IGCSE

Edexcel IGCSE

Economics (4350)

Summer 2006

Examiners’ Report

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Summer 2006

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Contents

1. Paper 4350/ 1F

2. Paper 4350/ 2H

3. Paper 4350/ 03

Paper 4350/ 1F

June 2006

Paper 1F

This f resh examinat ion wit h it s new specif icat ion and t wo t iers of ent ry present ed a

chal lenge for many t eachers. The specif icat ion is st raight forward wit h four t opic

areas providing t he basis for t he four sect ions on t he compulsory paper. Choosing

t he t ier of ent ry can somet imes be dif f icul t but at Foundat ion t ier i t appears t hat

t eachers almost invariably made t he correct decision and ent ered t heir weaker

candidat es.

The paper is designed for t hose candidat es for whom t he higher skil ls and levels of

at t ainment prove chal lenging. Hence t he paper is weight ed t owards t est ing

knowledge, underst anding and appl icat ion. The higher skil ls of analysis and

evaluat ion are present t o only a l imit ed ext ent .

The experience of t his paper highl ight ed several ways in which t eachers can

improve t he performance of Foundat ion level candidat es. Below are some

suggest ions based on very common mist akes.

• Encourage st udent s t o at t empt every quest ion. Too many quest ions were lef t

blank – guarant eeing zero marks.

• Teach st udent s t o pay at t ent ion t o t he number of marks al locat ed and t he

number of l ines al lowed (t he more marks/ l ines t he more t ime should be spent

answering t he quest ion).

• Teach precise def init ions – it is dif f icul t for weaker candidat es t o t ry t o def ine

economic t erms in “ t heir own words” .

• In t he classroom always apply economic t erms/ def init ions t o real examples,

preferably local ones. This wil l help candidat es t o apply t heir knowledge.

• Pract ise reading t he quest ions very careful ly and if examples are required do

not forget t o include t hem.

Hopeful ly, t his series of examinat ion papers, mark schemes and report s wil l give

t eachers great er conf idence as t hey prepare t heir fut ure candidat es.

Question 1

(a) Candidat es gave a varied range of responses t o t his st raight forward demand

and supply quest ion. The emphasis at t he st art of t he quest ion was on demand

and supply diagrams for a primary good, f resh f lowers, and a manufact ured

good, art i f icial f lowers.

(i) Unfort unat ely some candidat es did not know t he concept of equil ibrium

and consequent ly did not know where t o put t he labels Q1 and P1. The

required not at ion was st at ed in t he quest ion t o aid candidat es, yet some

st i l l insist ed upon giving t he equil ibr ium price and quant it y dif ferent

not at ions [e.g. q2, p2. ] They were not penal ised for t his but i t should be

not ed by t eachers t hat in fut ure candidat es shoulduse t he not at ion

specif ied.

(i i) (i i i) Too many candidat es shif t ed bot h supply and demand. This led t o an

incorrect new equil ibrium. The correct diagram is shown below.

Diagram (a)(i i)

S1S2

P2

P1

D1

Q2 Q1

(b)(i) As wit h (a)(i i ) despit e t he quest ion asking for ‘ t he new demand curve’ many

candidat es shif t ed bot h demand and supply. The correct diagram is given below:

Diagram (b)(i)

S1

(i i) This st yle of quest ion wil l appear on fut ure papers. It requires appl icat ion

of knowledge yet some st i l l did not ident if y f resh f lowers and art i f icial

f lowers as subst it ut e goods.

(i i i) The maj orit y gave t he correct response “ f resh f lowers” .

(iv) The concept of opport unit y cost is not clearly underst ood by t he maj orit y

of Foundat ion candidat es. Inst ead of t he correct response, “ a new comput er” , incorrect responses included, ‘ art i f icial f lowers’ and ‘ t he cost

of oi l ’ .

(c)(i) The inabil i t y t o give a succinct def init ion meant t hat many candidat es did not

score maximum marks. Vague answers such as “ it is t he percent age quant it y

suppl ied over t he percent age price” showed t hat t he candidat e underst ands it is a

relat ionship bet ween price and quant it y suppl ied but t heir def init ion had no

meaning.

(i i) Candidat es should be able t o recognise f rom demand and supply diagrams

t he approximat e elast icit y of curves. When t he supply curve is vert ical

t here should be no doubt t hat i t has an elast ici t y of 0.

(i i i) Most candidat es underst ood t hat t he elast icit y of supply of primary goods is

lower t han t hat of manufact ured goods.

(iv) Unfort unat ely many candidat es had l i t t le idea why t he elast icit ies of supply

varied and so t he responses t o t his part of t he quest ion of t en referred t o

demand rat her t han supply.

Poor response: “ If t here isn’ t supply of f resh f lowers because of t he weat her consumers st i l l want f lowers and decide t o choose ar t i f icial f lowers. Even t hough t he pr ice r ises people st i l l demand t hem.” Good response: “ Pr imary product s l ike f resh f lowers have a long growing per iod so supply can’ t be changed quickly t heref ore supply is inelast ic in t he short run. However, t he supply of manuf act ured goods l ike ar t i f icial f lowers can easi ly be changed, especial ly i f t here are st ocks of ar t i f icial f lowers. ”

Question 2

(a)(i) No problem here as candidat es seemed famil iar wit h pie chart s.

(i i) The most popular response on t he foundat ion paper was ‘ Tert iary sect or’

which was incorrect . The t erm ‘ ol igopoly’ should have been known and

underst ood. Even wit hout t his, a process of el iminat ion should have

enabled t hem t o discount ‘ monopoly’ – one maj or f irm, and ‘ t ert iary’ –

service sect or, leaving t hem wit h no al t ernat ive but ‘ ol igopoly’ – indust ry

dominat ed by a few large f irms.

(i i i) Because so many had incorrect ly chosen ‘ t ert iary’ t hey had dif f icul t y in

relat ing services t o car manufact urers.

(b)(i) Def init ions are wort h learning. Most candidat es underst ood t hat economies

of scale have somet hing t o do wit h out put and cost s but few could st at e t he

relat ionship clearly. Inst ead, inaccurat e responses were common.

Inaccurat e response: “ As t hey expand t hey have t o reduce t he cost of product ion” Accurat e response: “ as out put increases so t he average cost wi l l f al l . ”

(i i)(i i i ) Responses varied but t he maj orit y could not give correct examples so

st ruggled t o f ind anyt hing relevant t o writ e about int ernal, ext ernal and

diseconomies of scale.

(c)(i) Many candidat es were on t he verge of scoring maximum marks but omit t ed

t he key point t hat privat isat ion is a t ransf er bet ween st at e and privat e sect or.

Inst ead vague responses showed some imprecise knowledge.

Inaccurat e response: “ When a f i rm is owned by an individual and not by t he st at e. ” Accurat e response: “ When t he ownership of a f i rm is t ransf erred f rom t he publ ic t o t he pr ivat e sect or . ” (i i) Some good responses, but candidat es need t o dist inguish bet ween quest ions

where an explanat ion is required and where j ust a simple st at ement wil l be

suf f icient . The quest ion said “ give t wo possible reasons” , for t wo marks, which

signals t hat no explanat ions are required.

(i i i) Responses were one sided, which prevent ed many candidat es f rom reaching

t he higher scoring levels. Candidat es should t ry t o j ust if y t heir answers by looking

at t he case for and against privat isat ion. A good example f rom t he Higher paper is

given below.

Good response: “ It can be good and bad. Deregulat ion can lead t o more f i rms compet ing which lowers t he pr ices of t he product and so provides a larger array of choices f or t he consumers. The pr ivat ised f i rm might also improve t he qual i t y of t he product t o t ry t o at t ract cust omers so i t can make a prof i t . However, t he main obj ect ive of a pr ivat ised f i rm is not t he wel f are of t he people but t o make a prof i t . They might t ry t o cut cost s and t he qual i t y of t he good or service may suf f er . If t hey are a monopoly t hey may increase pr ices in order t o increase prof i t s which wi l l be bad f or consumers.”

Question 3

(a)(i) Due t o t he int ernat ional nat ure of t he examinat ion most responses were

accept able as ‘ main it ems’ of government expendit ure. Even so some candidat es

gave responses which were t oo vague or clearly incorrect e.g. “ incomes” ,

“ export s” , “ cost of building” .

(i i) ‘ Export s – import s’ [concerns balance of payment s. ] Incorrect

response.

‘ Sales revenue – expendit ure’ [concerns f irms. ] Incorrect

response.

‘ Government revenue – Government Expendit ure’ = budget def icit .

Correct .

(i i i) Unfort unat ely t oo many candidat es were unaware of how a budget def icit

is calculat ed and so appeared t o guess t heir response.

(b)(i) Def init ions if learnt correct ly achieve ful l marks. Most candidat es knew

t hat inf lat ion relat es t o increase in price but ful l def init ions e.g. “ persist ent increase in general level of pr ices” were few.

(i i) A simple calculat ion t aking t he inf lat ion rat e of one year f rom t he next

result s in t he correct answer:

Year Change in inflation rate

2000 –2001 (1.1 t o 4.3) = +3.2 (increase in inf lat ion rat e)

2001 –2002 (4.3 t o 0.8) -3.5 (decrease in inf lat ion rat e)

2002 – 2003 (0.8 t o 4.2) +3.4 (increase in inf lat ion rat e)

Therefore 2002 –2003 was t he correct response.

(i i i) This quest ion asks for funct ions of money not charact erist ics of money.

The funct ions of money are: medium of exchange, measure of value, st ore

of value, means of deferred payment . Each of t hese is af fect ed by

inf lat ion unl ike charact erist ics of money which include: durabil i t y,

port abil i t y and divisibi l i t y.

(c)(i) Anot her def init ion required for ful l marks yet t his proved t oo dif f icul t for

many candidat es.

Vague response: “ Fiscal pol icy is used t o reduce inf lat ion by using government expendi t ure f or t he people. ”

Accurat e response: “ The use of government expendit ure and revenue t o reduce demand in t he economy.”

(i i) Those candidat es who st ruggled wit h t he def init ion in (c)(i) also st ruggled

t o explain how f iscal pol icy can be used t o reduce inf lat ion. A good

response would have been:

“ When t he government increases i t s revenue by increasing income t ax i t wi l l reduce disposable income and so t here wi l l be less demand and less inf lat ion.”

(i i i) Monet ary pol icy was t he most popular pol icy ident if ied and most

candidat es correct ly explained t hat increasing int erest rat es wil l reduce

demand in an economy.

(iv) Simple explanat ions of t he problems arising f rom eit her of t he pol icies

gained at least half marks in t his quest ion. Some considerat ion of t he

ot her pol icy al lowed candidat es t o achieve t he higher levels.

(v)

“ When f iscal pol icy resul t s in increased t axat ion t he st andard of l iving may f al l . On t he ot her hand raising int erest rat es may also lead t o decreases in t he st andard of l iving as t hose who have borrowed wi l l have t o pay back more but t hose who are saving wi l l receive more. Fiscal pol icy wi l l of t en lead t o a f al l in everyone’ s st andard of l iving so is most damaging.”

Question 4

(a)(i) Yet anot her def init ion wit h many confused responses.

Confused response: “ The di f f erence bet ween t he money and al l of t hem have got di f f erent values” .

Correct response: “ The value of one currency in t erms of anot her” .

(i i) The quest ion which produced t he most correct responses.

(i i i) The mult iple choice quest ion which produced t he most correct responses.

(iv) Amongst quest ions requiring calculat ions, t he one which produced t he most

correct responses.

(v) Af t er a good st art t o t his sect ion by many candidat es t his quest ion brought

problems as t hey found it dif f icul t t o explain a fact or which can increase

t he exchange rat e. Incorrect responses included “ inf lat ion” and “ increase

in import s” . The correct response could have relat ed t o increase in export s

or increase in int erest rat es (demand for currency increases).

(b)(i) The famil iar problem again, wit h vague def init ions of balance of payment s

on current account . The responses varied f rom t hose which bore no resemblance

t o t he correct answer: “ The cost of al l t hings on t hat piece of land” t o t hose which

were vague “ record of a count ry’ s economic st at us” t o t hose which were correct

“ record of a count ry’ s t rade in goods and services and current t ransfers” .

(i i) If a candidat e want ed t o be succinct t he fol lowing would have been

accept able for ful l marks:

“ Visible = goods e.g. cars. Invisible = services e.g. banking.” It was a pit y t hat af t er giving t he correct def init ions several candidat es

omit t ed t he examples which were clearly asked for in t he quest ion.

(i i i) Those candidat es t hat did at t empt t his quest ion gave problems of fal l ing

exchange rat es and rising int ernat ional debt s. One except ional candidat e

also correct ly referred t o t he problem as not t oo severe: “ U.S.A. is

exper iencing a huge def ici t but i t st i l l has a successful economy compared t o many ot hers in t he wor ld” .

Paper 4350/ 2H

June 2006

A new examinat ion present s chal lenges for al l involved including candidat es,

t eachers and even examiners. The specif icat ion, common t o bot h t iers, is divided

int o four sect ions which correspond t o t he four main quest ions on t he paper.

There may be some overlap as it is dif f icul t t o keep t o r igid divisions in Economics.

Therefore t he t eaching of t he specif icat ion must not omit any sect ion or part

sect ion ot herwise candidat es wil l be disadvant aged.

Besides organising t he t eaching of t he new specif icat ion, t eachers must also bear

t he burden of choosing t he correct level of ent ry for each candidat e. This must be

done very careful ly. In t his session it appeared t hat t eachers ent ered some

candidat es at Higher t ier who might have been more successful at t he Foundat ion

t ier. It is possible t o gain a C grade at Foundat ion t ier and some candidat es might

have benef it ed f rom a short er more accessible paper rat her t han t he longer and

more demanding Higher t ier paper. Foundat ion t ier has a lower weight ing of t he

analysis and evaluat ion skil ls which chal lenge many st udent s.

The paper highl ight ed several ways in which t eachers can improve t he performance

of Higher t ier candidat es. Below are some suggest ed priorit ies, based on common

mist akes made by candidat es.

• At t empt every quest ion.

• Learn def init ions.

• Read t he quest ions careful ly and don’ t forget t o give examples if required.

• In higher level quest ions when asked t o ‘ evaluat e’ , ‘ discuss’ or ‘ j ust if y’ or ‘ give

reasons for your answer’ , remember t o

(i) Give bot h sides of t he argument / discussion.

(i i) Come t o a reasoned conclusion.

(i i i) Just ify t his conclusion.

Hopeful ly, t his series of examinat ion papers, mark schemes and report s wil l help

t eachers t o feel more conf ident and t o prepare t heir fut ure candidat es.

It is not ewort hy t hat al t hough avoidable mist akes were common, some candidat es

and some whole cent res produced answers of except ional qual it y. These candidat es

and t heir t eachers have much t o be proud of .

Question 1

(a) Candidat es gave a varied range of responses t o t his st raight forward demand

and supply quest ion. The emphasis at t he st art of t he quest ion was on demand

and supply diagrams for a primary good, f resh f lowers, and a manufact ured good,

art i f icial f lowers.

(i) Most candidat es were able t o specify t he equil ibrium quant it y and price on

bot h diagrams. The required not at ion is st at ed in t he quest ion t o aid

candidat es, yet some st i l l gave t he equil ibrium price and quant it y dif ferent

not at ions [e.g. q2, p2]. They were not penal ised for t his but i t should be

not ed by t eachers t hat in fut ure candidat es should use t he not at ion

specif ied.

(i i) Most candidat es correct ly shif t ed t he supply curve as shown in t he diagram

below.

Diagram (a)(i i)

S1S2

P2

P1

D1

Q1Q2

(b)(i) Part ial and inaccurat e def init ions meant t hat some candidat es did not

achieve maximum marks for t his part of t he quest ion. In (i i) most real ised t hat

elast icit y of supply in t he above diagram is zero.

In (i i i) candidat es were required t o apply t heir knowledge of elast icit y of supply

and st at e t hat primary product s are more inelast ic in supply t han manufact ured

goods. Part (iv) required t hem t o explain why t his dif ference exist s. The most

common mist ake occurred when candidat es confused elast icit y of supply wit h

elast icit y of demand.

Good response: “ Pr imary product s l ike f resh f lowers have a long growing per iod so supply can’ t be changed quickly t heref ore supply is inelast ic in t he short run. However, t he supply of manuf act ured goods l ike ar t i f icial f lowers can easi ly be changed, especial ly i f t here are st ocks of ar t i f icial f lowers”

(c)(i) The subsidy diagram request ed in (c)(i) is given below,

A brief explanat ion in addit ion t o t he above diagram achieved maximum marks.

“ A subsidy is a sum of money given t o a f irm by t he government t o lower it s cost s

of product ion and encourage supply of more goods. It wil l also lead t o f irms

lowering t heir prices t o consumers”

In (c)(i i) candidat es had t o explain why government s might reduce subsidies. A

common incorrect response focused on why government s introduced subsidies.

A correct response: “ A subsidy cost s t he government money and t his has an opport uni t y cost – i t could be used f or somet hing else e.g. educat ion, heal t h which might benef i t t he people of t he count ry more. If t here is a surplus of agr icul t ural product s t hen t he f armers need no encouragement t o produce more as increased product ion may lead t o excess suppl ies being dest royed. To promot e int ernat ional t rade and abide by t he rules of t he W.T.O. t he government might reduce subsidies. Increased int ernat ional t rade wi l l give consumers increased choice and increase compet i t ion bet ween count r ies. This compet i t iveness might increase product ivi t y and qual i t y. ”

Question 2

(a)(i) No problem here as candidat es seemed famil iar wit h pie chart s. The t erm

‘ ol igopoly’ in (i i ) was correct ly ident if ied by most candidat es. Some candidat es

chose ‘ monopoly’ and al t hough t hey did not achieve a mark in (i i ) t hey were not

penal ised in (i i i ) i f t hey gave an appropriat e explanat ion of t heir choice e.g.

Renault has an above 25% share of t he market .

In (a)(iv) many candidat es did not gain maximum marks because t hey did not

develop t heir answers suf f icient ly for six marks t o be awarded.

Correct response: “ The f i rms might engage in pr ice wars which wi l l lower pr ices f or consumers. However, when t he pr ice war ends i t may resul t in less choice f or consumers as f i rms may have been f orced out of t he market and pr ices wi l l r ise again. Compet i t ion may resul t in f i rms increasing t he qual i t y of t heir product s in order t o gain more cust omers. If al l f i rms t ry t o increase qual i t y i t may resul t in increased cost s and increased pr ices f or consumers.”

(b)(i) Answers t o quest ions involving economies of scale are usual ly wel l rehearsed

by cent res. Unfort unat ely t here seems t o be a gap in t he knowledge of many

candidat es concerning t he diagram which i l lust rat es economies of scale. Diagrams

at t empt ed by candidat es included demand and supply curves, t ables and sket ches

of fact ories inst ead of t he expect ed diagram given below:

Economies

of scale

Diseconomies

of scale

Most candidat es underst ood t hat economies of scale have somet hing t o do wit h

out put and cost s but few could st at e t he relat ionship clearly. Inst ead, inaccurat e

responses l ike t he fol lowing were common:

Inaccurat e response: “ As t hey expand t hey have t o reduce t he cost of product ion”

Accurat e response: “ As out put increases so t he average cost wi l l f al l . ”

(i i) Responses varied wit h candidat es f inding it easier t o give def init ions of int ernal

rat her t han ext ernal economies of scale.

(c)(i) Some good responses but candidat es need t o dist inguish bet ween quest ions

where an explanat ion is required and where j ust a simple st at ement wil l be

suf f icient . The quest ion says ‘ give t wo possible reasons’ , for j ust t wo marks, which

impl ies t hat no explanat ions are required.

(i i) Responses were one sided which prevent ed many candidat es f rom reaching t he

higher scoring levels. Candidat es should t ry t o j ust if y t heir answers by looking at

t he case for and against privat isat ion.

Good response: “ It can be good and bad. Deregulat ion can lead t o more f i rms compet ing which lowers t he pr ices of t he product and so provides a larger array of choices f or t he consumers. The pr ivat ised f i rm might also improve t he qual i t y of t he product t o t ry t o at t ract cust omers so i t can make a prof i t . However, t he main obj ect ive of a pr ivat ised f i rm is not t he wel f are of t he people but t o make a prof i t . They might t ry t o cut cost s and t he qual i t y of t he good or service may suf f er . If t hey are a monopoly t hey may increase pr ices in order t o increase prof i t s which wi l l be bad f or consumers.” Some of t he best answers looked at bot h sides before concluding t hat privat isat ion

was general ly a good t hing or a bad t hing.

Question 3

(a)(i) Due t o t he int ernat ional nat ure of t he examinat ion, most responses of fered

were plausible as ‘ main it ems’ of government expendit ure. Even so, some

candidat es gave responses which were incorrect or t oo vague e.g. “ incomes, ”

“ export s, ” “ cost of building” .

(i i) ‘ Export s – import s’ concerns balance of payment s. Incorrect

response.

‘ Sales revenue – expendit ure’ concerns f irms. Incorrect

response.

‘ Government revenue – Government Expendit ure’ = budget def icit .

Correct .

(i i i) If candidat es were unaware of how a budget def icit is calculat ed t hey of t en

gave t he incorrect year. Reading chart s was not a skil l t hat al l st udent s had

mast ered.

(b)(i) Def init ions if learnt achieve ful l marks. Most candidat es knew t hat inf lat ion

relat es t o increase in price and gave ful l def init ions e.g. “ persist ent increase in t he general level of pr ices” .

(i i) The quest ion asks ‘ what happened t o prices bet ween 2001 and 2002’ .

Year Change in inflation rate Prices

2001 – 2002 (4.3 t o 0.8) Prices rose but at a lower rat e.

Incorrect response: “ Pr ices were f al l ing” .

Correct response: “ There was a sizeable drop in inf lat ion. The pr ices were st i l l r ising in 2002 but not at t he same rat e as in 2001. They were r ising at a much slower rat e - 4.3% down t o 0.8%.” (i i i) Some candidat es answered t heir own quest ion rat her t han t he one set , e.g.

writ ing about how inf lat ion is caused.

Correct response: “ Cont rol of inf lat ion might help t he balance of payment s. Dur ing inf lat ion export s become more expensive and import s cheaper so t he count ry f inds i t hard t o compet e in t he wor ld market and may develop a def ici t of t he balance of payment s (import s > export s). Inf lat ion may also discourage invest ment bot h f rom home producers and f oreign f i rms. The cost s of product ion wi l l be unpredict able and t his lack of invest ment may slow economic growt h in t he count ry. ” Candidat es could also have referred t o t he problems which af fect t he funct ions of

money which arise f rom inf lat ion: e.g. borrowers gain, debt ors lose, real value of

savings wil l fal l .

(c)(i) Anot her def init ion required for ful l marks, e.g. “ t he use of government expendit ure and revenue t o decrease demand in t he economy” .

(i i) Candidat es who st ruggled wit h t he def init ion in (c)(i) also st ruggled t o explain

how f iscal pol icy can be used t o reduce inf lat ion. A good response would have

been “ When t he government increases i t s revenue by increasing income t ax i t wi l l reduce disposable income and so t here wi l l be less demand and less inf lat ion.”

In (i i) monet ary pol icy was t he most popular pol icy ident if ied and most candidat es

correct ly explained t hat increasing int erest rat es wil l reduce demand in an

economy.

(i i i) Simple explanat ions of t he problems arising f rom eit her of t he pol icies gained

at least half marks in t his quest ion. Adding some considerat ion of t he ot her pol icy

al lowed candidat es t o achieve t he higher levels.

“ When f iscal pol icy resul t s in increased t axat ion t he st andard of l iving may f al l . On t he ot her hand raising int erest rat es may also lead t o decreases in t he st andard of l iving as t hose who have borrowed wi l l have t o pay back more, but t hose who are saving wi l l receive more. Fiscal pol icy wi l l of t en lead t o a f al l in everyone’ s st andard of l iving so is most damaging.”

(iv) When a quest ion asks for ‘ evaluat ion’ candidat es should be aware t hat bot h

sides of t he argument s should be considered and t hen a j udgement should

be reached e.g.

“ Income t ax af f ect s people’ s incent ive t o work and t his might af f ect product ivi t y of workers and even whet her or not a worker seeks employment . The higher t he income t ax t he less incent ive t here is t o work or seek promot ion. Higher income

t ax also reduces disposable income so workers wi l l f ind t heir st andard of l iving reduced. However, as income t ax is usual ly progressive and i f t he government spends some of i t s increased revenue on t he poorer people, t he poor sect ors of t he economy wi l l gain at t he expense of t he r ich. Inf lat ion t oo might decrease due t o t he f al l in disposable income and t his wi l l have many posi t ive ef f ect s f or t he economy. Overal l as long as t he t ax is progressive an increase wi l l probably help t he economy, especial l y in t imes of inf lat ion.”

Question 4

(a)(i) Anot her def init ion requir ing a simple response, e.g. : “ t he value of one currency in t erms of anot her, e.g. 10 krona = $1” . Part s (i i )(i i i )(iv) caused few

problems for candidat es. It was t herefore disappoint ing t o see in (v) t hat many

candidat es could not ident if y t wo fact ors which can increase t he exchange rat e of

a currency. Incorrect responses included “ inf lat ion” and “ increase in import s” .

Correct responses could have relat ed t o increase in export s or increase in int erest

rat es (demand for currency increases), for example.

(b)(i) Vague def init ions of balance of payment s on current account meant t hat

many candidat es did not achieve maximum marks for t his quest ion. A correct

response was simply: “ record of a count ry’ s t rade in goods and services and current t ransf ers” .

In part (i i) candidat es should have relat ed elast icit y t o t he demand for import s and

export s, some managed t his successful ly.

“ If t he currency f al ls import s become more expensive. If demand is elast ic t hen a change in pr ice wi l l lead t o a more t han proport ionat e change in quant i t y demanded. This wi l l lead t o a f al l in t he t ot al amount spent on import s (P↑ TR↓) and t his wi l l improve t he balance of payment s. ”

Similarly in part 2 candidat es should have responded on t he fol lowing l ines:

“ If t he currency f al ls export s become cheaper . If demand is elast ic t hen a change in pr ice wi l l lead t o a more t han proport ionat e change in quant i t y demanded. This wi l l lead t o a r ise in t he t ot al amount earned by export s (P↓ TR↑) and t his wi l l also improve t he balance of payment s.”

In (i i i) a balanced argument was required for ful l marks. However, candidat es

should have referred t o t he problems rat her t han t he causes of a balance of

payment s def icit . E.g. :

“ The def ici t may not be a ser ious problem i f i t is short t erm and i t has come about because of t he purchase of import s which wi l l improve t he economy e.g. t he government or f i rms buy machinery f rom abroad which wi l l improve t he economic growt h of t he count ry. In t ime, t he economic growt h could lead t o increased export s and t he def ici t wi l l disappear. However, i f t he def ici t is long t erm and t he count ry has t o borrow t o f inance i t , t his could lead t o problems. Developing count r ies may f ind t hemselves heavi ly in debt and not be able t o af f ord t he repayment s. The debt s may grow and t he count ry wi l l f ind i t sel f poorer wi t h low economic growt h. Theref ore I t hink t hat a def ici t can be a ser ious problem f or some count r ies but not f or al l . ”

Paper 4350/ 03

June 2006

General Comments

The paper provided opport uni t ies f or al l candidat es t o demonst rat e t heir economic knowledge and underst anding t oget her wi t h t hei r abi l i t y t o use t his in relat ionship t o t he sources and t he quest ions asked.

Bet t er candidat es had used t he pre-released mat erial as a basis for furt her st udy

and had a good underst anding of t he issues surrounding int ernat ional t rade. Most of

t hese were able t o use informat ion f rom t heir own count ry t o enhance t heir

answers. In addit ion, t hese candidat es t ook careful not e of t he ‘ key word’ , and

used t he sources, in order t o answer t he precise quest ion t hat had been asked.

Weaker candidat es appeared, in many cases, t o be unprepared for t he quest ions

and did not use t he sources t hus l imit ing t he credit t hat was available.

While most candidat es could draw a relevant supply and demand diagram, quest ion

3a, t his was not always t he case. Cent res should not e t hat candidat es are expect ed

t o be able t o demonst rat e t his skil l .

Cent res, and candidat es, are reminded of t he need t o use t he mat erial as a basis of

furt her st udy and preparat ion for t he exam. They should not e, also, t he

requirement t o refer t o ‘ your count ry’ and t hat t his refers t o ‘ a count ry of your

choice’ . Too many candidat es answered t he quest ions wit hout any reference t o a

count ry.

Questions

1. Bet t er candidat es were able t o bot h real ise t hat t here was a posit ive

relat ionship bet ween ‘ growt h of world export s and GDP’ and t o eit her point out

t hat t his did not seem t o hold for t he period 1913-1950 or t o give some

numerical support such as t hat ‘ export growt h was t hree t imes t hat of GDP’ .

Many candidat es, however, did not go beyond t he simple l ink while weak

candidat es ignored Source A and def ined GDP.

2. Most candidat es were able t o use at least one of t he named sources and t o

of fer at least one advant age. Bet t er candidat es were able t o ful ly explain t wo

advant ages, of t en using al l t hree sources e.g. ‘ t rade can ‘ lead t owards

sust ainable development and a higher st andard of l iving’ [Source C] as it leads

t o great er out put which requires more people t o be employed giving t hem a

higher income’ . Weaker candidat es of t en j ust repeat ed mat erial f rom t he

sources wit hout any explanat ion.

3. (a) Candidat es could eit her draw a st raight forward supply and demand ‘ X’ ,

fol lowed by a lef t ward shif t for t he t arif f , or could draw one showing a

perfect ly elast ic world supply l ine wit h an upward shif t . Bot h diagrams were

seen and scored ful l marks, but many of t he bet t er candidat es used t he second

one. The main fai l ings were shif t ing t he supply l ine in t he wrong direct ion or

mislabel l ing or not label l ing t he l ines.

(b) (i) Alt hough most candidat es were able t o use Source E and t o select t wo

met hods, some ignored t he inst ruct ion and scored zero. A few did not give a

met hod of prot ect ion or included t arif f s even t hough t he quest ion clearly

st at ed 'ot her t han t arif f s'.

(b) (ii) Candidat es could gain marks in t his part even if t hey had given an

incorrect answer in part (i) and were cont inuing t o use it . Good answers

compared t he t wo met hods and came t o a conclusion as t o which ‘ would be

more ef fect ive’ . Ot her candidat es were able t o present a coherent answer for

one met hod, but ignored t he ot her and were not able t o access t he very t op

marks. Weak answers simply st at ed what t he met hod(s) did e.g. ‘ quot as l imit

t he amount of import s t o a set amount ’ .

4. (a) Once more, good candidat es used t he named sources, and t heir own

economic knowledge, t o examine t he reasons for prot ect ion. Answers at t he

very t op made sensible reference t o why t hese would be appropriat e for t heir

count ry. It was clear t hat a few had accessed Source D and were using t he

great er det ail cont ained in t he ful l report . Al l of t hese candidat es were able t o

‘ examine t he reasons’ wit h a few ranking t hem in import ance. An example of

examining was ‘ infant indust ries need prot ect ion f rom f ierce foreign

compet it ion or else t hey wil l never develop and improve employment and

export s’ . Ot her candidat es made good point s, but only explained t hem brief ly

t hus l imit ing t he credit available, e.g. ‘ infant indust ries wil l fai l i f t hey are not

prot ect ed f rom st rong foreign compet it ion’ . Weak answers consist ed of l ist s of

reasons wit h l i t t le or no development .

(b) There were some excel lent answers t hat compared f ree t rade wit h

prot ect ion and i l lust rat ed t he point s wit h reference t o t heir count ry. These

responses showed an underst anding of t he fact t hat t he same issue, e.g. abil i t y

t o export food, of t en has bot h posit ive and negat ive aspect s for a count ry

making t he issue one of complexit y. Ot her good answers t ended t o be one-sided

considering, for example, only t he argument s for and against f ree t rade. While

t hese did wel l t hey could not reach t he t op of t he mark scheme. Weaker

answers explained some point s for or against f ree t rade, which were not always

relat ed t o food. A few candidat es basical ly repeat ed t heir answer t o 4a and did

not score many marks.

ECONOMICS 4350, GRADE BOUNDARIES JUNE 2006

Grade A* A B C D E F G

Opt ion 1

(1F, 03) - - - 55 48 41 34 27

Opt ion 2

(1F, 04 - - - 55 48 41 35 29

Opt ion 3

(2H, 03) 79 68 57 46 39 35 - -

Lowest

mark for

award of

grade

(Max 100)

Opt ion 4

(2H, 04) 82 70 58 47 40 36 - -

Note: Grade boundaries may vary f rom series t o series and f rom subj ect t o subj ect ,

depending on t he demands of t he quest ion papers.