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GCE
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Summer 2009
Publications Code UA021260
All the material in this publication is copyright
© Edexcel Ltd 2009
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Contents
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General Marking Guidance
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6351 Mark Scheme
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Question Answer Mark
Number
3 B (1)
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Question Answer Mark
Number
6 A (1)
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Question Answer Mark
Number
9(a) Correct diagram showing shift in demand curve to the
right and supply curve to the left and therefore an
increase in price of gold. The price and quantity
equilibrium points must be shown (4 marks).
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Question Answer Mark
Number
9(c) As firms leave the industry supply will fall (1 mark)
and therefore the price of jewellery will increase (1
mark).
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Question Answer Mark
Number
10(a) Correct diagram showing supply curve shifting to the
right and identifying the new lower equilibrium price (2
marks).
(4)
OR
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Question Answer Mark
Number
10(c) Definition/Formula for Price elasticity of supply: A
measure of the responsiveness of quantity supplied to
a change in price (1 mark). Comment on implications
for resources (increase use of resources/resources are
constrained) (1 mark) and comment on implication on
output (1 mark).
Evaluation:
Are there substitutes to corn in the feed process?
How significant is the cost of corn in the overall cost of
the product?
Is the pressure for the price increase coming from the
demand side? (6)
Any one point explained (2 marks).
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GCE Economics 8121-9121
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6352 Mark Scheme
Question Answer Mark
Number
1(a)(i) 120/397 x 100 = 30.2%. Accept 30%. 1 mark if
method correct but calculation incorrect. Award
2 marks if correct answer is written down without (2)
calculations.
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Question Answer Mark
Number
1(c)
Consideration of factors such as:
• prioritisation of factors
4 marks for diagram (2 for basic diagram, 1 for identifying free market
and socially optimal levels of waste; and 1 for explaining that YX
represents over-production or for explaining welfare loss area ABD; 2
marks for examples and 4 marks for any two evaluative points (2 + 2 or (10)
3 + 1).
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Question Answer Mark
Number
1(d)
Definition of external benefits: benefits to third
parties not involved in the transaction; difference
between social benefits and private benefits (2) 1
mark for imprecise definition e.g. benefit to society
or benefits to consumers not involved in the
transaction.
Examples of possible external benefits: employment in
recycling industries; innovation leading to economic (6)
growth (1 + 1) and explanation (1 + 1) .
but…
but:
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Question Answer Mark
Number
2(a)
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Question Answer Mark
Number
2(a)(ii)
Reasons include:
• reduction of minimum guaranteed price
but some surplus would have remained if the MPG
was above the market price
• increased demand, for example from Asia
this could be very significant because it appears to
be a long term trend
• decreased supply (because of droughts such as
those in Australia)
this would probably be a short term problem only
unless climate change causes permanent
problems.
Also allow factors from extract 2, eg use of crops for
biofuel (but no application marks for these factors).
2 marks for identification of any 2 factors; 2 marks
for application to context eg specific reference to
extract; 2 marks for analysis and 4 marks for any (10)
two evaluative points (2 + 2 or 3 + 1).
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Question Answer Mark
Number
2(c)
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Question Answer Mark
Number
2(d)
Tighter legal regulations – fixed limits can be placed
on the amount of pollutants discharged and enforced
with financial penalties.
But..
• enforcement costs might be significant
• difficulty of measuring discharge of pollutants.
Higher taxes – a means of making the polluter pay for
carbon emissions – could be illustrated with a supply
and demand diagram. Taxes bring in revenue for the
government.
But..
• the impact of taxes depends on the price
elasticity of demand
• difficult to measure precisely the external costs of
carbon emissions and therefore of setting the
appropriate tax.
2 x 6 marks: each block of 6 marks to be awarded as
follows: 2 marks for knowledge/identification; 1 mark
for application of schemes to reduction of carbon
emissions; 1 mark for analysis and 2 marks for any
(12)
evaluative points.
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GCE Economics 8121-9121
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6353 Mark Scheme
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Question Answer Mark
Number
1(a)(ii) Allow any one valid reason for divergence (1 mark for
identification 1 mark for explanation of the different
directions).
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Question Answer Mark
Number
1(b)(iii) AS analysis, up to (3 marks): Aggregate supply will
decrease (1 mark) with increased costs of production
(1 mark) with further explanation, eg all firms use
gas and oil to some extent, or demand is inelastic. (1
mark)
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Question Answer Mark
Number
1(c)(ii) For each policy:
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Question Answer Mark
Number
1(d) Concept of increasing government spending as an
element of fiscal policy and/or supply side policy (this
might be implicit). (1 mark)
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Question Answer Mark
Number
2(a)(i) A permitted range for the increase in the price levels,
measured by changes in the CPI OR range of +/-1% OR
aim to keep prices stable (1 mark).
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Question Answer Mark
Number
2(b)(ii) Effect of interest rate cut on exchange rate (up to 4
marks):
Fall in interest rates should weaken the value of the
pound (1 mark) with mechanism to explain this. (up
to 3 marks)
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Question Answer Mark
Number
2(b)(iii) Award (1 mark) for valid factor, (2 marks) for
explanation which may include use of data or use of
the word ‘deficit’.
Reasons might include:
• quality problems and other loss of
competitiveness
• high unit labour costs
• high incomes
• increased prices of goods that the UK tends to
import
• overspending in the UK
• confidence issues
• other countries making progress more quickly
than the UK
• changes in comparative advantage or other
opportunity issues.
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Question Answer Mark
Number
2(d) Concept of cutting the cost of borrowing money (this
might be implicit). (1 mark)
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GCE Economics 8121-9121
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6354 Mark Scheme
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Question Answer Mark
Number
2 C
• Correct completion of column to show rising
marginal costs (at least three figures to be shown).
(1)
• Correct completion of column to show constant
marginal revenue (at least three figures to be
shown). (1)
• Correct definition or formula for marginal cost,
marginal revenue or average revenue. (MC is the
addition to total cost from producing one more unit
of a good or MC = ∆TC ÷ ∆TQ). (MR is the addition to
total revenue from production of one more unit of a
good or MR = ∆TR ÷ ∆TQ). (AR is revenue per unit of
good or AR = TR ÷ TQ). (1)
• Perfect competition since marginal revenue equals
average revenue or firm is price taker or demand is
perfectly price elastic. (1)
Also award:
• Diagram of perfectly competitive firm with
horizontal MR curve and rising MC curve (accept SR
and LR).(1)
NB No marks for other characteristics of perfect (4)
competition.
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Question Answer Mark
Number
3 A
• Role of OFT or Competition Commission
investigate anti-competitive practices / protect
the consumer or public interest / the powers of
the OFT, for example fine firms up to 10% of
annual revenue. (1)
• Identification of price fixing / collusion / cartel.
(1)
• Price fixing is against interest of consumers since
it leads to higher prices / lower consumer surplus.
(1) (4)
Also award:
• Annotation of diagram, for example, shading in
area of supernormal profit. (1)
• Be prepared to award knock-out marks, for
example option A is incorrect since revenue
maximisation output of Q2 is greater than profit
maximisation output of Q1. (1) (4)
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Question Answer Mark
Number
5 C
• Definition of price discrimination (a firm charging
different prices to different consumers for the
same product). (1)
• Apple is able to charge a higher price in UK since
it has lower price elasticity of demand (less
elastic / more inelastic demand) than for the
US. (1)
• Diagrammatic analysis depicting different price
elasticities of demand, with UK market having a
higher price than US market. (1 + 1)
Also award:
Apple is able to separate the two markets and so
there is little leakage or has monopoly power /
market power. (1) (Only 1 mark available here.) (4)
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Question Answer Mark
Number
7 B
• Role of Competition Commission, for example, to
promote competition in markets / protect
consumer or public interest. (1)
• A patent on Microsoft’s technological information
is an entry barrier. (1)
• Definition of contestable market in terms of low
entry and exit barriers/ low sunk costs / hit and
run competition. (1)
• Patents enable firms to exploit consumers through
high prices / less choice OR removal of patents /
consumer welfare through lower prices, more
choice and improved quality. (1)
• Sharing of patents allows rival firms to have
increased technical information and compete. (1) (4)
Also award:
• Diagram showing firm making loss (1) but
covering average variable costs. (1)
• Numerical example of loss making firm where
revenue exceeds variable costs. (1)
• In the long-run the firm will exit the industry if it
cannot cover both fixed and variable costs. (1)
• Identification of shut-down position when AR =
AVC or AR is below AVC. (1) (4)
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Question Answer Mark
Number
9 E
• Outline of product differentiation applied to
games consoles, for example different quality /
unique good / different games played on consoles
/ different graphics / different speed of
characters / different functions of consoles /
colour / packaging. (1 + 1)
• A higher price is likely to reflect higher
production costs per unit. (1)
• Product differentiation creates brand loyalty /
demand is more price inelastic / higher prices
may lead to higher profits. (1 + 1) (4)
Also award:
• Correct diagram showing firm in monopolistic
competition – long run. (1)
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Question Answer Mark
Number
11(a)(i) • Understanding of a ‘price cap / explain RPI-X’, for
example, the regulator puts a limit on the
increase in rail fares. (1)
• Price capping helps to protect consumer interest
/ regular travellers. (1)
• Train operators have (natural) monopoly power /
so can exploit customers by raising rail fares to
very high levels / obtaining high supernormal
profits /demand is price inelastic for commuters /
capturing consumer surplus – any two points (1 +
1)
Also award:
• Train operators have an incentive to increase
efficiency in order to make profits / if ‘–X%’ price
cap set. (1 + 1)
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Question Answer Mark
Number
11(b) • Train operator should be able to increase price or output. (1)
• The increase in demand means the AR and MR curves shift
outwards. (1)
• One further comment, for example, train operator is likely to
have spare capacity on its off-peak services to raise output. (1)
Cost / revenue
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Question Answer Mark
Number
11(c) • Definition of price discrimination. (1)
• Data use, eg reference to figure 1 where consumers are
separated into different markets according to time of booking /
Application of PED to advance booking and buying on the day /
other examples. (1 + 1)
• Purpose of price discrimination is to capture consumer surplus
where demand is price inelastic. (1)
• Conditions necessary for price discrimination: monopoly power /
ability to separate markets and prevent leakage / different PEDs
between markets. (1 + 1 + 1)
Evaluation (3 + 2 or 2 + 2 + 1)
Effectiveness of price discrimination depends on various factors:
• Extent of monopoly power - many train operators are regional
monopolies with little effective competition / for example road
travel may be very poor / profits can be high.
• Extent of preventing leakage - train operators can prevent
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leakage between markets by enforcement for example ticket
inspectors / ticket barriers / time of booking / and therefore
profits can be high.
• Costs of separating consumers into different markets should not
exceed the extra revenue generated.
• Spare capacity is required on train services where a lower price is
charged / Extract 1 indicates that spare capacity remains even
after price discrimination / therefore profits might be increased
through further price discrimination.
• Issue of price capping by regulator – may limit ability of train
operator to increase rail fares and profits / 40% of rail fares are
price capped.
• Internet usage increase consumer knowledge which impact on
price discrimination as a means of affecting profits.
• Duration of the rail franchise – the longer this is the greater the
possibility of gaining profits from price discrimination. (12)
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Question Answer Mark
Number
11(d) NB Candidates may argue an increase or decrease
in welfare for analysis marks. Evaluation is when
both sides of the argument is presented.
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increased by 1% above inflation rate –
so a real increase in fares.
¾ Issue of regulated fares linked to RPI
rather than CPI. Note RPI has been
higher than CPI over recent years.
¾ Government subsidy of £4.6 billion has
implications / higher taxes /
opportunity cost associated with the
subsidy.
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Question Answer Mark
Number
11(e) NB Presenting both arguments for and against the
train operating market being contestable can be
considered as evaluation.
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Question Answer Mark
Number
12(a)(i) • Identification: the market structure is an
oligopoly. (1)
• Definition: an oligopoly (few sellers and many
buyers or a few large firms dominate the market).
(1)
• Application: the 4-firm concentration ratio is
74.5% or the 3-firm concentration ratio is 64.2% or
the 2-firm concentration ratio is 48.5%. (1)
Also award
• Identification: the market structure is
monopoly. (1)
• Definition: a monopoly (a single producer in a
market / a legal definition where firm has 25%
or more market share).
• Application Universal has 31.9% market share
which exceeds the legal definition of a
monopoly having 25% market share. (1)
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Question Answer Mark
Number
12(a)(ii) • Consideration of one type of collusive practice
and development of it for example, price fixing /
allocating market shares / limits to marketing
budgets / sharing market information / tacit
collusion. (1+1)
• An oligopolistic market structure may make it
conducive to collusion, eg relatively few major
firms to reach an agreement / high barriers to
entry. (1+1)
• Tacit collusion may occur since Universal is
market leader with 31.9% share and so other firms
might follow its pricing and marketing decisions
(price leadership). (1)
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Question Answer Mark
Number
12(b) ¾ Explicit reference to data using figures for both
CD sales increasing and CD revenue decreasing
(accept reasonable approximations) (2). If
candidates just refer to CD sales increasing and
CD revenue decreasing just award 1 mark.
¾ CD prices must be falling. (1)
¾ Reasons for falling CD prices include: increase in
internet downloads / improvements in
technology. (1)
¾ Demand is price inelastic (1) the percentage fall
in price is greater than the percentage increase in
sales of CDs. (1)
¾ Also award for diagram showing falling price & (4)
revenue. (1)
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Question Answer Mark
Number
12(c)
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assume the situation will worsen in the long term.
• However, a music company may diversify into other
methods of music sales and so may not be affected too
seriously in terms of price, output and profits for its
music. For example, legal download sales have risen
from 5 million in 2004 to 73 million in 2007.
• A music company may be able to reduce its production
costs / reduce its CD operations to offset the decline in
CD sales / an increase in productivity could also help
restore profits.
• Firms might switch strategies, eg from profit
maximisation (MC = MR) to sales maximisation (AC =
AR). (10)
(KAA 3 + 3 + 2 or 2 + 2 + 2 + 2)
Music industry (producers) positive effects:
• Once the system is set up – very low marginal
costs of supplying tunes.
• Internet download is growing rapidly as people
become more proficient with new technology –
so a lucrative market for music producers.
• New technology is opening up new markets, for
example, mobile ringtones & USB memory
sticks.
• Lower marketing costs for new artists and new
releases.
• Lower production costs, eg less stores and staff
required.
• A huge audience using the internet – so
potential market for songs is enormous.
• Immediate payment system online.
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songs rather than whole albums.
• Highly convenient to purchase online in own
home rather than going to shop. Instant
collection of purchase via internet.
• Vast choice of music on internet websites.
• Improved consumer knowledge, for example,
price discrimination is made more difficult for
firms.
Consumers – disadvantages:
• Question mark over the safety of online
payments.
• Some consumers desire a physical product like
a CD.
• Closure of music stores in shopping centres.
• Some consumers may not have access to
internet or lack skills to use it.
Evaluation (2 + 2)
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Question Answer Mark
Number
12(e) Identification (1 + 1) development / analysis of two
barriers to entry (1 + 1).
Barriers to entry include: start up costs eg
recording studios / research into developing
new artists / contracts with artists /
advertising expenditure / brand loyalty of
artists to existing music firms / technological
skills in setting up internet download website /
marketing costs / limit pricing of the ‘big four’
music companies.
Evaluation (2)
Prioritise over the greatest entry barrier:
¾ Research into developing new artists might
involve element of luck and be very
significant.
¾ The internet makes it easier for companies
to enter the music recording industry.
¾ Music recording studios can always be hired
out for artists so less significant.
¾ Marketing costs can be kept down through
use of internet.
¾ Limit pricing is illegal and so the ‘big four’
are unlikely to carry this out.
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6355_01 Mark Scheme
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Question Answer Mark
Number
1(b) KAA 9 marks (3+3+3).
Diagram: 3 marks
• accept higher wage floor diagram
• accept shift left in demand for agency workers
as firms adapt their employment policies
• accept monopsony diagram.
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Question Answer Mark
Number
1(c) KAA 9 marks (3 x 3 marks or fewer points well
developed).
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Question Answer Mark
Number
1(d) KAA 9 marks (3 x 3 marks or fewer points well
developed).
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Question Answer Mark
Number
2(a) KAA 6 marks (3 + 3).
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Question Answer Mark
Number
2(b) KAA 9 marks. Award three factors (3 + 3 + 3).
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Question Answer Mark
Number
2(c) KAA 12 marks (4 x 3 marks or fewer points well
developed).
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Question Answer Mark
Number
2(d) KAA 9 marks (3+3+3).
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6355_02 Mark Scheme
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• the ‘drive towards’ might not be successful, eg
wastefulness, corruption, ignorance or poor
governance
• the produce may face protectionism in export
markets
• may be leading away from areas of comparative
advantages, eg oil/gold/cotton
• reference to the elimination of poverty being
more than just a rise in incomes – development is (15)
a holistic concept.
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Question Answer Mark
Number
1(b) KAA 12 3 + 3 + 3 + 3
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Question Answer Mark
Number
1(c) KAA 6
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Question Answer Mark
Number
1(d) KAA 9
Compatible:
• growing awareness that care for the planet is
incompatible with economic growth – and natural
disasters can be mitigated through sustainable economic
growth
• China’s economic growth has continued but there has
been reduced damage to the environment
• new technology will reduce pollution, eg new processes
• new technology will reduce demand for fossil fuels.
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Question Answer Mark
Number
2(a) KAA 9 (3 + 3 + 3)
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Question Answer Mark
Number
2(b) KAA 9
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intervention to attract FDI
• Oppenheimer says FDI is better than aid
because if we’re in we stay Extract 1 lines 26-
28
• over-dependence – vulnerable to global
recession
• time lags. (15)
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Question Answer Mark
Number
2(c) KAA 9
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Responses could also support the assertion that aid
has been a success and may consider some of the
failures as evaluation. (15)
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Question Answer Mark
Number
2(d) KAA 9
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• impact of changes in global demand depends
on the product
• likelihood of demand falling is low
• Botswana possesses almost monopoly power
• two-thirds of Botswana’s GDP is not diamond
related – comment on the magnitude of
dependency
• depends on area of concentration: cars v
diamonds
• FDI evaluation eg MNCs can distort democracy
by asserting influence on governments. (15)
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6356 Mark Scheme
•
fall in consumption – negative wealth
effect
but...correlation between house prices and
consumer spending may not be high
• rising unemployment as aggregate demand
falls, especially in those sectors related to
housing
but other components may increase so offsetting
the fall in consumption
• impact on related industries including
rented accommodation
• impact of public finances
• impact on banks and building societies has
been very significant, for example resulting
in part-nationalisation of several banks.
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Question Answer Mark
Number
1(b) • Understanding of the meaning of supply side
policies: definition and diagram. Understanding
of recession: 2 successive quarters of negative
economic growth.
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For a L5 mark: Discussion of 4 points and 2
evaluative points.
A Level 5* mark (48-60) should be awarded for
answers which meet the Level 5 criteria convincingly,
for example 4 points and 3 pieces of evaluation.
Award a L4 mark (36-41 marks) if only 3 points +
evaluation.
Max 42 marks (top L4) if no evaluation.
Award a L2 mark (24-29 marks) for identification of
points only or for narrow response focussing on one or (60)
two points.
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Question Answer Mark
Number
2(b) Possible effects include:
• reduction in cost-push inflationary pressures
(increase in AS)
• higher aggregate demand – given that UK is
now a net oil importer
• possibility of higher rate of economic growth
• improvement in the balance of trade in goods
• danger of increase in external costs, eg
increase in use of fuel inefficient cars
• impact on real income and consumption –
increase in AD
• impact on profits and investment – increase
in AD.
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Question Answer Mark
Number
3(a) Implications on public finances could include:
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Question Answer Mark
Number
3(b) Effects could include:
• increase in working population and in
aggregate supply
but...may only be temporary
• source of increased aggregate demand when
they spend their earnings in UK economy
but... money may be repatriated to families in
home country
• increased burden on public services, for
example health and education leading to higher
public expenditure in these areas
but...immigrants also source of tax revenue for
government
• implications for housing market – both for
rent and purchase
• wage costs may be held down so helping to
increase competitiveness of UK goods –
improvement in the current account of balance
of payments
but…firms might simply raise profit margins and
increase dividends
• income transferred abroad
• increased unemployment among UK workers.
•
For a L5 mark: Discussion of 4 points and 2
evaluative points.
A Level 5* mark (48-60) should be awarded for
answers which meet the Level 5 criteria convincingly,
eg 4 points and 3 pieces of evaluation.
Award a L4 mark (36-41 marks) if only 3 points +
evaluation.
Max 42 marks (top L4) if no evaluation.
Award a L2 mark (24-29 marks) for identification of
points only or for narrow response focussing on one or (60)
two points.
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Question Answer Mark
Number
4(a) Identification of trends:
Savings ratio: falling since 1992 from nearly 14% to
3.5%
Debt ratio: doubled from just over 80% to 160%.
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Number
4(b) • lower savings rate and/or increased debt
implies increased consumer expenditure which
implies increased imports
• UK has a high marginal propensity to import
• continuous economic growth; rising real
incomes leading to higher imports
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Question Answer Mark
Number
4(c) A wide range of responses may be expected but
candidates could consider:
• implications for employment – which has been
increasing steadily until 2008
but much employment part-time
• implications for inflation – with lower savings
and higher debts a consumer boom could cause
inflationary pressures
but downward price pressures because of Chindia
effect; slow growth of wages associated with net
migration
• asset price bubbles – possibly leading to
financial crisis
certainly true for the housing market e.g. buy-
to-let but less so for share prices
• shortage of funds for investment
but not a problem because of FDI and access to
global credit markets
• improvement in public finances.
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Question Answer Mark
Number
4(d) Possible effects include:
• fall in exports to US, leading to worsening of
current account
significant because about 17% of UK’s exports go
to US; but UK may be able to increase exports to
emerging economies which are still growing
strongly
• rising unemployment
• slowdown in economic growth or recession
again, this may not happen if growth in emerging
markets continues to be rapid
• credit crunch has not only affected US but
also UK housing market (Northern Rock; LIBOR).
Less availability of loans implies less spending
but consumers could use savings to maintain
current living standards
• fall in retail sales; lower profits made by
firms.
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Question Answer Mark
Number
4(e)(ii) Definition or implicit understanding of fiscal
stimulus: for example tax rebates, higher
government expenditure (1 mark).
Case for:
• ineffectiveness of monetary policy in current
financial crisis
• provides a means of helping consumers to
increase spending
• use of passage with regard to US: ‘employment
is falling, consumers spending is growing very
slowly and credit conditions are tightening’
• to avoid danger of deep recession
• use of AD/AS analysis and multiplier to
demonstrate impact.
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Question Answer Mark
Number
5(a) Fixed exchange rate: one which has a set value
against another currency.
(2)
Evaluation:
• Time lags: J curve effect; reference to extract
for application marks.
• Significance of PEDs: Marshall-Lerner condition.
• Significance of PES of exports.
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Question Answer Mark
Number
5(d)(i) Factors could include:
• high value of pound
• rising real incomes
• cheap air flights/more package deals to exotic
destinations
• ageing population – baby boomer cruisers
• cost of holiday accommodation in UK/fashion.
Evaluation:
• Short run/long term trend?
• Significance of rising real incomes – income
elastic demand.
• Prioritisation.
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5(e) Cause for concern:
• Could reflect serious overvaluation of currency
• Might indicate fall in competitiveness of UK
goods
• Could cause a rise in unemployment
• May lead to fall in foreign currency reserves
• Could lead to fall in value of currency
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General Guidelines
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Email publications@linneydirect.com
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