains non-rivalry Non-excludability/free riders (3). (c) From the data identify a merit good and explain why the government provides merit goods. [4] Identifies merit goods (health, education) (1). Explains under consumption and under provision of merit goods by the market/retrospective regret/undervaluing by consumers, Marginal Social Benefit greater than Marginal Private Benefit. Reduction of inequalities. (3). 2

5 6. (a) What is meant by the term fiscal policy? [2] Using changes in taxation and changes in government spending in order to control aggregate demand or aggregate supply (2). Study the aggregate demand and supply diagram. If an economy is in equilibrium at 0Y1 evaluate the effect on the economy of expansionary fiscal policy. [6] Expansionary fiscal policy will shift AD to the right (1) and through the multiplier raises GDP (2) also increases in employment (1). BUT price level might rise and imports may increase (2). Depends on the extent of the fiscal reflation (2) Time lags (2) Also what is happening to AS and other components of AD (2). Use of diagram (2) Max 3 without evaluation. 7. Study the diagram which shows the original equilibrium exchange rate of the pound against the euro at p1q1. (a) Explain two possible reasons for the shift in the demand for pounds from D1 to D2. [4] Increase in demand for UK exports in the Eurozone (1). Increase in UK interest rates (1). Government intervention (1) Speculation (1) FDI explained (1). Max 4. Discuss the possible effects on the UK economy of a change in the value of pound against the euro from p1 to p2. [6] Exports rise in price and imports fall in price. UK exports less competitive and imports cheaper (1). Demand for exports falls and demand for imports rises thus the current account worsens (2). Fall in demand for UK goods thus a rise in unemployment. BUT this depends upon how much the pound has risen, elasticity of demand for X and M, short run v. long run effects. Cheap imports will lower inflation. UK trades with other parts of the world not just the eurozone. Tourism effects. Max 3 without evaluation. 3

6 EC2 GENERAL MARKING GUIDANCE Positive Marking It should be remembered that candidates are writing under examination conditions and credit should be given for what the candidate writes, rather than adopting the approach of penalising him/her for any omissions. It should be possible for a very good candidate to achieve full marks and a very poor one to achieve zero marks. Marks should not be deducted for a less than perfect answer if it satisfies the criteria of the mark scheme, nor should marks be added as a consolation where they are not merited. 1. (a) With the aid of a demand and supply diagram, explain why agricultural commodity prices have risen recently. [6] Demand and supply diagram showing a rightward shift in demand and a leftward shift in supply. (3) Explanation of the diagram. (3) Should be stated that output should be lower and price higher than originally for maximum marks. Explain, with an example from the data, what is meant by derived demand. [3] Candidate explains derived demand demand for a product is dependent on there being demand for another product. (2) Use of the data rising demand for meat affecting demand for cattle feed/grain. (1) (c) (i) Define income elasticity of demand. [2] Definition or the equation. (2) (ii) Compare the income elasticities of demand in China for vegetables and meat products. [4] Vegetables: inferior good (negative income elasticity) (1) use of data (1). Meat: normal good (positive income elasticity) (1) use of data (1). (d) Using the data, explain how intensive farming creates external costs. [5] Candidate defines external costs (2). Uses and applies examples from the data: flooding, destruction of habitats, pollution. (3). (e) Discuss, using a diagram and with reference to the data, the view that all farm workers should be paid no more than the national minimum wage. [10] Diagram showing that with wage rates above the free market wage employment will fall (3) explanation (2). Use of data falling employment in agriculture (1). BUT: evidence from the data supports the need for higher wages with rural poverty, rural depopulation, low incomes, unable to buy houses. (4) Max 6 without evaluation. Max 7 without a diagram. Max 5 if no evaluation and no diagram. 4

7 (f) As agricultural prices tend to be volatile they cannot be left to free market forces and thus it is letter for governments to intervene and set them. With the aid of diagrams discuss this statement. [10] Demand and supply are inelastic and changes in demand and supply bring about significant changes in price and income. Supply is affected by unpredictable events such as the weather, pests, natural disasters, etc. Use of a diagram. Intervention leads to higher prices, burden on the tax payers, excess supply and a misallocation of resources. BUT: Leaving agricultural prices to be set by market forces will produce a more efficient allocation of resources. Farmers will respond to the signals of price (2). Price and income support fall on the taxpayer. Diagram showing minimum price or buffer stock scheme. Excess supply and the problems this causes. MAX 6 without evaluation. MAX 8 without a diagram. 5

8 EC3 GENERAL MARKING GUIDANCE Positive Marking It should be remembered that candidates are writing under examination conditions and credit should be given for what the candidate writes, rather than adopting the approach of penalising him/her for any omissions. It should be possible for a very good candidate to achieve full marks and a very poor one to achieve zero marks. Marks should not be deducted for a less than perfect answer if it satisfies the criteria of the mark scheme, nor should marks be added as a consolation where they are not merited. Economics AS (EC3) All questions will be in 2 parts, each allocated 10 marks. For each question there is a list of indicative content which suggests the range of economic concepts, theory, issues and arguments which might be included in candidates' answers. This content is not intended to be prescriptive, in that candidates may achieve full marks for answers which include only part of the content. The mark scheme will also be amended in the light of actual candidates responses. Part (a) will test knowledge, application and analysis and will be marked using the following levels of response; Level Basic knowledge of subject content limited to one or two relevant points without development and limited use of subject terminology. Form and style of communication are appropriate, using specialist vocabulary in context but sparingly and/or with only approximate accuracy. Spelling, grammar and punctuation are adequate to convey meaning. Level Some attempt to develop points with appropriate illustrative examples and application to the question. Candidate is likely to use an appropriate diagram to illustrate answer. Form and style of communication are highly appropriate, using specialist vocabulary fluently and accurately in context. Spelling, grammar and punctuation are generally accurate. Level Knowledge is applied to the question with appropriate development, substantial use of subject terminology, illustrative examples and diagrammatic illustration. Form and style of communication are excellent, using specialist vocabulary fluently and accurately in context. Spelling, grammar and punctuation show a high degree of accuracy. 6

9 Part will text mainly analysis and evaluation and will be marked using the following levels of response; Level Simple statement of one or two basic definitions or arguments which are relevant to the question but not clearly organised. Form and style of communication are appropriate, using specialist vocabulary in context but sparingly and/or with only approximate accuracy. Spelling, grammar and punctuation are adequate to convey meaning. Level Explanation at a mainly descriptive level with one or two arguments used. Use of relevant economic concepts/theories, but with limited development. Candidate is likely to use a basic diagram to support answer. Form and style of communication are highly appropriate, using specialist vocabulary fluently and accurately in context. Spelling, grammar and punctuation are generally accurate. Level Clear explanation of a range of arguments supported by appropriate theory, illustrative examples and diagrammatic illustration and showing knowledge of alternative points of view. Form and style of communication are excellent, using specialist vocabulary fluently and accurately in context. Spelling, grammar and punctuation show a high degree of accuracy. 7

10 1. ROAD CONGESTION SET TO WORSEN (a) Using demand and supply analysis, explain why road congestion has increased in recent years. [10] Candidate identifies (1) and explains (2) appropriate factors. Rising incomes/living standards: cars income elastic/rising GDP. Falling car prices: relative to income also easy credit terms for purchasing cars. More drivers: more 17 year olds learn to drive/more older drivers. Road building programme: supply creates its own demand. Poor public transport: expensive/unreliable. Road travel is underpriced. Level 1 identification/level 2 explanation. Level 3 will explain how growth in demand has exceeded growth in supply and maybe used a diagram. Some economists believe that the introduction of road tolls on major motorways is the best way to reduce road congestion. Evaluate this view. [10] Road tolls raise the private cost of motoring and thus reduce demand for road space. The toll will ensure that the road user pays the external cost of congestion and thus the cost of motoring will cover the full social cost. Toll revenue can be used to improve road infrastructure or public transport. Tolls can be varied so that they are highest when congestion is greatest thus spreading demand to quieter times of the day. (2 marks for each point) Maximum of 6 BUT: Setting tolls at the correct level (to equal external costs) is difficult. Set up costs are high. Tolls are regressive. Traffic may spread on to roads which don t have tolls taking congestion elsewhere. Toll revenue may not be used to improve transport. PED of road space is inelastic. Tolls may increase business costs thus having long - term effects on jobs and inflation. Tolls may penalise essential users. (2 marks for each point). Maximum of 6 8

11 2. GOVERNMENT INCREASES SPENDING ON FLOOD DEFENCES AND THE HEALTH SERVICE (a) Explain, with the aid of examples, the differences between public goods, private goods and merit goods. [10] Candidate gives examples of each type of good. Level 1 (1-4 marks). Candidate gives a basic definition of each type of good. Level 2 (5-8 marks). Candidate gives a detailed explanation of each type of good. Level 2 (9-10 marks). Maximum 4 marks for each type of good. Should the government provide all merit goods free of charge to everyone? [10] Candidate recognises that education and health are merit goods largely provided free at point of consumption in the UK. (Level 1) Case for free provision: private and external benefits of an educated and healthy workforce. information failure/retrospective regret. reduction of income inequalities. (Level 2) Maximum of 6 BUT: Tax burden of free provision/opportunity cost of resources. Excess demand/moral hazard. Supply led/lack of choice/monopoly provision. (Level 3) Maximum of 4 9

12 3. UK TAX BURDEN CONTINUES TO RISE (a) Using diagrams, show how the imposition of an indirect tax could affect consumers, producers and the Government. [10] Defines indirect tax and draws basic diagram (Level 1) Using diagrams explain how indirect taxes affect consumers, producers and government in terms of price levels, quantity sold, tax revenue. (Level 2). Fall in consumer surplus. Is able to recognise that differences in PED and PES will affect the impact of indirect taxes on consumers, producers and Government. Maximum of 6 with no diagrams. Discuss the view that if the Government increased the top rate of income tax from 40% to 50% it would be bad for the economy. [10] Bad for the economy because there is a reduction in disposable income thus less spending. (Level 1) Use of AD/AS analysis to show a fall in C will affect GDP/employment. Effect on incentives to work/entrepreneurship. Use of the Laffer Curve. (Level 2) BUT: Higher top rate taxes reduce post-tax inequalities. The effect depends on the state of the economy and what is happening to other taxes and interest rates. Depends where the tax thresholds are set. Higher taxes may be needed to reduce AD due to inflationary problems or a high level of government debt. (Level 3) Maximum of 6 without evaluation. 10

13 4. NEXT INTEREST RATE MOVE COULD BE DOWN (a) Define monetary policy, and using an aggregate demand and aggregate supply diagram, explain the role of the Monetary Policy Committee of the Bank of England. [10] Candidate defines monetary policy: use of interest rates and the money supply to affect economic activity. (Level 1) Candidate explains the role of the MPC with the use of an AD/AS diagram. Chancellor of Exchequer sets the monetary framework. Setting an interest rate to meet a symmetrical inflation target (+/-2% CPI) Failure to meet target means a letter of explanation to the Chancellor of the Exchequer. Interest rate changes ensure AD is equal to AS at the target inflation rate. (Level 2) Candidate uses relevant recent examples of interest rates changes. (Level 3) Evaluate the view that a cut in interest rates is the best way to increase investment in the UK. [10] A cut in interest rates will make borrowing cheaper for firms and give them an incentive to invest in new machinery and equipment. (Level 1). A cut in interest rates will increase consumer spending boost firms revenue and provide an incentive to invest. A cut in interest rates will make more marginal/risky projects profitable. Possible use of a diagram (MEC) (Level 2) BUT: It depends by how much interest rates were cut and from what level. Other factors affect investment decisions: expectations/state of the economy/technological change, fiscal policy. Investment can also be financed from share issues/profits. (2x 2) Max 6 without evaluation. 11

14 5. FALLING DOLLAR HAS MIXED BLESSINGS FOR THE UK (a) With the aid of a diagram, explain the factors which might affect the exchange rate of the pound. [10] Candidate explains that exchange rates are determined by the D and S and draws the appropriate diagram. (Level 1) Candidate explains why a change in interest rates will increase the demand for and adapts the diagram showing appreciation. FDI, trade flows, speculation, government intervention. Maximum of 6 without a diagram. Evaluate the view that a rise in the value of the pound is always bad for the UK economy. [10] A high pound makes exports more expensive and imports cheaper. (Level 1) The high pound makes the UK less competitive with implications for the trade balance, GDP and employment. Reduction in AD. Foreign earnings from UK firms overseas subsidiaries fall. UK tourist industry suffers. (Level 2) BUT: Depends how high the has risen. Ped of UK exports and imports. Cheap imports help to keep inflation low. Downward pressure on costs/wages in the UK. (Level 3) Maximum of 6 without evaluation - arguments are reversible. 12

15 6. JAPAN HEIGHTENS TRADE TENSION WITH $85M TARIFFS ON US GOODS (a) With the aid of a diagram, show how the introduction of a tariff affects domestic consumers, producers and the Government. [10] Candidate identifies effects on consumers, producers and the government. (Level 1). Explains effects: higher prices for consumers/loss of consumer surplus. Producers enjoy higher sales/profits/bigger producer surplus, higher government tax revenue. (Level 2) Candidate uses the diagram to support explanations. (Level 3) Maximum of 6 without a diagram. Discuss the case for and against free trade between countries. Candidate defines free trade. (Level 1) Candidate explains the benefits of free trade: International division of labour/specialisation. Higher output/gdp. Lower unemployment. Greater choice and variety. (Level 2) BUT: Problems of dumping and unfair trade practices. Need to protect strategic industries and infant industries. Persistent trade deficits. (Level 3) Pro-protection view. Maximum of 6 without evaluation - arguments are reversible. (10) GCE Economics Marking Scheme (January 2009)/ED 17 February

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