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Examiners Report Summer 2009

GCE

GCE Economics (8121/9121)

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Contents

1. 6353 Examiners Report 52. 6354 Examiners Report 73. 6355_01 Examiners Report 194. 6355_02 Examiners Report 235. 6356 Examiners Report 276. Statistics 33

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6353 Examiners Report

Section 1

Question 1(a)(i) Most candidates were able to point out the main difference between the ILOLabour Force Survey and the claimant count measures of unemployment, referring toJSA claims and availability for work (ILO). Many answers failed to achieve theadditional mark for explaining clearly any difference between the two measures.

(a)(ii) This question proved to be a good discriminator, with the better candidatesattempting to find valid reasons for the different movements of the two measures.Most candidates failed to refer back to the data showing the increase in the ILOmeasure and the fall in the claimant count, and merely reiterated their answer toQ1(a)(i).

(b)(i) The vast majority of candidates handled this simple calculation with ease,

although a significant minority used the wrong denominator.

(b)(ii) Most candidates realised that the differences revealed in the data were theresult of currency changes. The better candidates talked about exchange ratechanges but not all actually referred to the appreciation of sterling or thedepreciation of the dollar.

(b)(iii) Candidates sometimes followed the correct approach to this question,concentrating on the effects of rising energy prices on production costs andconsequently on aggregate supply. Weaker answers focused on the effects of changesin oil and gas prices on consumers (ie micro analysis) mainly on the lines that oil andgas are expensive therefore AD falls, without considering the macroeconomic

implications of these changes via net exports. Many were very confused (as on thenew 6EC02) with students find thinking outside the box impossible. Evaluation forthis question mainly focused on the size of the price changes.

(c)(i) Most answers were able to deal with this question easily, drawing on theirknowledge of supply side policies, and aware of the restriction on using spending oneducation and health care as examples. Some, however, failed to comply with theadditional requirement that the supply side policies must be currently implementedin the UK. Thus answers that referred to the abolition of the national minimumwage, for example, were unlikely to score highly. Many candidates showed a verygood knowledge of current government initiatives on employment which went beyond

the standard supply-side responses.

(d) This question presented candidates with the opportunity to provide a fairlystandard answer to the macroeconomic impacts of government spending, looking atboth long term and short term effects. Many candidates failed to consider the likelyshort-term effects of an increase of government spending, talking in very generalterms about changes in aggregate demand rather than considering the impacts ofhospital and school building programmes. The long term effects on employment andproductivity were generally much better done. Candidates were clearly well aware ofthe need to provide definitions, diagrams, transmission mechanisms and evaluation.The impact on skills and workforce, the time lags and opportunity cost were wellrehearsed.

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Section 2

Question 2

(a)(i) Candidates generally scored both marks available for this question by referringto the 2% CPI target and the 1% margin around this. Some candidates are under theimpression that the target is set by the Monetary Policy Committee, rather than bythe government.

(a)(ii) Candidates often found it difficult to explain the concept of weights andchanges in the CPI/RPI measure of inflation within the space provided on the exampaper. However most were able to do enough to obtain both marks available for thisquestion.

(a)(iii) Most candidates handled this question easily, referring to the negative wealtheffect and the probability of the MPC reducing interest rates in order to stimulateaggregate demand. Generally marks were lost through concentrating on the housing

market rather than the need for general economic reflation.

(b)(i) Candidates generally appreciated the effects of a high value of the poundagainst the dollar on UK imports and exports, but a significant minority got this thewrong way around.

(b)(ii) This question was generally less well answered. As with Q1biii, manycandidates took a simplistic view of the situation presented, concentrating on theeffects on consumers of a small cut in interest rates. A typical answer would showconsumption rising after the fall in interest rates and hence causing increaseddemand for imported goods, rather than considering the effects on the exchange rateor on investment in exports, and although this approach was accepted it missed the

more probably short term impact, suggested to them by part 2bi. There wasconfusion between the interest rate, inflation and exchange rate. Evaluation tendedto be in terms of the size of the rate cut.

(b)(iii) Candidates were mostly able to provide a credible reason to explain thecurrent situation of the Balance of Payments, often in terms of the quality and orprice of UK exports or overseas competitiveness.

(c) Candidates demonstrated a good understanding of the relationship betweenoverseas trade, exchange rates and aggregate demand in the UK, in the context of adownturn in the US economy. Most candidates wrote about the fall in demand for UK

exports and the effects on US investment in the UK. Some commented on integratedcapital markets.

(d) Candidates provided some excellent responses to this question, with impressiveanalysis of the contradiction involved in the question, although the reference toinflation was often oblique. There were some very pleasing answers using the data toexplain the oil and gas prices were cost push whereas AD was affected by demandpull inflation. Some candidates provided a standard answer considering the effects ofcutting interest rates on aggregate demand and aggregate supply without attemptingto address the contradiction. Good evaluation considered alternative approaches tothe situation, such as fiscal policy, and some considered the current situation and theinability to cut rates further.

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6354 Examiners Report

The examination paper was highly accessible and provided an effective means ofdifferentiating between the qualities of candidate answers. The vast majority ofcandidates offered an explanation to all the supported multiple choice questions. Inthe data response section of the paper, Question 12 (UK Music industry) was a farmore popular choice for candidates to answer than Question 11 (Increasing rail faresas passenger demand soars). However, the mean scores for both questions were quitesimilar.

The mean score for June 2009 paper (44.9) was very similar to the mean score forJune 2008 (45.1). The standard deviation for June 2009 (11.8) was the same as forJune 2008 (11.8).

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Section A: Supported multiple choice questions

These questions continued to differentiate between the quality of candidateresponses and the full range of marks was awarded. Some candidates were very wellprepared and demonstrated an excellent understanding of both the specification andthe techniques involved in answering the questions. Some achieved scores over35/40, providing excellent definitions, economic analysis and relevant application.

The key to success involves defining key concepts and applying appropriate economicanalysis and theory. Annotation of the diagrams and tables provided is a goodstrategy, for example, Q2 and Q4. Furthermore, Q1, Q2, Q5, Q8 and Q10 offeredscope for candidates to introduce diagrammatic analysis as a means of demonstratingtheir knowledge and understanding of the issues at hand.

As in previous years, candidates found some questions easier to answer than others.The three supported multiple choice questions which recorded the highest markswere Q2 (Firm in perfect competition), Q7 (Patent and contestability) and Q5 (Price

discrimination for Apple iPhone). The three supported multiple choice questionswhich recorded the lowest marks were Q4 (Firm making supernormal profits atallocative efficiency position), Q9 (Product differentiation in the games consolemarket) and Q8 (Loss making firm continuing in production).

One interesting point to note is that some candidates attempted to gain marks byknocking-out incorrect options. Up to 2 marks are available for successfully knocking-out two incorrect options. However, mixed success was achieved here. It requirescandidates to explicitly state the option key which is being rejected and then tooffer an appropriate explanation. Examples of how to successfully reject incorrectoptions are provided in the following comments.

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Quest ion 1 (C): Takeover i n sport swear indust ryMean 2.25 out of 4 marksMost candidates selected the correct key and explained that the takeover was a formof horizontal integration, where two firms merge in the same industry and at thesame stage of production. This was credited with a mark.

However, one limitation of many answers was omitting the long run in thedefinition of economies of scale. It is important to refer to the term as falling longrun average costs as production increases.

The best responses offered application of economies of scale to the sportswearindustry, for example: The takeover could lead to purchasing economies of scalewhere a firm could now gain greater discounts in purchasing raw materials such ascotton and linen in its sportswear range.

Some candidates successfully rejected one or more incorrect options, for example:Option B is incorrect since vertical integration is where firms merge in the same

industry and at different stages of production. This might be where a sportswearmanufacturer was to merge with a producer of cotton, a raw material used in makingclothing.

Quest ion 2 (C): Firm in perfect compet it ionMean 2.86 out of 4 marksThere were many pleasing answers and the highest mean score was achieved here.The vast majority of candidates successfully calculated marginal costs and marginalrevenue from the data provided and also offered definitions of the concepts. Inaddition, many candidates produced a diagram of a firm in perfect competitionmaking supernormal profits.

Totaloutput

TotalCost

TotalRevenue

MarginalCost

Marginalrevenue

0 40 0 --- ---1 80 100 40 1002 140 200 60 1003 220 300 80 1004 320 400 100 1005 440 500 120 100

Question 3 (A): Price fixing of milk among supermarketsMean 2.74 out of 4 marks

Most candidates selected the correct key and identified that price fixing is a form ofcollusion. This was usually followed up with a discussion on the impact it has uponconsumers in terms of reduced consumer surplus or that the supermarkets may havebeen attempting to increase their profits. The role of Office of Fair Trading in termsof protecting the public / consumer interest was also included in most answers.These points were awarded one mark each.

Some candidates successfully rejected one or more incorrect options, for example:Option E is incorrect since a high level of consumer surplus indicates that consumersare gaining a lot of utility above what they pay for milk. It implies that pricecompetition exists in the industry and so prices are kept down, benefitingconsumers.

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Question 4 (B): Firm making supernormal profits at allocative efficient outputpositionMean 1.42 out of 4 marksThis proved to be the most difficult question on the multiple choice section andmany candidates selected incorrect options such as A, C or D. This questiontested candidates technical knowledge and many responses lacked understanding.

Candidates who had an understanding of allocative efficiency and could work out thearea of supernormal profits graphically, achieved an easy 4 marks. Marks wereawarded for defining allocative efficiency (MC = Price), and supernormal profits aswell as annotation of the diagram. It differentiated effectively at the top end ofresponses.

Some candidates took the opportunity to successfully reject incorrect options forexample: Option A is incorrect since the revenue maximisation output is at Q2,which is greater than the profit maximising output of Q1.

Furthermore, opt ion C is incorrect since t he sales maximising price of P5 is less t hant he revenue maximising pri ce of P2 .

Finally, Option E is incorrect since demand is unitary price elastic at the salesrevenue maximisation output position.

This question is a good example where the use of the knock-out technique is aneffective way of gaining marks.

Quest ion 5 (C): Pr ice discrimination for Apple iPhoneMean 2.76 out of 4 marksThis question was successfully answered by many candidates and revealed a good

understanding of price discrimination. Similar questions have been set on previousexam papers and so this is a good example of how practice makes perfect.

The best responses identified and defined price discrimination, usually following upwith diagrammatic analysis, revealing a higher price (and a lower price elasticity ofdemand) in the UK market compared to the US market for iPhones. This wassufficient for full marks.

The weakest responses just repeated the correct key that different price elasticitiesof demand exist between the markets but did not explain its significance.

A minority of candidates decided to reject one or more incorrect options, forexample: Option D is incorrect since significant leakage between the US and UKmarkets would lead to firms exploiting the difference in price, that is, firms in theUK would simply import the cheaper iPhones from the US and eventually the pricedifference would be eliminated.

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Quest ion 6 (E): The pri ce of household gas in selected countri esMean 2.39 out of 4 marksThe vast majority of candidates selected the correct key and referred to the data togain an explanation mark. However, many responses did not develop their answers togain full marks here. A good example of how to achieve full marks is shown by thefollowing answer:

Figure 1 shows that Britain has the lowest price of household gas at 3 pence per Kwhcompared to Germany (4.2 Kwh) and Italy (4.9Kwh). It also had far more householdsswitching gas suppliers (47%) than Germany (5%) and Italy (1%). This suggestssignificant consumer choice exists in Britain and that price competition is substantial,leading to greater consumer surplus. The willingness of consumers to switch suppliersalso indicates a lack of brand loyalty and that choice exists in the market.

Some candidates confused Figure 2 with a concentration ratio and selected incorrectoption A. However, for the majority the problem was a lack of economic analysis ofthe data provided.

Question 7 (B): Patent and contestabilityMean 2.77 out of 4 marksMost candidatesrecognised that Microsofts patented technology is a barrier to entryto the computer software market and that forcing the company to share itstechnology with rival firms would lead to greater contestability. An explanation ofcontestability and its consequences would usually yield full marks, for example,increased market entry, lower prices, higher consumer surplus and lower sunk costs.

Past experience also reveals that a mark is awarded for explaining the role of theCompetition Commission in terms of promoting competition in markets andprotecting the consumer interest.

Often the use of a knock-out technique was successfully implemented, for example:Option D is incorrect since a patent is a barrier to entry. By forcing Microsoft tomake freely available to its rivals some of its technical information, then barriers toentry are actually reduced. It reduces asymmetric information in the industry.

Weaker responses often confused contestability with market concentration andended up selecting incorrect option A.

Quest ion 8 (E): Loss making f ir m conti nuing in producti onMean 1.74 out of 4 marks

This was another question which required technical knowledge to successfully answerit. Unfortunately many candidates struggled in selecting the correct option andexplaining how a firm might continue in production in the short run despite making aloss. A lot of candidates selected incorrect option A which reveals some confusionbetween the role of fixed and variable costs.

However, it differentiated effectively between candidate responses. The bestanswers usually included a definition of variable cost and relevant diagrammaticanalysis which showed a loss making firm (average revenue below average cost) butcovering its variable cost (average revenue above average variable cost).

Some candidates successfully knocked out incorrect option B, stating that a

withdrawal of government subsidies would mean even less revenue for the firm andso it would be more likely to shut down immediately.

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Question 9 (E): Product differentiation in the games console marketMean 1.70 out of 4 marksThis was a topical question which enabled most candidates to select the correct keyand apply product differentiation to the games console market. However, the reasonfor the relatively low mean score was due to limited application. Candidates did notrequire detailed knowledge of games consoles to achieve full marks but rather simplereference to types of product differentiation was enough, for example, packaging,brand name, colour and availability of games to use on the console.

The more sophisticated answers referred to the quality of graphics, speed ofcharacters and specific functions on the consoles again revealing an understandingof product differentiation.

Some excellent responses suggested that the high price of Sonys PlayStation 3 gamesconsole reflected its unique qualities or the higher unit costs of production. Bothideas were awarded with a mark each.

A significant number of candidates selected incorrect option A, confusing themeaning of a high price elasticity of demand with an inelastic product. On the otherhand, some candidates correctly used the concept of elasticity to justify the highprice for the Playstation 3. This reveals how incorrect options can give pointers towhat a valid response could include.

Quest ion 10 (A): Nail bar fi rm in monopolist ic compet it ionMean 1.91 out of 4 marksThis was a relatively easy question that was poorly answered by many candidates.The problem was that a great number of responses selected the correct key and thenjust repeated the information in the table without offering any development, forexample:

Option A is correct since a firm in monopolistic competition is not allocativeefficient. The firm has a differentiated product and there is low entry and exitbarriers in the industry.

This type of response achieved no explanation marks. A more effective response fromone candidate which gained full marks is:

The firm is allocatively inefficient since MC Price. Nail bars have a differentiatedproduct, for example, different opening hours, varied dcor of the shop and the typeof patterns painted on finger nails. There are low entry and exit barriers which mean

that supernormal profits are competed away in the long run, as more firms enter theindustry.

Another easy way of answering this question was to draw a diagram of a firm in longrun equilibrium position under monopolistic competition. The diagram could be usedto identify allocative efficiency / inefficiency, product differentiation (downwardsloping average revenue curve) and the notion of normal profits in long run due tolow entry and exit barriers.

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Sect ion B: Data response questions

There was a significant imbalance in answering the data response questions. Q12 (UKMusic industry) was far more popular with 81.4% answering this question compared toQ11 (Increasing rail fares as passenger demand soars) where just 18.6% answered it.A likely reason for this disparity is the topical nature of the music industry andinternet among teenagers.

Fortunately the mean score between the two data response questions were verysimilar and just 1 mark separated them, revealing that both questions were equallyaccessible. The mean score for Q12 was 23.00 and for Q11 21.99 out of a possible 40marks.

Quest ion 11: Increasing rail fares as passenger demand soars

(a)(i) Mean 1.61 out of 3 marksMost candidates understood the meaning of a price cap. To achieve full marks a valid

reason had to be offered, for example: To protect the consumer from the monopolypower of rail operating companies, who could otherwise increase prices to muchhigher levels and capture consumer surplus.

(a)(ii) Mean 2.22 out of 4 marksMost candidates explained the change from RPI-1% to RPI+1% over the timeperiod. The best answers indicated that rail fares had changed from decreasing inreal terms to increasing in real terms and then offered a valid reason applied to therail industry. Some excellent answers discussed the huge increase in passengernumbers from 38 billion to 47 billion passenger kilometres over the period and howthis means rail firms require more funds for investment in trains and carriages tokeep up with rising demand. Trains had already become overcrowded on many peak-

time services.

(b) Mean 3.59 out of 6 marksThis was a question where candidates typically achieved full marks or very low marksdepending on the diagrammatic analysis offered. The best answers used cost andrevenue curves, shifting both the average revenue and marginal revenue curvesoutwards to reveal a higher equilibrium price and output level. Usually theequilibrium positions were established around the profit maximisation concept wheremarginal cost equals marginal revenue.

Note that parallel shifts in the average revenue and marginal revenue curves should

be made though examiners were instructed to allow pivotal shifts for this particularexam.

However, a number of responses used basic supply and demand curves, shifting thedemand curve outwards. This was awarded just one mark. It is important thatcandidates use suitable cost and revenue diagrams based on the theory of the firmfor this unit rather than the basic supply and demand analysis associated with unit 1.

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(c) Mean 6.13 out of 12 marksPrice discrimination has been tested frequently in past data response exam papersand many candidates were well prepared for answering it. By defining pricediscrimination, outlining the conditions necessary for it to work and offering suitablediagrammatic analysis, 7 marks could be achieved quite easily.

The remaining 5 marks required two evaluative comments; the most popular typicallydiscussed the costs involved in separating rail users into different markets andensuring no leakage between them. For example, if the costs of employing ticketinspectors and barriers were very high it might reduce the profitability of pricediscrimination.

Another popular and sound evaluative comment was discussion of the regulatoryprice cap on 40% of rail fares. This reduced the ability of train operators to fullyexploit their market power and so limited the profits gained through pricediscrimination.

Some candidates assumed that since there are 23 train operating companies, theremust be lots of competition in the industry which would reduce the effectiveness ofprice discrimination. These responses did not recognise that monopolies oftenexisted on individual rail routes.

The weakest responses gave inappropriate supply and demand diagrams rather thanthe traditional two sector model using cost and revenue curves.

(d) Mean 5.60 out of 10 marksBy using the information provided it was relatively easy for candidates to achieve 6marks by offering at least three reasons why consumer welfare may have increased(or decreased) over the period. For example:

Consumer welfare appears to have increased since Figure 2 shows an improvementin the punctuality of trains. The percentage of trains arriving on time increased from79.1% in 2000 to 90.8% in 2007. Similarly, the number of complaints per 100,000 railpassenger journeys fell over the same period from 131 to 52. These statistics suggestgreater customer satisfaction with the rail services provided. Even the average age oftrains fell from 20.67 to 13.95 years suggesting a more comfortable and reliableservice for customers so fewer would be late for work or meetings.

Evaluation marks could be gained by arguing the alternative view that consumerwelfare may not have increased. The best answers made use of the information

provided, for example, overcrowding on peak-time train services which really annoyscustomers who have paid a lot of money to stand up and be knocked about. Otherresponses referred to 60% of rail fares not being subject to a price cap and how thesehave increased well above the rate of inflation over recent years. Another goodevaluative point discussed the complexity of rail fares with more than 70 types beingon sale and the many restrictive conditions of use. These factors served to questionwhether consumer welfare has increased.

The weaker responses typically failed to use the information provided or only offeredone viewpoint with little evaluative comment. It is important that candidates takenote of the instructions in the question.

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(e) Mean 2.84 out of 5 marksThis was quite well answered by most candidates apart from those who ran out oftime. It was expected that candidates would identify the train operating market asnon-contestable due to various reasons, the most notable being the high start-upcosts involved and the requirements of a government franchise. Not surprisingly,many candidates secured 3 marks here.

The best answers offered an evaluative comment, for example, discussion of leasingrolling stock to reduce entry and exit costs or how the market may becomecontestable in the long run once a franchise becomes available to bid for. Otherresponses discussed the magnitude of the entry barriers, particularly the hugeeconomies of scale available to a firm which secures several rail franchises.

Quest ion 12: UK Music industr y

(a)(i) Mean 2.55 out of 3 marksThis proved to be a nice introduction to the data response question and the vast

majority of candidates achieved full marks. This involved candidates identifying anddefining an oligopoly and then calculating the four-firm or three-firm concentrationratio.

A minority of responses suggested it was a monopoly-type market since Universal had31.9% market share, exceeding the legal definition of a monopoly. This wasacceptable and offered an alternative route to achieve marks.

(a)(ii) Mean 3.07 out of 5 marksThe mean score indicates that many candidates answered this question well bydefining the term collusion and focusing upon the conditions which might enable

firms in oligopolistic markets to collude. These included the ease of getting anagreement between relatively few companies, the high entry barriers which preventnew firms from competing away supernormal profits made, the cost structure offirms in the industry and the existence of what appears to be a dominant firm.

Most responses concentrated on the music industry but it was totally acceptable todiscuss any oligopolistic market such as air travel and pharmaceuticals. It wasinteresting to note that some students suggested that Universal is a market leaderwho could set price and other conditions and that other companies would simplyfollow them. This could give rise to the possibility of tacit collusion.

A lot of scope existed for evaluation by discussing the alternative view that collusionis unlikely, mainly due to the severe penalties awaiting firms found guilty. Manycandidates made reference to the possibility of imprisonment and fines of up to 10%of annual sales revenue and the possibility of whistle blowing.

However, some candidates misinterpreted the question. They focused on the reasonswhy oligopolistic firms might collude, for example to gain higher profits or toguarantee market share. These points were not relevant since the question requiredconsideration of the factors which may or may not enable firms to collude.

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(b) Mean 2.62 out of 4 marksThis question required candidates to carefully look at the information provided tosuggest a reason for falling CD revenue at a time of rising CD sales between 2001 and2005. The best responses suggested that the conflicting trends could be explained bythe falling price of CDs which are price inelastic in demand.

However, very few candidates got this far and so the mark scheme was adjusted tomake it more accessible. Two marks could be achieved by explicit use of the dataand a further mark for suggesting that internet downloads were responsible forfalling CD sales, forcing firms to reduce CD prices.

Nevertheless, some answers became muddled by looking at the time period up to2007 and so failed to focus on the opposing trends in CD sales and revenue.

(c) Mean 4.43 out of 10 marksLike Q11 (b) this was a question where candidates typically achieved high marks orvery low marks depending on the diagrammatic analysis offered. Good answers used

cost and revenue curves, shifting both the average revenue and marginal revenuecurves inwards to reveal a lower equilibrium price and output level. Usually theequilibrium positions were established around the profit maximisation concept wheremarginal cost equals marginal revenue.

The best answers showed the original area of supernormal profit and how much thiswas reduced by the decrease in demand for CDs. Up to 7 marks were available fordiagrammatic analysis and a significant number gained them quite easily. Note thatparallel shifts in the average revenue and marginal revenue curves should be made though examiners were instructed to allow pivotal shifts in this particular exam.

A number of responses used basic supply and demand curves, shifting the demand

curve inwards. This was awarded just one mark. As mentioned earlier, it is importantthat candidates use suitable cost and revenue diagrams based on the theory of thefirm for this unit rather than the basic supply and demand analysis associated withunit 1.

The 3 evaluation marks available proved to be problematic for many students whoseemed not to register the instruction word examine in the question. However,there were some excellent responses where candidates discussed the magnitude ofthe decline in CD sales (some 11 per cent in 2007 alone) or that music companieswere diversifying fast into other mediums of selling music such as the internet andmobile telephone ring tones. This might help offset the collapse in profits from CD

sales.

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(d) Mean 6.63 out of 12 marksThis was a very open ended question, permitting candidates to think outside the box,which many duly did. There were lots of excellent responses which probably accountsfor the higher mean mark on Q12 compared to Q11. Most answers focused on theadvantages and disadvantages the internet has brought to music producers andconsumers thereby providing an effective means of evaluation.

Many candidates demonstrated an understanding of the advantages anddisadvantages the internet has brought to music producers. Discussion of advantagesincluded the low marginal costs involved in selling music through the internet,increased access to a global market, relatively low marketing costs of promotingmusic, the emergence of virtual shops online and an immediate payment system.

Discussion of disadvantages tended to focus on the consequences of illegal musicdownloads and the decline of traditional music sales through CDs. Anotherdisadvantage to existing music companies was how the internet has reduced entryand exit barriers to the industry.

Many candidates demonstrated an understanding of the impact of the internet onmusic consumers. Frequently used advantages included lower prices, more consumersurplus, more consumer choice, more convenience of purchase and greater marketknowledge.

The most common disadvantages referred to safety issues of making online paymentsand the closure of music stores in town centres. The risk of prosecution throughillegal music downloads and how viruses may infect personal computers were alsoissues frequently raised. Other factors included discussion on the quality of musicdownloads and the long term impact of reduced revenues for the industry less fundsavailable for investment into developing new talent.

Sometimes responses were imbalanced, focusing more on consumers than producers.However, the mark scheme was sufficiently flexible to allow high marks to still beachieved. The very best answers offered evaluation through discussing theadvantages and disadvantages. Reasons for poor performance on this question tendedto be due to the lack of points raised and their development.

(e) Mean 3.71 out of 6 marksCandidates who did not run out of time tended to achieve high marks by identifying,explaining and evaluating two barriers to entry to the music recording industry.

The most popular entry barriers included high start-up costs, high marketing costs,strong brand loyalty among artists and the existence of music contracts.

Application and evaluation of these barriers tended to be quite effective. Forexample, start-up costs could be kept down by hiring music recording studios andequipment; marketing costs could be kept down through use of the internet; brandloyalty may not exist for new and up-and-coming artists who are seeking musiccontracts; existing music contracts could always be broken at a price or expire overtime.

The main limitations appeared to be one of time allocation or a failure to offer anevaluative comment.

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6355_01 Examiners Report

General observat ions

Candidates overwhelmingly opted 90:10 in favour of Question 2. They were clearlymore confident in handling the familiar issues involved in Wage Differentials and theNational Minimum Wage rather than the less familiar situation of Agency workers andthe Working Time Directive. On both questions the best candidates displayedcommendable application of the data material and produced excellent responses.Weaker candidates who chose Question 1 struggled with the interpretation of theindividual sections, seemed unsure of the relevance of their comments, and werereluctant to make use of the large amount of data material provided.

With the evaluation marks worth 40% of the total there is scope for more attention tothis aspect; some candidates still fail to address it, or write too briefly for theavailable marks. Prioritising needs careful handling and, perhaps, should be avoidedby the less able: far too many just summarise and repeat previous arguments without

introducing some additional insight to justify their selection.

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Question 1(a) This was the most confidently handled section with candidates comparing therelative Marginal Revenue Product and experience of Agency workers with theacquired human capital of more permanent staff. The better candidates made gooduse of the data material especially on the break-down statistics of temporary femalestaff and ethnic minorities. However, evaluation was lacking on many of the scripts.

(b) Most candidates produced convincing diagrams illustrating the higher wage floorand the contraction in demand for Agency workers. Weaker candidates occasionallybecame confused with the Working Time Directive rather than focussing on theproposed changes in Agency workers rights, and failed to address the likely impacton both wages and employment levels.

(c) Comprehension of the phrase opt-out from EU laws in Extract 2 provedchallenging for those who were struggling: some felt it would limit the hours ofworking in the UK. The best responses focussed confidently on the increasedflexibility of the opt-out, the potential for increased overall productivity rates, and

the implications of macro benefits. Many incorporated the monopsony model inpointing to the possible exploitation of workers, and produced some thoughtfulevaluation on the possible increased pressures on workers compared with the safe-guarding of their morale and physical well-being given by the WTD.

(d) Weaker candidates ignored the requirement to focus on the economic cycle andresorted to simple descriptive narrative about Trade Unions. More insight was shownby those who analysed the changing priorities of Trade Unions in times of recessionor boom, their relationships with monopsonies and multinational corporations, andtheir degrees of effectiveness.

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Question 2(a) Most candidates produced some thoughtful analysis on the reasons for differencesin National Minimum Wages and made good use of the relevant data materialprovided. Too many of the weaker candidates ignored the obvious statisticalcorrelations shown, for example, in Trade Union density and the level of the NMW,and strayed into part (b) in discussing what causes wage differentials in one countryrather than comparisons between countries. Thoughtful use of the exceptions to thiscorrelation as seen, for example, in France and Greece provided scope for somepositive evaluations.

(b) Most candidates felt comfortable with this question and wrote knowledgeably onthe explanations for Wage Differentials with the best scripts focussing on why theyare widening; often good use was made of monopsony diagrams to expand theiranalyses. More use could have been made of the data material in Extract 2, andweaker scripts ignored the relevance of MRP Theory. This was a high scoring questionfor many candidates.

(c) Many candidates produced robust responses which demonstrated excellent use ofdiagrams, especially when evaluating the effect of the NMW in a monopsonysituation. Most candidates were well-prepared and found scope to challenge theassertion that the NMW is a blunt tool for fighting poverty, producing incisive andwell-balanced arguments. Not everyone appreciated the requirement to cover allthree of the aspects of poverty, jobs, and competition, some being particularlyreluctant to think too deeply about how the NMW might affect competition. Thosewho tried to develop arguments without using diagrams made their analyses far toogeneralised. One sensed most candidates enjoyed answering this section; it was ahigh scoring part of the paper.

(d) So long as candidates had allocated their time efficiently, this question provided

ample opportunity for them to write with knowledge and confidence, and manyscored high marks. The best responses considered a detailed range of relevantpolicies and ensured they were targeted specifically on how they might reducepoverty. Weaker scripts referred too vaguely to, for example, general ideas likebenefits and training without explaining the particular policy involved; some usedthe Lorenz Curve as a method of reducing poverty rather than as a way of showingthe effects of a particular policy. Evaluation on this section was fully andconvincingly developed by the majority of the candidates.

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6355_02 Examiners Report

General Observations

The standard was higher than in June 2008. This is partly reflected in the increasedmean to 37.9 from 36.8. Question 2 was significantly more popular than Question 1(4:1) largely owing to the return of the standard FDI and aid questions (covering 75%of the marks). The wording of parts of Question 1 was more convoluted than inQuestion 2, and the requirements more complex, especially 1(b) and 1(d). It was alsofelt that the data on Question 2 was far more accessible. The pie chart and otherdata presentation on Question 1 was potentially misleading, with the conical graphsespecially hard to read.

In Question 1(a), the main difficulty faced by answers was the lack of distinctionbetween the consequence of industrialisation in (a) and the causes of backwardnessfor (b). This difficulty was matched in Question 2 where the less able answers also

failed to distinguish between the factors that will determine FDI and theconsequences of FDI. Almost inevitably those who failed to make this distinction thenfailed to evaluate their points. This led to a skewing of marks.In both the causes Questions 1(a) and 2(a) it was clear that the models of Lewis,Rostow and Harrod-Domar had been well drilled, and there was convincing usethroughout the papers of the Prebisch-Singer hypothesis, although not always in thecontext of declining terms of trade for goods with low income elasticity of demand. Ingeneral it is suggested that the models are less important than the explanation andapplication. Of course the names are good labels to hang the ideas but it is far moreimportant to see what the economists are driving at. Indeed the Rostow analysis wasmisconceived in a number of good answers and there is opportunity cost involved inusing models in an inappropriate context.

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Question 1(a) The process of a drive towards industrialisation was not readily grasped. Somegood theoretical responses were given. The candidates that did best referredexplicitly to Sudan and its industrialisation as discussed in the extracts. By discussingthe dam and how it might reduce or increase poverty helped many answers. Theconcept of absolute poverty was generally well understood, but again it had to belinked to the data, and questioned as part of the evaluation.

(b) This 20-mark question was not often well answered, either in that points chosenwere not valid, or they lacked evaluation. Again the concept of factors contributing tobackwardness needed grasping, and it was not clear whether it was a state of beingbackward or a movement backwards that was being referred to. Although eitherapproach was accepted, there was nevertheless ambiguity in the concept required. Itwas surprising to see the numbers not identifying four economic benefits; some didfewer, others more. The best answers again used the data provided, using Figures 2through to 4 to support their answer. They also explained how the information led tobackwardness.

(c) This was an open question with plenty of application available in Extract 2. Therewere many pieces of evidence to choose from, but they were perhaps not used fullybecause of a determination to get on with the question and not enough time beingdevoted to reading the extracts. Some chose to focus their answer on Chinaseconomy, which was not an expected response. As usual on a 10 mark question, therewas a lack of evaluation.

(d) This question split the answers well, and it was probably the hardest question onthe paper (followed by 1(b)). Theoretical understanding was well demonstrated andthe best answers used the data to good effect. Reference to the hydroelectric dam orto oil production and the associated environmental benefits and problems helped

students to focus their answers. A significant number ignored the trigger words towhat extent and responded with a one sided argument for or against thecompatibility and this seriously limited the marks they could be awarded. The leastcompetent candidates spent time looking at the Human Development Index. It couldhave been brought into relevance as was the case with one of the best answers whichshowed how the damaged environment could have an impact on health. One fruitfulapproach was to question the relevance of the environment when dealing withconditions of absolute poverty. In many ways this question, matched by 2(c), was noteasily split into the standard point made and then evaluated formula and thusweakened many answers.

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Question 2(a) Many candidates opted for a different (Unit 4) question why do firms offer FDI,with almost no creditworthy material.The parts 2(a) and 2(b) were similar to questions in previous years on FDI andgenerally well-handled. Candidates were able to demonstrate good KKA on threefactors that determine the level of FDI. There were a number of theoretical responsesthat failed to apply this question to southern Africa when they were clearly directedto in the question, this meant they were penalised by the mark cap on this question.Evaluation is now commonplace, however many answers evaluated this questionlooking at the problems of FDI and did not focus on factors that determine the level ofFDI, hence some students performed less well. It was good to see the high number offull marks in both questions.

(b) This question was well answered by most candidates. It was a well-rehearsedquestion which had been practiced by a number of centres. For some answers theywere limited by not applying their answer to Botswana, which they were clearlydirected to do in the question. Most candidates clearly applied the case study and

picked relevant information from the extracts and data to support their answer. Thebest candidates discussed each economic benefit and then evaluated its significance.It was not unusual to give high marks, many at 15/15.To some extent the evaluation on 2(a) and 2(b) covered similar areas as the analysisin the counter-part questions, and responses lacked clarity on the distinction betweencauses and consequences of FDI.

(c) This was challenging, since it fell least into the standard answer format. In generalthis kept the answers to Question 2 nearer into line with marks for Question 1. Thetopical arguments in the media about the effectiveness of aid had generally not beenconsidered. There were many answers that were unclear about the differencebetween aid and FDI, debt relief or commercial loans, and many with a very narrow

view of aid as cash. It was this feature that triggered the most effectivedifferentiation of the marks.

(d) was again a good discriminator. Only the best candidates were able to move fromthe standard arguments about agricultural dependency and to apply them morewidely to diamonds and other commodities. Primary product dependency, Prebisch-Singer and Dutch Disease were all well used in this answer to discuss the problems ofrelying on one product. Comparative advantage was also well discussed to explain thekey benefits of reliance on one product for one third of GDP. The notion of price andincome elasticity is a good way to approach this type of question, applying them, forexample, to commodities and luxury goods. Many answers benefitted from direct use

of Figure 2. It was felt in retrospect that more information on the export and othersuccesses of Botswana would have helped candidates to lodge their arguments in thereality of a successful Sub-Saharan nation.

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6356 Examiners Report

General Comments

Mean mark: 56.2 Standard Deviation: 14.4

There was a pleasing increase in the mean mark of 56.2 compared with June 2008when the mean was 51.2. This reflects an increase in the quality of responses as wellas the increased accessibility of both the essay questions and data responsequestions. As in recent years, there were some outstanding scripts which includedeconomic analysis of the highest quality combined with a sound knowledge andunderstanding of current economic events. These scripts were characterised by well-structured answers including carefully labeled diagrams, clear analysis and evaluativecomments, where appropriate. At the other end of the spectrum there were somedisappointing scripts which were below AS standard. These contained very superficialand inaccurate analysis.

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Sect ion A: Essays

All three essays attracted a substantial number of candidates but the most popularwere questions 1 and 3 with question 2 lagging slightly behind. All of the essaysoffered sufficient scope to enable able candidates to score highly.Candidates differentiated themselves in terms of the quality of analysis andevaluation together with their ability to apply it to current economic issues. Lessconvincing answers demonstrated ignorance about the UK and global economy, forexample the inflation target is 2.5%; and the UK is a net exporter of oil.

There has been a pleasing improvement in the quality of essays over the period ofthis syllabus (since 2002): the structure is better; the use of paragraphs hasincreased; diagrams are included more frequently; and there is more evaluation ofthe points made.

Question 1(a) Most answers included reference to the significance of the negative wealth effect

for its impact on consumption.

Weaker responses attempted an analysis based solely on falling house prices resultingin increased aggregate demand so missing the reasons for the causes of the fall inhouse prices.

Evaluation was rather formulaic with many responses stating that it depends on thesize of the fall in house prices ignoring the stem of the questions which mentions asubstantial fall.

(b) Although most candidates were able to consider a range of supply side policiesonly the best responses actually considered the effectiveness of further supply side

policies in prevent ing a recession. The policies most frequently considered werecuts in income tax, cuts in benefits and reducing red tape. Privatisation was alsofrequently discussed although this ignored the invitation to consider further supplyside policies. Better candidates focused on the problems of using supply side policiesto prevent a recession and contrasted these with demand-side policies.

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Question 2(a) Although this question was not as popular as question 1, it tended to beattempted by the more able students. There were many good responses showing asound understanding and awareness of the range of issues affecting the exchangerate such as relative interest rates, relative inflation rates and speculationconcerning the future state of the economy. Weaker candidates did not consider thesignificance ofrelativeinflation rates and interest rates.Overall, many answers contained good supply and demand analysis and there wasevaluation in terms of short run/long run effects.

Weaker candidates discussed the consequences rather than the causes of thedepreciation.

(b) The best candidates appreciated that the UK is a net importer of oil andemployed aggregate demand/aggregate supply analysis convincingly to discuss thelikely implications of a fall in oil prices.

Weaker candidates considered that the UK is a net exporter of oil and so includedirrelevant analysis. Another characteristic of weaker answers was to examine eitherthe effects on either aggregate demand or aggregate supply but not both. As withpart (a), a common mistake was to consider the reasons for the fall in the price of oilrather than the likely effects. Further, some only examined the micro effects of thefall in oil price ignoring the macro effects entirely.

Question 3(a) It was pleasing that the vast majority of candidates maintained an objectivestance over both these issues. Good responses dealt effectively with public financeissues making strong links with the NHS and state pensions. They also used supply anddemand analysis effectively to examine the labour supply and wage rate

implications. This enabled them to analyse the impact, both positive and negative,on international competitiveness with confidence.

(b) This part was slightly less well answered with many responses drifting intonarrative rather than employing focused economic theory. Nevertheless, mostcandidates understood the meaning of net migration and were able to trace theimplications for wage rates and labour supply. Weak answers did not include supplyand demand analysis at the micro level or aggregate demand/aggregate supplyanalysis at the macro level.

Some candidates failed to read the stem of the question and so considered the

implications of a net outflow of people from the UK rather than a net inflow.

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Sect ion B: Data Response quest ionsAlthough there was some improvement in the quality of answers to the data responsequestions, these were answered less convincingly than the essay questions.Nevertheless, there were some exceptionally good responses to both these questionsin which candidates interpreted data accurately, applied economic conceptsappropriately and were able to offer some relevant evaluation when required.

In general, too many candidates failed to make adequate use of the informationprovided and so lost marks for application. A significant minority of candidatesmisinterpreted the information, for example Figure 1 in question 4(a), ormisinterpreted the question, such as in question 5(e) by discussing policies to reducea current account deficit rather than considering whether the deficit is a cause forconcern. In both questions there was evidence of confusion between a currentaccount deficit and a fiscal deficit.

Question 5 was more popular than question 4 by a ratio of at least 2:1.

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Question 4(a) Most candidates interpreted the data correctly and were able to explain thedeclining savings ratio and increase in personal debt as a proportion of GDP byreference to interest rates, the housing boom and the availability of credit.Weaker responses misinterpreted the data and then discussed a fall in aggregatedemand as people reduced spending and paid off debt.

(b) Most candidates saw the connection between the two sets of data and drewappropriate conclusions. Most made reference to the UKs high marginal propensityto import and how an increase in debt and decrease in the savings ratio wouldinfluence the current account. The high value of the pound and low productivitywere often sited as evaluative points.Application marks were lost by many candidates because there was inadequatereference to Figure 2 and the extent of the deterioration in the current account ofthe balance of payments.

(c) The majority of candidates focused on the implications for inflation and

unemployment. However, not all used rigorous AD/AS analysis. The very bestresponses discussed the current recession and the problems caused by the build-up ofhousehold debt and low savings.Weaker candidates tried to predict government reaction and then considered theeffects of that or they discussed the necessity of cutbacks in consumer spending inorder to repay the high levels of debt.

(d) This question discriminated well. The best responses demonstrated theimportance of the USA as a trading partner for the UK and used X-M to explain how arecession in the USA might cause a downturn in the UK.Weaker candidates failed to discuss the links between the two economies and werenot able to use the data concerning the UKs other trading partners by way of

evaluation. Some candidates viewed the question as an opportunity to discuss thecredit crunch which they then repeated in part (e)(ii).

(e)(i) This question was usually answered well with the exception of those candidateswho confused budget deficits with balance of payments deficits.

(e)(ii) This question was generally answered well although some candidates failed tocomplete their answers. Most candidates accurately explained the nature of a fiscalstimulus and its effects on aggregate demand. The multiplier was usually mentionedalthough few were able to explain it succinctly. Many responses gained evaluationmarks with references to crowding out, automatic stabilizers and the potential

inflationary risk but, disappointingly, there was little discussion of theineffectiveness of monetary policy in current circumstances.

Weaker candidates did not explain the transmission mechanism of fiscal policy andhow to link it with the prevention of a recession. Some relied heavily on the textwhile others were sidetracked into a discussion of non-fiscal measures.

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Question 5(a) A sizable number of candidates simply said that a fixed exchange rate was onewhich was fixed. Better candidates highlighted the idea of a set value although somefailed to mention against another currency.

(b) Several candidates did not define the term depreciation or make any referenceto the data. However, the majority of candidates analysed the impact ofdepreciation on the current account correctly. Evaluation usually included theMarshall-Lerner condition and the J curve although these were often not explainedfully. For example, in the case of the Marshall-Lerner condition, this was not alwaysdefined precisely and the relevance of elasticities was not developed.

(c) This question was usually answered quite well with most candidates able to scoremarks for discussing the possible effects on variables such as employment andinflation. However, many candidates wrote generalised answers with no reference tothe UK economy.

(d)(i) This was an accessible question which enabled most candidates to identifyrelevant points. The most popular factors included the increased availability of cheaptransport, higher real incomes and the high value of the pound.Weaker candidates listed the actual and perceived shortcomings of the UK as atourist destination without answering the question directly. Marks were also lost bynot making data references and failing to provide effective evaluation.

(d)(ii) Candidates were able to identify relevant factors from the extract. The 2012Olympics and promotion of the UK as a tourist resort were the most frequentlymentioned factors and evaluation was mainly centred on the short term/long termeffects and the opportunity cost of promotions.Weaker candidates identified the factors without providing much in the way of

economic analysis or evaluation.

(e) Unlike parts (d)(i) and (d)(ii), this proved to be a challenging question for manycandidates. A significant proportion of candidates failed to address the reasons forconcern in favour of discussing the policies which might be used to correct a deficiton the current account of the balance of payments.Better responses analysed the implications for competitiveness, unemployment andthe exchange rate and then evaluated by referring to the financial account, thepossibility of automatic correction via exchange rate depreciation and to thesignificance of the composition of imports.

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Statistics

Unit 3 - 6353

GradeMax.Mark A B C D E

Raw boundary mark 40 29 25 21 18 15Uniform boundary mark 120 96 84 72 60 48

Unit 4 - 6354

GradeMax.Mark

A B C D E

Raw boundary mark 80 54 47 41 35 29Uniform boundary mark 90 72 63 54 45 36

Unit 5 6355/ 01

GradeMax.Mark

A B C D E

Raw boundary mark 60 40 36 32 28 24Uniform boundary mark 90 72 63 54 45 36

Unit 5 6355/ 02

GradeMax.Mark

A B C D E

Raw boundary mark 60 41 37 33 30 27Uniform boundary mark 90 72 63 54 45 36

Unit 6 - 6356

GradeMax.Mark

A B C D E

Raw boundary mark 100 62 55 49 43 37Uniform boundary mark 120 96 84 72 60 48

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