Summer 2005. Mark ... If incorrect option is selected, a maximum of 2 marks are
available for explanation. 2. ... will cause a decrease in demand to D1 (2).
GCE Edexcel GCE Economics(6351)
Summer 2005
Economics (6351)
Edexcel GCE
Mark Scheme (Result s)
Unit 1 MARK SCHEME – 6351/ 01
SECTION A Key to answers 1 C
2 B
3 A
4 A
5 C
6 D
7 D
8 C
1. If incorrect opt ion is select ed, a maximum of 2 marks are available f or explanat ion. 2. Up t o 2 marks are available f or candidat es explaining t wo incorrect opt ions.
Q1 Answer C St at ement 1 is posit ive, since it is assert ing a f act ( 1 ) and can be t est ed as t rue or f alse ( 1 ). St at ement 2 is normat ive, since it is based on a value j udgement ( 1 ) as indicat ed by t he word ‘ good’ ( 1 ). (Award 1 + 3 or 2 + 2). Q2 Answer B Correct def init ion of a product ion possibilit y f ront ier ( 2 ). An inward shif t of t he product ion possibilit y f ront ier indicat es a decrease in t he pot ent ial out put capacit y of an economy ( 1 ). The capit al st ock is depreciat ing at a f ast er rat e t han it is being replaced or t he capit al st ock is f alling (1 ). Also award f or an explanat ion of a t ransit ion economy ( 1 ).
Q3 Answer A Lower int erest rat es will t end t o make repayment of house loans cheaper and so cause an increase in demand f or housing, raising t he price ( 2 ). More government rest rict ions on housing development wil l reduce t he suppl y of new housing and so increase t he price (since demand is increasing at a f ast er rat e) ( 2 ). Alt ernat ively, if a candidat e ref ers t o supply deceasing due t o government planning rest rict ions or a diagram t o t his ef f ect award (1) Also award a correct demand & supply diagram which shows demand increasing at a f ast er rat e t han supply in t he housing market ( 2 ). If candidat e shows an increase in demand, award (1). Also award f or explicit ref erence t o graph i. e. house prices have doubled or f igures used in t he answer (1) . Also accept ref erence t o inelast ic supply (1) .
NOTE: To achieve maximum marks candidates must refer to both demand and supply, otherwise a maximum of 3 explanation marks.
Q4 Answer A Correct def init ion or f ormula f or PED (2 ). Original revenue per perf ormance is £20, 000 (£20 × 1, 000) ( 1 ). New revenue per perf ormance is £21, 600 (£18 × 1, 200) ( 1 ). Also award f or correct workings (2 ) -2 = +20% ÷ -10% Also award f or demand is price elast ic (1) and so a f all in price will increase t ot al revenue (1) . Q5 Answer C Correct def init ion or f ormula of YED ( 2 ). Fresh f ruit is income inelast ic in demand ( 1 ). A posit ive YED means a normal good or as income rises so will demand rise ( 1 ). Also award f or numerical applicat ion of YED ( 1 ) and a diagram showing an upward sloping income-demand line (1) . Q6 Answer D Tennis racket s and t ennis balls are complement ary goods or in j oint demand (1). A decrease in t he price of t ennis racket s (1) will cause an increase in t he demand f or t ennis balls ( 1 ). They have a negat ive XED ( 1 ). Also award correct def init ion of XED or f ormul a ( 2 ) Q7 Answer D Correct def init ion of comparat ive advant age ( 2 ). Count ry W has a comparat ive advant age in manuf act ured goods ( 1 ) while count ry V has a comparat ive advant age in agricult ural goods ( 1 ). Also award a correct numerical explanat ion of comparat ive advant age f rom dat a provided ( 4 ). Also award f or recognising dif f erent gradient s lead t o dif f erent opport unit y cost (1) . Also award f or recognising t hat benef it s f rom specialisat ion lead t o higher global out put (1) .
Q8 Answer C The government medical report indicat ing t hat vit amin pills could endanger heal t h will cause a decrease in demand t o D1 ( 2 ). The int roduct ion of a new range of vit amin pills by a maj or pharmaceut ical company will cause an increase in supply t o S2 ( 2 ).
SECTION B Q9 The Music Compact Disc Market
(a) What does the extract suggest about the price elasticity of demand for music CDs? Explain your answer. (5) CDs are price inelast ic in demand ( 1 ). Explanat ion / applicat ion of t he price cut causing a f all in t he value of sales (revenue) of CDs (l i ne 6) (2 ). Explanat ion of price inel ast ic demand ( 2 ). Also award a diagram depict ing a price inelast ic demand curve and f alling revenue as price f alls ( 2 ). If candidat e st at es demand is price elast ic and ref ers t o subst it ut es (1) and int ernet Piracy (1) award up t o 2 marks.
(b) Using a supply and demand diagram, explain why ‘ t he average price of a music compact disc (CD) has fallen below £10 for the first time. ’ (l i ne 1) (5) A correct ly labelled diagram depict ing an increase in supply and a decrease in demand ( 2 ) wit h t he original and new equil ibrium price levels shown ( 1 ). The Music CD Market
price per CD
S
S2
Pe P1
D1 0
Qe Q1
D
quantity of CDs per period of time
Supply of CDs has increased due t o t he ent ry of supermarket s int o t he ret ail music indust ry ( 1 )
Demand has decreased due t o int ernet piracy as people download music f rom t heir comput ers ( 1 ). Award a maximum of 3 marks if j ust one curve shif t ed.
(c) Discuss the significance of two factors, other than those mentioned in the extract, which might cause a shift in the demand curve for CDs. (6) Expect t he usual det erminant s of demand t o be considered, f or example: Income / st at e of economy Price of subst it ut es and/ or t he development of new subst it ut es (excluding int ernet downl oads) Price of complement s Tast es & f ashion Populat ion change / age st ruct ure Income t ax Advert ising Ident if ying t wo f act ors ( 2 ). Do not accept discussions on price, promot ions or int ernet piracy.
Evaluation (2 + 2 or 3 + 1 for two evaluation points) Just if ying which of t he t wo f act ors chosen is most signif icant . The magnit ude of changes in demand f act ors, e. g. ‘ how large is t he price cut of subst it ut e goods?’ Time scale – e. g. long t erm t rends such as t he growt h of Ipods or MP3s which could undermine CD sales.
(d) Evaluate the likely impact on the market for CDs of Tower Records’ decision to (4) ‘ close its shops in the UK’ . (line 14)
A decrease in suppl y of CDs and rise in market price (cet eris paribus) A less compet it ive market Ot her music st ores may f ind an increase in demand f or CDs as t hey gain f ormer cust omers of Tower Records. Award t he development of any valid point ( 2 ).
Evaluation (2) Award any evaluat ive comment , f or example: The ext ent of t he ef f ect on t he CD market will depend on t he f ormer import ance of Tower Records wit hin it . It might have had a very small market share – so expect lit t le impact . Tower Records might act as a signal t o ot her f irms t o exit t he market – not e t he ext ract ref ers t o Andy’ s Records going int o administ rat ion. Discussion of Price Elast icit y of demand.
Q10 UK Tourism Trends
(a)
With reference to Figure 1, calculate the percentage change in the number of (2) UK tourists visiting overseas between 1997 and 2002. × 100 = 36. 9% (accept 36-37%) 39, 900, 000 – 29, 138, 000 29, 138, 000 Also award 1 mark f or correct equat ion if answer is wrong.
Answer:
(b)
Analyse two factors which might account for the contrasting trends shown in Figure 1. The decline in foreign tourists visiting UK (-28. 3%). Several prompt s are provided in t he ext ract : Foot & Mout h disease, t errorist at t acks of Sept ember 11, wars in Af ghanist an & Iraq. Recession in cont inent al Europe & USA. Rise in £ st erling on f oreign exchange market , so UK holidays become relat ively more expensive. The increase in UK tourists visiting overseas (+36. 9%). Rise in £ st erling on f oreign exchange market so overseas holidays become relat ively cheaper. Rising real nat ional income in UK (t he ext ract ment ions t he UK appears t o have escaped t he int ernat ional recession). Candidat es may also int roduce ot her relevant f act ors f or example, climat e, increased price compet it ion among airlines & t ravel operat ors, promot ions et c. Any t wo f act ors can be analysed (3+3 or 4+2 marks) An anal ysis of bot h t rends is required, ot herwise a maximum of 4 marks.
(c)
Using the concept of cross price elasticity of demand, discuss the impact of a change in the price of overseas holidays on the demand for domestic holidays. KAA (3) (6) The t wo t ypes of holidays as subst it ut es (1) wit h a posit ive XED (1). A f all in t he price of f oreign hol idays is l ikel y t o lead t o a f all in demand f or domest ic holidays (1) . Def init ion of XED or f ormula (1)
Evaluation (3) Discussion on t he ext ent t o which t he t wo t ypes of holidays are subst it ut es, f or example: o The magnit ude of XED. Are t hey close or weak subst it ut es? o The ext ent of price change of f oreign holidays. o Some people may not view t he t wo as subst it ut es because of t he dif f erent nat ure of f oreign & domest ic holidays. o The ext ract ref ers t o t he warm & sunny weat her in Brit ain which might inf luence t he value of XED. o The t ime lag involved bet ween booking a hol iday bef ore t aking it . This may reduce t he signif icance of price changes in f oreign hol idays upon t he demand f or domest ic holidays. An evaluat ion of one or more relevant point s up t o 3 marks.
(d)
In December 2003, the UK Government considered making a significant increase to indirect tax on airline travel. Using a supply and demand diagram, examine the likely economic effects of such a tax on the market for airline travel. (6) A correct ly labelled diagram depict ing a decrease in supply ( 1 ) wit h t he original and new equilibrium price l evels shown ( 1 ). Illust rat ion of t he t ax area or t he t ax per unit ( 1 ). Accept ad valorem t ax diagram. Air Travel Market
S1
price per ticket 1
P1
S
A
Pe C B D
0
Q1
Q2
quantity off air tra travel vel per period
Evaluation (3) These may include an examinat ion of : Impact upon price and quant it y - depends upon t he price elast icit y of demand and price elast icit y of suppl y f or air t ravel. Air t ravel f irms may be prepared t o absorb t he t ax by reducing prof it margins – especially if prof it s are high. Some air t ravel f irms may merge or exit t he market , reducing consumer choice. Air t ravel f irms may at t empt t o reduce cost s by cut t ing st af f or unprof it able rout es. Impact on consumer & producer surpluses An evaluat ion of one or more relevant point s up t o 3 marks.
Unit 1 Assessment Obj ectives Grid – June 05 Section Sect ion A Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Total Sect ion B Q9(a) Q9(b) Q9(c) Q9(d) Total
Q10(a) Q10(b) Q10(c) Q10(d) Total
A+B
Knowledge 3 2 2 2 2 2 2 3 18÷2= 9
1
Application 2 1 3 1 3 2 2 14÷2 =7
Analysis
1 2
1
4÷2= 2
4÷2= 2
4 2 6
5 5 6 4 20
2 6 6 6 20
40
1 2
2 3
2 2
5
2 6
1 2 1
Total 5 5 5 5 5 5 5 5 40
1
2
3
Evaluation
1 4 1
3
1 3 5
6
3 3 6
12
12
8
8
