This case study has taken a past exam question (June 2014 ...



This case study has taken a past exam question (June 2014 Unit 1) and written questions according to the style being used for AS Section A in the 2015 specification.

My starting point was the past exam paper. I then tried to write questions in the 2015 style and relate them to the 2015 specification. I took the question styles from the SAMs as shown in the table. If you would like to write your own ‘AS style’ case studies and share them with colleagues please do not hesitate to send them to me.

| |AO1 |AO2 |AO3 |AO4 |

|Section A (5 x 4 marks) | | | | |

|MCQ |1 | | | |

|MCQ | |1 | | |

|MCQ | | |1 | |

|Illustrate |1 | | | |

|Annotate | |2 | | |

|Define (1) |1 | | | |

|Define/what is meant by (2) |2 | | | |

|Calculate (2) | |2 | | |

|Calculate (3) |1 |2 | | |

|Explain (2) |2 | | | |

|Explain (3) |1 |1 |1 | |

| |

|Section B (60 marks) | | | | |

|Calculate (4) |2 |2 | | |

|Explain (4) |2 |2 | | |

|Explain (5) |1 |2 |2 | |

|Explain (6) |2 |2 |2 | |

| | | | | |

|Assess |2 |2 |2 |4 |

|Discuss |3 |3 |3 |6 |

|Evaluate |4 |4 |6 |6 |

The questions and suggested possible responses have not gone through the normal question paper writing process and as a subject advisor I do not have any contact with the Assessment team or the examiners when they are discussing exams. I have adapted this case study to support teachers looking for practice material.

The suggested responses should not be taken to imply that this would be the only way to answer the questions. They are suggestions.

Colin Leith TeachingEconomics@

Section A

[pic]

a) Define the term production possibility frontier. (2)

b)

[pic]

c) Mark an ‘X’ on the diagram above to illustrate a point where the economy is operating below full capacity. (1)

2.

[pic]

a) Define income elasticity of demand (1)

b)

[pic]

c) Calculate the change in the demand for cereals in Cyprus following a 5%

increase in incomes there. (2)

[pic]

(b) Explain how signaling helps a competitive market moves towards equilibrium. (3)

4. (a)

[pic]

(b) Define subsidy (1)

(c) Annotate your chosen diagram to illustrate the effect on price and quantity and the area of subsidy. (2)

5. (a)

[pic]

(b) Illustrate the impact of a decrease in production costs on the diagram. (1)

(c) Define producer surplus and consumer surplus (2)

Section B

[pic]

[pic]

[pic]

Question 6

a) With reference to Figure 1, calculate the percentage increase in the consumption of bottled water and the sales revenue from bottled water from 2008 to 2012. You are advised to show your working. (4)

b) With reference to Extract 1 and Figure 1, explain the effect on the total revenue of bottled water manufacturers following an increase in demand for bottled water between 2008 and 2012. Use a supply and demand diagram in your answer. (5)

c) Explain two likely reasons why ‘the consumption of bottled water has continued to grow at a time of falling demand for other types of soft drinks’. (6)

d) Assess whether the demand for bottled water is likely to be price elastic or price inelastic. (10)

e) Discuss the likely economic effects of an increase in indirect tax on bottled water. (15)

EITHER

f) Using the concept of external costs, evaluate the possible economic effects of an increase in the production and consumption of bottled water. Use an appropriate diagram in your answer. (20)

OR

g) Using the concept of external benefits, evaluate the possible economic effects of a switch in bottled drink consumption from fizzy colas to bottled water. Use an appropriate diagram in your answer. (20)

Section A

1 (a) K2: 1 mark for partial definition, e.g. maximum potential output (1), OR given current resources available (1). 2 marks for full and accurate definition, e.g. a curve showing the maximum potential output (1) assuming all available resources are used fully (1).

1 (b) C

1 (c) X placed within the frontier (1).

2 (a) YED = the responsiveness of demand for a good due to a change in income (1)

2 (b) B

2 (c) Change in QD/+5% = -0.2

So, Change in QD = -0.2 x 0.05 = -0.01

So, quantity demanded would fall by 1%

3 (a) A

3 (b) A price above equilibrium such as P2 will result in producers having surplus (unsold) stock. This signals the need to reduce price and as price falls, consumers respond to the new price signal by increasing the quantity demanded (buying more). The surplus should be cleared at the equilibrium price. If the price falls below this producers might pick up other signals (such as queues, orders which cannot be met) and this would induce them to increase their price.

4 (a) A

4 (b) A subsidy is a government grant to firms to increase production and reduce the price of a good.

4 (c)

[pic]

5 (a) D

5 (b) Show shift in supply to the right

5 (c) Consumer surplus = the difference between the price consumers are willing to pay for a good and the actual market price paid / the area above the equilibrium price and below the demand curve

Producer surplus = the difference between the price at which producers are willing to supply and the actual market price received.

Section B

a) With reference to Figure 1, calculate the percentage increase in the consumption of bottled water and the sales revenue from bottled water from 2008 to 2012. You are advised to show your working. (4)

|Question |Answer |Mark |

|Number | | |

|6 (a) |Knowledge 2, Application 2 | |

| |2 marks for correct use of formula (1 + 1) | |

| |2 marks for correct answer (1 + 1), e.g. |(4) |

| |Consumption 2135-1970/1970 = 8.38% increase | |

| |Sales revenue 1610-1360/1360 = 18.38% increase | |

b) With reference to Extract 1 and Figure 1, explain the effect on the total revenue of bottled water manufacturers following an increase in demand for bottled water between 2008 and 2012. Use a supply and demand diagram in your answer. (5)

|Question |Answer |Mark |

|Number | | |

|6 (b) |Knowledge 1, Application 2, Analysis 2 | |

| |Knowledge | |

| |1 mark for original supply, demand, equilibrium | |

| | | |

| |Application | |

| |Explicit reference to the data in Figure 1, for example, total revenue increased from £1360 million in 2008| |

| |to £1610 million in 2012 / increased by £250 million. (1) | |

| |Original total revenue area identified, for example, 0PeXQe | |

| | | |

| |Analysis | |

| |Increase in demand curve (1) | |

| |New total revenue area identified, for example, 0P1WQ1 (1) | |

| | | |

| |[pic] | |

| | |(5) |

c) Explain two likely reasons why ‘the consumption of bottled water has continued to grow at a time of falling demand for other types of soft drinks’. (6)

|Question |Answer |Mark |

|Number | | |

|6 (c) |Knowledge 2, Application 2, Analysis 2 | |

| |Consumption of bottled water has increased and other soft drinks decreased due to: | |

| | | |

| |• Increased health awareness or trend to healthier lifestyle on the benefits of consuming water / | |

| |rehydration effects can assist recovery or improve mental alertness / increased awareness of the unhealthy | |

| |effects of consuming other soft drinks such as fizzy colas / could lead to obesity or diabetes or dental | |

| |decay. | |

| | | |

| |• Increased promotions of bottled water such as advertising / packaging / shop displays / availability to |(6) |

| |purchase. | |

| | | |

| |• Price of fizzy drinks may have increased at a faster rate compared to the price of bottled water / | |

| |substitutes | |

| | | |

d) Assess whether the demand for bottled water is likely to be price elastic or price inelastic. (10)

|Question |Indicative content |Mark |

|Number | | |

|6(e) |Knowledge 2, Application 2, Analysis 2 | |

| |Definition of price elasticity of demand (the responsiveness of demand for a good due to a change in its | |

| |price) or formula (%ΔQD ÷ %ΔP). | |

| | | |

| |• Understanding of price inelastic demand (percentage change in demand is less than percentage change in | |

| |price or PED is between 0 and 1 (this may be shown by diagram). | |

| | | |

| |Price inelastic in demand: | |

| | | |

| |• Promotions such as advertising, celebrity endorsement or branding / has created customer loyalty / real| |

| |world example from bottled water. | |

| | | |

| |• Consideration of water as being a necessity good which is essential for good health / so consumers more| |

| |likely to still buy bottled water even as price increases. | |

| | | |

| |• Consideration of habit forming for some consumers to have bottled water / such as place of work or at a| |

| |leisure event. |(6) |

| | | |

| |Price elastic in demand | |

| | | |

| |• There are many close substitutes / such as tap water or milk or flavoured drinks / consideration of | |

| |availability of substitutes | |

| | | |

| |• Bottled water is considered as a luxury good by many / not regarded as offering value for money. | |

| | | |

| | | |

| | | |

| | | |

| | | |

| | | |

|Level |Mark |Descriptor |

| |0 |A completely inaccurate response. |

|Level 1 |1–2 |Displays isolated or imprecise knowledge and understanding of terms, concepts, theories and models. |

| | |Use of generic or irrelevant information or examples. |

| | |Descriptive approach which has no chains of reasoning or links between causes and consequences. |

|Level 2 |3–5 |Displays elements of knowledge and understanding of economic principles, concepts and theories. |

| | |Applies economic ideas and relates them to economic problems in context, although does not focus on the broad |

| | |elements of the question. |

| | |A narrow response; chains of reasoning are developed but the answer may lack balance. |

|Level 3 |6–8 |Demonstrates accurate knowledge and understanding of the concepts, principles and models. |

| | |Ability to link knowledge and understanding in context using relevant and focused examples which are fully |

| | |integrated. |

| | |Economic ideas are carefully selected and applied appropriately to economic issues and problems. The answer |

| | |demonstrates logical and coherent chains of reasoning. |

|Question |Indicative content |Mark |

|Number | | |

|6 (d) |Evaluation 4 | |

|continued | | |

| |• Bottled water comprises a small proportion of total income / so a change in price is unlikely to have | |

| |much effect on demand. |(4) |

| |• Discussion of magnitude of price increases on bottled water and how it might affect price elasticity. | |

|Level |Mark |Descriptor |

| |0 |No evaluative comments. |

|Level 1 |1–2 |Identification of generic evaluative comments without supporting evidence/ reference to context. |

| | |No evidence of a logical chain of reasoning. |

|Level 2 |3–4 |Evaluative comments supported by relevant reasoning and appropriate reference to context. |

| | |Evaluation recognises different viewpoints and/or is critical of the evidence. |

e) Discuss the likely economic effects of an increase in indirect tax on bottled water. (15)

|Question |Indicative content |Mark |

|Number | | |

|6(d) |Knowledge 3, Analysis 3, Application 3 | |

| |• Definition of indirect tax (a compulsory charge or levy | |

| |on the expenditure of a good) | |

| | | |

| |• The tax acts as if there is an increase in costs of production. | |

| | | |

| |• Indirect tax diagram | |

| |¬ Original demand and supply curve with equilibrium price and quantity | |

| |¬ Inward shift of supply curve to S1 with new equilibrium price and quantity | |

| |¬ Tax area identified | |

| |¬ Tax areas for consumers and producers identified | |

| | | |

| |[pic] | |

| | | |

| |Explanation that the tax causes price to rise and output to fall / employment implications / labour | |

| |costs. | |

| | | |

| |• Explanation of impact on profits or revenue of producers / possible exit from industry. | |

| | | |

| |• The tax will reduce consumer surplus or producer surplus / application to diagram. | |

| | | |

| |• The tax could internalise the external costs of production / eliminate the triangle of welfare loss | |

| |and so lead to social optimum equilibrium position / less pollution overall. | |

| | | |

| |• The tax will improve government finances / the tax funds could be used to reduce the external costs |(9) |

|Level |Mark |Descriptor |

| |0 |A completely inaccurate response. |

|Level 1 |1–3 |Displays isolated or imprecise knowledge and understanding of terms, concepts, theories and models. |

| | |Use of generic or irrelevant information or examples. |

| | |Descriptive approach which has no chains of reasoning or links between causes and consequences. |

|Level 2 |4–6 |Displays elements of knowledge and understanding of economic principles, concepts and theories. |

| | |Applies economic ideas and relates them to economic problems in context, although does not focus on the |

| | |broad elements of the question. |

| | |A narrow response; chains of reasoning are developed but the answer may lack balance. |

|Level 3 |7–9 |Demonstrates accurate knowledge and understanding of the concepts, principles and models. |

| | |Ability to link knowledge and understanding in context using relevant and focused examples which are |

| | |fully integrated. |

| | |Economic ideas are carefully selected and applied appropriately to economic issues and problems. The |

| | |answer demonstrates logical and coherent chains of reasoning. |

|Question |Indicative content |Mark |

|Number | | |

|6(e) |Evaluation 6 | |

|continued | | |

| |• Discussion of price elasticity of demand for bottled water / the more price inelastic then the | |

| |greater the tax revenue and burden on consumers. | |

| | | |

| |• Discussion of consumers switching to substitutes such as fizzy flavoured drinks / could be more | |

| |harmful to consumers | |

| | |(6) |

| |• Discussion on impact on affordability of an essential resource / implications for consumers on low | |

| |incomes. | |

| | | |

| |• Discussion of magnitude of tax / with development. | |

|Level |Mark |Descriptor |

| |0 |No evaluative comments. |

|Level 1 |1–2 |Identification of generic evaluative comments without supporting evidence/ reference to context. |

| | |No evidence of a logical chain of reasoning. |

|Level 2 |3–4 |Evidence of evaluation of alternative approaches which is unbalanced. |

| | |Evaluative comments with supporting evidence/reference to context and a partially–developed chain of |

| | |reasoning. |

|Level 3 |5–6 |Evaluative comments supported by relevant chain of reasoning and appropriate reference to context. |

| | |Evaluation recognises different viewpoints and/or is critical of the evidence. |

EITHER

f) Using the concept of external costs, evaluate the possible economic effects of an increase in the production and consumption of bottled water. Use an appropriate diagram in your answer. (20)

|Question |Indicative content |Mark |

|Number | | |

|6(f) |Knowledge 4, Application 4, Analysis 6 | |

| |Definition of external costs: Negative third party effects / costs external to a market transaction or | |

| |exchange / costs the price mechanism fail to take into account / negative spillover effects / difference | |

| |between social costs and private costs. | |

| | | |

| |• Explanation of external costs from consuming bottled water as increase in waste at landfill sites / | |

| |damage to oceans and fish and bird life. | |

| | | |

| |• Explanation of external costs from producing bottled water as increase in carbon emissions by | |

| |transporting the good. | |

| | | |

| |• Accept other costs | |

| |¬ Using up a non-renewable resource in producing plastic bottles. | |

| |¬ Private costs of bottled water can be 10 0000 times the price of tap water. | |

| |¬ Bottled water appears a waste or misallocation of resources. | |

| |[pic] | |

| | | |

| |Original MPB / MSB and MPC curves | |

| |MSC curve (accept a parallel shift of the MSC curve) | |

| |Identification of market equilibrium and socially efficient quantity | |

| |Identification of triangle of welfare loss |(14) |

[pic]

|Question |Indicative content |Mark |

|Number | | |

|6 (f) |Evaluation 6 | |

|continued | | |

| |Increase in recycling of plastic and glass bottles has reduced the external costs. | |

| | | |

| |• There are benefits from bottled water e.g. employment and incomes / price mechanism meeting the demand | |

| |of consumers / health benefits from consuming it / tax revenue collected improves government finances. | |

| | | |

| |• Difficulty in quantifying external costs and attaching monetary value. | |

| | | |

| |• Discussion of measures to reduce external costs (e.g. subsidies / minimum pricing). | |

| | |(6) |

| |NB: do not award for increase in taxes. | |

| | | |

| |• Discussion of magnitude of the costs / with development. | |

| | | |

| |• Prioritising among external costs. | |

[pic]

g) Using the concept of external benefits, evaluate the possible economic effects of a switch in bottled drink consumption from fizzy colas to bottled water. Use an appropriate diagram in your answer. (20)

|Question |Indicative content |Mark |

|Number | | |

|6(g) |Knowledge 4, Application 4, Analysis 6 | |

| | | |

| |Definition of external benefits: Positive third party effects / benefits external to a market transaction| |

| |or exchange / benefits the price mechanism fail to take into account / positive spillover effects / | |

| |difference between social benefits and private benefits. | |

| | | |

| |• Explanation of external benefits from consuming bottled water as opposed to fizzy cola – health | |

| |benefits to consumers | |

| | | |

| |• Explanation of external benefits from the point of view of society – lower obesity, reduced spending on| |

| |health services | |

| | | |

| |[pic] | |

| |Original MPB / MSB and MSC curves | |

| |shift of the MSB curve | |

| |Identification of market equilibrium and socially efficient quantity | |

| |Identification of triangle of welfare gain | |

| | | |

| | | |

| | |(14) |

[pic]

|Question |Indicative content |Mark |

|Number | | |

|6 (g) |Evaluation 6 | |

|continued | | |

| | | |

| |Difficulty in quantifying external benefits and attaching monetary value | |

| |assumption that fizzy colas cause ill health not a straight correlation – could be that other lifestyle | |

| |factors associated with cola drinks actually cause the health issues | |

| |Discussion of magnitude of the benefits / with development. | |

| |There are also costs associated with the consumption of bottled water (waste plastic, high transport |(6) |

| |costs in comparison to tap water, misallocation of resources) | |

[pic]

................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download