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SAMPLE ASSESSMENT SCHEDULE

Economics 91400 (3.2): Demonstrate understanding of the efficiency of different market structures using marginal analysis

Assessment Criteria

|Achievement |Achievement with Merit |Achievement with Excellence |

|Demonstrate understanding typically involves |Demonstrate in-depth understanding typically |Demonstrate comprehensive understanding |

|providing an explanation of: |involves providing a detailed explanation of: |typically involves comparing and contrasting: |

|pricing and output decisions for perfectly |pricing and output decisions for perfectly |the efficiency of market structures |

|competitive and/or monopolist firms using marginal |competitive and/or monopolist firms using marginal |the effectiveness of government policies to |

|analysis |analysis |improve the efficiency of a monopoly market |

|efficiency of a market structure |the efficiency of a market structure |the impact of a change in a market on the short |

|impact of a change in a market on the short and/or |the impact of a change in a market on the short |and long run pricing and/or output decisions of |

|long run pricing and/or output decisions of a firm |and/or long run pricing and/or output decisions of |a firm. |

|a government policy to improve the efficiency of a |a firm | |

|monopoly market. |a government policy to improve the efficiency of a | |

| |monopoly market. | |

Evidence Statement

|One |Expected Coverage |

|Not |NØ |No response; no relevant |Evidence of understanding includes: |

|Achieved| |evidence. |(a) FIVE correct of (i) no barriers; (ii) no control; (iii) large number; (iv) strong barriers; (v) |

| | | |strong control; (vi) one. |

| | | |(b) Pe and Qe correctly identified. (See Appendix One) |

| | | |(c) explains that that allocatively efficient equilibrium is where S = D OR MC = AR. |

| | | |(d) Pm and Qm correctly identified. (See Appendix Two). |

| | | |(e) Qm is where MR = MC and Pm is price consumers will pay for Qm. |

| | | |(f) For a perfectly competitive firm, profit maximising equilibrium occurs where MR = MC OR |

| | | |allocatively efficient equilibrium occurs where MC = AR. |

| |N1 |1/6 requirements for Achievement | |

| | |are met. | |

| |N2 |2/6 requirements for Achievement | |

| | |are met. | |

|Achievem|A3 |3/6 requirements for Achievement | |

|ent | |are met. | |

| |A4 |4/6 requirements for Achievement | |

| | |are met. | |

|Merit |M5 |(c) OR (e). |Evidence of in-depth understanding includes: |

| | | |(c) Detailed explanation that the allocatively efficient equilibrium is where the supply and demand |

| | | |curves intersect. For a monopoly firm the MC curve is the market supply curve and the AR curve is the|

| | | |market demand curve. Pe and Qe are where AR and MC intersect. |

| | | |(e) Detailed explanation that Qm is the quantity where MC intersects with MR. At that quantity |

| | | |consumers are willing and able to pay price Pm which is determined by the AR curve. Any quantity less|

| | | |than Qm and the firm would not be gaining all marginal profits (MR>MC) and any quantity more than Qm |

| | | |and the firm would make marginal losses (MC>MR) on extra output produced. At any output less than or |

| | | |more than Qm, total profits would be less. |

| | | |(f) Detailed explanation that a perfectly competitive firm is a price taker, which means that |

| | | |whatever quantity it produces will receive the same price. Therefore its AR/D is also its MR curve. |

| | | |This means that the profit maximising equilibrium MR=MC is also where AR=MC (or D = S), which is also|

| | | |the allocatively efficient equilibrium. |

| |M6 |(e) AND (c) | |

| | |OR | |

| | |(f). | |

|Excellen|E7 |3/4 requirements for Excellence |Evidence of comprehensive understanding in (f) includes comparing and contrasting the efficiency of |

|ce | |met. |market structure through demonstrating that: |

| | | |Both a perfect competitor and a monopoly firm will produce the quantity where MR and MC intersect in |

| | | |order to maximise profits. The allocatively efficient equilibrium of a firm is where its supply curve|

| | | |intersects with the demand curve, which is where MC and AR curves intersect. |

| | | |A perfectly competitive firm is a price taker, which means that whatever quantity it produces will |

| | | |receive the same price. Therefore its AR is also its MR curve. This means that the profit maximising |

| | | |equilibrium MR=MC is also where AR=MC, which is also the allocatively efficient equilibrium. |

| | | |For a monopoly firm where MC=MR, profit is maximised but it is at a lower quantity and higher price |

| | | |than where AR=MC. |

| | | |Therefore a profit maximising monopoly firm is not allocatively efficient. |

| |E8 |ALL FOUR requirements for | |

| | |Excellence met. | |

|Two |Expected Coverage |

|Not |NØ |No response; no relevant |Evidence of understanding includes: |

|Achieved| |evidence. |Idea of Auckland International Airport being able to supply the entire market at a lower price than |

| | | |two or more airports could due to high average costs. |

| | | |Pe and Qe correctly identified and DWL correctly shaded. (See Appendix Three) |

| | | |Idea that a DWL is a loss of consumer and producer surpluses. |

| | | |Idea that average cost pricing will move the price and quantity closer to the allocatively |

| | | |equilibrium (Qe and Pe). |

| | | |Idea that marginal cost pricing requires the firm to charge the price where AR=MC. |

| |N1 |1/5 requirements for Achievement | |

| | |are met. | |

| |N2 |2/5 requirements for Achievement | |

| | |are met. | |

|Achievem|A3 |3/5 requirements for Achievement | |

|ent | |are met. | |

| |A4 |4/5 requirements for Achievement | |

| | |are met. | |

|Merit |M5 |1/3 requirements for Merit are |Evidence of in-depth understanding includes: |

| | |met. |(c) Detailed explanation that a deadweight loss is a loss of total consumer and producer surplus that|

| | | |is not transferred to any other party. Total consumer and producer surplus is maximised at the |

| | | |allocatively efficient equilibrium where AR = MC. If Auckland International Airport wants to profit |

| | | |maximise it will operate at the quantity where MR = MC. At that quantity there is a loss of total CS |

| | | |and PS represented by the DWL in Appendix Three. |

| | | |(d) Detailed explanation that average cost pricing requires the firm to charge the price where AR=AC.|

| | | |This is a lower price and at the price the monopoly will produce more, which is closer to the |

| | | |allocatively efficient equilibrium. The area of DWL is smaller so represents an improvement in |

| | | |efficiency. |

| | | |(e) Explanation that marginal cost pricing requires the firm to charge the price where AR=MC. This is|

| | | |the allocatively efficient equilibrium for the market so there is no DWL. |

| |M6 |2/3 requirements for Merit are | |

| | |met. | |

|Excellen|E7 |Both AC pricing and MC pricing |Evidence of comprehensive understanding includes comparing and contrasting the effectiveness of |

|ce | |are explained |government policies through: |

| | |AND |(d) Average cost pricing is explained as pricing where AC = AR. |

| | |MC pricing is more efficient than|(e) Average cost pricing is the less effective price control as the monopoly is still allocatively |

| | |AC pricing explained with |inefficient, ie, there is still a DWL. |

| | |reference to DWL. |With average cost pricing, the firm will make a normal profit, which is sufficient for it to stay in |

| | | |business so may be more desirable than marginal cost pricing. |

| | | |Marginal cost pricing requires the firm to price where MC = AR. Marginal cost pricing is more |

| | | |effective in terms of allocative efficiency as there is no DWL. |

| | | |With marginal cost pricing, the firm will make a subnormal profit which might require the government |

| | | |to subsidise the firm from taxpayer funds to help the monopoly stay in business, ie, cover the |

| | | |economic loss that it will make. |

| |E8 |ALL requirements for Excellence | |

| | |met. | |

|Three |Expected Coverage |

|Not |NØ |No response; no relevant |Evidence of understanding includes: |

|Achieved| |evidence. |TWO criteria given, eg, kiwifruit varieties are not homogenous, barriers to entry exist, imperfect |

| | | |knowledge. |

| | | |MC curve correctly drawn and positioned AND Pm and Qm identified. (See Appendix Four) |

| | | |Normal profit identified. |

| | | |AR/MR/P/D curve moved downwards and correctly labelled. |

| | | |(d) Qnew and Pnew correctly identified. (See Appendix Five) |

| |N1 |1/5 requirements for Achievement | |

| | |are met. | |

| |N2 |2/5 requirements for Achievement | |

| | |are met. | |

|Achievem|A3 |3/5 requirements for Achievement | |

|ent | |are met. | |

| |A4 |4/5 requirements for Achievement | |

| | |are met. | |

|Merit |M5 |1/3 requirements for Merit met. |Evidence of in-depth understanding includes: |

| | | |(e)(i) The MR curve would decrease following a decrease in demand, at Qm there is a disequilibrium |

| | | |where MR would now be less than MC. |

| | | |(e)(ii) Marginal losses are now being made between Qm and Qnew. To avoid making marginal losses the |

| | | |firm will reduce output to Qm, where MRnew = MC and the firm is maximising profit. |

| | | |(f) Following a decrease in demand the kiwifruit grower AND/OR Zespri will be making a subnormal |

| | | |profit. |

| |M6 |2/3 requirements for Merit met. | |

|Excellen|E7 |2/3 requirements for Excellence |Evidence of comprehensive understanding in (f) include comparing and contrasting the impact of a |

|ce | |met. |change in market on pricing and output decisions of firms through: |

| | | |Comparison between characteristics of BOTH structures with barriers to entry important in determining|

| | | |the response made by each. For a perfectly competitive firm there are no barriers; but the barriers |

| | | |are strong for a monopoly. |

| | | |Both types of firms will make a subnormal profit following a decrease in demand. In the long run, if |

| | | |a monopoly continues to make subnormal profits then they will choose to leave the industry. |

| | | |The perfectly competitive firm will make a normal profit in the long run as some other firms will |

| | | |exit the market causing market supply to decrease and the market price to increase. Therefore |

| | | |AR/MR/P/D will tend back to the point where AR/MR/P/D=AC=MC, which will be an increase in output. |

| |E8 |3/3 requirements for Excellence | |

| | |met. | |

Appendix One: Question One (b)

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Appendix Two: Question One (d)

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Appendix Three: Question Two (b)

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Appendix Four: Question Three (b)

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Appendix Five: Question Three (d)

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