EdExcel a Level Economics Unit 2 Mark Scheme ... - ExamTestPrep

GCE Edexcel GCE Economics (6352/ 01)

January 2006

Edexcel GCE Economics (6352/ 01)

Mark Scheme (Result s)

Mark Scheme Question 1

Sugar

(a)

(i)

What is meant by the statement that British Sugar ‘ is one of 10 large European sugar refiners which enj oy a virtual monopoly in their national markets’ (lines 3 and 4)? A f irm which supplies almost 100% of t he market . (2 marks) A f irm wit h 25% or more market share (1 mark) 1 mark f or ref erence t o t he sugar processing indust ry. 3 marks

(a)

(ii)

Outline two economies of scale that are likely to benefit firms in the sugar processing industry. Examples include: Technical economies e. g. more ef f icient use of machinery Market ing economies of scale e. g. bulk buying of raw mat erials St rong brand names support ed by heavy advert ising High capit al cost s Managerial economies 2 marks f or ident if icat ion and 1 mark f or specif ic applicat ion t o sugar processing indust ry and 1 f or ment ion of f alling unit cost s

4 marks

(a)

(iii)

Explain one other factor that might make it difficult for new companies to enter the sugar processing industry. Fact ors include: St rong brand names support ed by heavy advert ising High capit al cost s Administ rat ion cost s of st art ing a new business 1 mark f or ident if icat ion, 2 marks f or applicat ion t o sugar processing indust ry.

3 marks

(b)

(i)

Apart from the obj ective of price stability, outline two other reasons why the EU intervenes in the market for sugar. Possible reasons include: To ensure EU self -suf f iciency in sugar To prot ect incomes of f armers To prot ect rural employment and way of lif e To regulat e an indust ry dominat ed by a f ew large f irms 2 marks f or ident if icat ion, 2 marks f or explanat ion and analysis.

4 marks

(b)

(ii)

With reference to Figure 1, analyse the impact on the EU sugar market of the guaranteed sugar price. Illustrate your answer with a diagram. Price D

S Guaranteed Minimum Price for sugar

c 27

X

Y

Quantity kilos of sugar per month

The EU guarant eed sugar price is above t he world sugar price leading t o a cont ract ion in demand and an ext ension in supply. Sugar product ion is higher t han would be t he case in a f ree market . Theref ore, t here will be a surplus of XY. 2 marks f or diagram; 2 marks f or applicat ion and 2 marks f or explanat ion of diagram. (1 mark f or surplus and 1 mark f or cont ract ion of demand OR ext ension of supply). Applicat ion marks: 1 mark f or sugar ref erence and 1 mark f or ref erence t o f igure 1. 6 marks

(c)

Evaluate the likely economic effects of the EU’ s sugar policy on: (i)

sugar producers in Brazil Limit ed access t o EU market s. Theref ore, loss of revenue. Producers suf f er f rom dumping of EU surpluses on world market , leading t o a f all in world market price and price received by Brazilian producers

Eval uat i on poi nt s: Impact on Br azi l i an f ar mer s depends on t hei r degr ee of dependence on sugar Br azi l mi ght be bet t er of f di ver si f yi ng i nt o ot her pr oduct s gi ven adver se publ i ci t y associ at ed wit h sugar consumpt i on Di f f er ence bet ween shor t r un / l ong r un ef f ect s Any one argument explained well t oget her wit h one evaluat ion point could gain 5/ 5.

(ii)

consumers of sugar in the EU High prices / lower consumers’ surplus High t axes Lack of choice Securit y of sugar supplies Eval uat i on poi nt s: Comment on si gni f i cance/ si ze of gap bet ween EU and wor l d sugar pr i ce Impact on t axes mi ght be r el at i vel y smal l Si gni f i cance of expendi t ur e on sugar as a pr opor t i on of t ot al expendi t ur e Mark each part as f ollows: 1 mark f or ident if icat ion, 2 marks f or applicat ion and analysis, 2 marks f or an evaluat ive comment (ie 2 x 5 marks). Any one argument explained well t oget her wit h one evaluat ion point could gain 5/ 5. 10 marks

(d)

Making specific reference to external costs, external benefits and other information, assess the desirability of an increase in the world consumption of sugar. Ext ernal benef it s: ef f ect s of a t ransact ion on t hird part ies or t he dif f erence bet ween Social Benef it s and privat e benef it s. 1 mark Ext ernal cost s: ef f ect s of a t ransact ion on t hird part ies or t he dif f erence bet ween Social Cost s and privat e cost s. 1 mark

Ext ernal benef it s incl ude: Accept any benef it t o a t hird part y e. g. : Larger market f or developing count ries: increased export s, higher incomes Dent ist s (f rom increased work result ing f rom t oot h decay). Also: Reduct ion in EU surplus; lower st orage cost s; lower cost s of subsidising export s

Eval uat i on poi nt s: Ext er nal cost s i ncl ude: Accept any cost t o a t hi r d par t y mor e obesi t y; Incr easi ng cost s t o NHS mor e t oot h decay; Incr easi ng cost s t o NHS mor e heal t h pr obl ems associ at ed wi t h sugar consumpt i on e. g. absence f r om wor k f r om sugar r el at ed di seases. Al so: Oppor t uni t y cost of usi ng l and f or sugar pr oduct i on 2 marks f or def init ions, 4 marks f or applicat ion and analysis, 4 marks f or t wo evaluat ion point s. (1+3 or 2+2 or 3+1) Allow credit f or negat ive ext ernalit ies associat ed wit h increased product ion of sugar (required t o meet higher consumpt ion). 10 marks

Question 2 (a)

Tobacco Outline two reasons that might explain why the UK cigarette market is dominated by two companies (Extract 1, line 5). Mergers – rat ionalisat ion result ing f rom f alling demand Economies of scale – discussion of two relevant economies could count as t wo point s Ot her barriers t o ent ry e. g. high capit al cost s; brand l oyalt y 2 marks f or ident if icat ion and 2 marks f or applicat ion t o cigaret t e market . 4 marks

(b)

(i)

What is meant by the term ‘ external costs’ ? Cost s t o t hird part ies who were not part of t he t ransact ion. OR Social cost s – Privat e cost s = Ext ernal cost s. Cost t o societ y: 1 mark 2 marks

(b)

(ii)

With reference to Extract 2, explain one external cost of tobacco production and one external cost of tobacco consumption. Ext ernal cost of product ion: damage t o ancient f orest s, soil deplet ion, pollut ion. Ext ernal cost of consumpt ion: lit t er, f ire hazards, healt h cost s. In bot h cases, t hird part y ef f ect must be ident if ied. 2 marks f or ident if icat ion and 2 marks f or applicat ion t o t obacco product ion & consumpt ion. 4 marks

(b)

(iii)

Illustrating your answer with a diagram, explain the difference between the free market and the socially optimal level of tobacco production.

Cost s Benef it s SMC

PMC

PMB=SMB

Y

X

Quant it y of Tobacco

2 marks f or diagram, 2 marks f or applicat ion, (1 mark f or t obacco ref erence and f urt her mark f or implicat ion t hat t here is over supply in a f ree market ). Applicat ion may be in t he diagram or explanat ion 2 marks f or explanat ion of diagram i. e. : X: f ree market level of cigaret t e product ion. (Where PMC = PMB) Y: socially ef f icient level of cigaret t e product ion. (Where SMC = SMB)

6 marks

(c)

(i)

Assess the effectiveness of any two measures that the UK government might use to reduce smoking. Measures include: Taxat ion Healt h educat ion Banning of advert ising Banning of smoking in public places Eval uat i on poi nt s i ncl ude: Demand f or ci gar et t es i s ver y i nel ast i c; Hi gh t ax on ci gar et t es encour ages smuggl i ng Heal t h educat i on expensi ve; i mpl i cat i ons f or t axes Ver y di f f i cul t t o cont r ol subl i mi nal adver t i si ng Pr obl em of enf or ci ng a ban on smoki ng i n publ i c pl aces Di f f er ence bet ween shor t and l ong r un ef f ect s

2 x 5 marks, i. e. 1 mark f or ident if icat ion , 2 marks f or applicat ion and analysis, 2 marks f or an evaluat ion point . 10 marks

(c)

(ii)

Evaluate the view that ‘ smokers should pay a premium for using the National Health Service’ (Extract 3, lines 7 and 8). Candidat es should consider argument s on bot h sides. For: Smoking imposes ext ernal cost s Healt h problems associat ed wit h smoking are self -inf lict ed Opport unit y cost of t reat ing smoking relat e diseases Would act as an incent ive t o give up (or not st art ) smoking Two argument s should be covered e. g. (2x3marks) Case f or f r ee heal t h car e i ncl udes: Equi t y ar gument Inf or mat i on i ssues Ot her l if est yl e act i vi t ies (e. g. al cohol consumpt i on) i ncr ease NHS cost s Regr essi ve i mpact . 1 mark f or ident if icat ion, 2 marks f or applicat ion, 3 marks f or analysis, 4 marks f or 2 evaluat ion point s i. e. considerat ion of case f or f ree healt h care (1+3 or 2+2 or 3+1) 10 marks

(d)

With reference to Extract 3, explain the concept of government failure. Def init ion of government f ailure: when int ervent ion by t he government leads t o a net welf are loss. (1 mark) Analysis and applicat ion: government int ervent ion in t he f orm of excessively high t axes has led t o a signif icant increase in smuggling. (3 marks) 1 of which is f or specif ic ref erence t o t he dat a. 4 marks

Unit 2 Section

Q1 (a)(i) (a)(ii) (a)(iii) (b)(i) (b)(ii) (c) (d) Total Q2 (a) (b)(i) (b)(ii) (b)(iii) (c)(i) (c)(ii) (d) Total

Assessment Obj ectives Grid

January 2006

Knowledge %

Application %

Analysis Evaluation % %

TOTAL %

1 2 1 2 2 2 2

2 1 2 1 2 2 2

1 0 1 2 2 2

4 4

3 4 3 4 6 10 10

12

12

8

8

40

2 2 2 2 2 1 1

2 2 2 2 2 2

2 2 3 1

4 4

12

12

8

8

4 2 4 6 10 10 4 40