25 Mark Micro Question Booklet Mark Scheme With Examples

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25 Mark Micro Question Booklet - Mark Scheme with

Examples
Physics (Audisankara College of Engineering & Technology)
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lOMoARcPSD|27819359
MACRO 25 Marks
Micro 25 Mark Questions – Mark Scheme with example material

Initial Year 1 Economics Guidance
Common errors with 25 mark answers
Before you set targets for your 25 mark questions, read through your previous essay and the context
again. Consider whether you have used the best structure possible. See below common errors
- Did not correctly re-word question. i.e. Changed operative word.
- You do not answer the question
- Did not write definitions as you used new key terms.
- Use of key words was limited
- Use of Extracts was limited. Use Extracts to support evaluative points.
- Evaluation points were not fully explained or supported by extract evidence.
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Contents
Operative Words ..................................................................................................................................... 5
How to Mark 25 Marker Answers ........................................................................................................... 6
Coded Marking ........................................................................................................................................ 9
25 Mark Marking table.......................................................................................................................... 10
25 Mark Marking Grid ........................................................................................................................... 11
14Specimen1C1AS: Should the government provide free school meals for all, some or no children. 12
Mark Scheme .................................................................................................................................... 12
Example student work ...................................................................................................................... 12
Student A....................................................................................................................................... 12
Student B....................................................................................................................................... 14
Student C ....................................................................................................................................... 15
Student D ...................................................................................................................................... 17
Student E ....................................................................................................................................... 18
14Specimen1C2AS: Should market forces be left to determine the price of commodities such as
potash, oil and gas. ............................................................................................................................... 22
Mark Scheme .................................................................................................................................... 22
15Specimen2C1AS: Best policy to reduce congestion on the roads .................................................... 23
Mark Scheme .................................................................................................................................... 23
Example Student Work ..................................................................................................................... 23
Student A....................................................................................................................................... 23
15Specimen2C2AS: For and against Gov Intervention in the markets for food and drink to encourage
a healthy diet. ....................................................................................................................................... 30
Mark Scheme .................................................................................................................................... 30
Student A....................................................................................................................................... 31
Student B....................................................................................................................................... 36
Student C ....................................................................................................................................... 40
Student D ...................................................................................................................................... 44
Student E ....................................................................................................................................... 47
Student F ....................................................................................................................................... 50
T2uP1(A): Section A: Tax on cigarettes is the only viable policy to reduce market failure .................. 53
Mark Scheme .................................................................................................................................... 53
T2u P1 (A): Section B: Monopoly not covered in year 1 ....................................................................... 54
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Mark Scheme .................................................................................................................................... 54
T2u P1 (B): Section A: For and against Gov intervention in UK housing market .................................. 55
Mark Scheme .................................................................................................................................... 55
T2u P1 (B): Section B: Effectiveness of policies to increase use and production of clean energy and
reduce use and production of fossil fuels. ............................................................................................ 56
Mark Scheme .................................................................................................................................... 56
11JunP1C1AS: For and against Gov Intervention in Housing market ................................................... 57
Mark Scheme .................................................................................................................................... 57
Student Example Work ..................................................................................................................... 59
Student A....................................................................................................................................... 59
11JunP1C2AS: Minimum Price law tackles overconsumption of alcohol. ............................................ 62
Mark Scheme .................................................................................................................................... 62
12JunP1C1AS: Monopoly Power not covered in Year 1 ....................................................................... 64
Mark Scheme .................................................................................................................................... 64
Student A....................................................................................................................................... 65
12JunP1C2AS: For and against NHS charging for its services ............................................................... 69
Mark Scheme .................................................................................................................................... 69
13JanP1C1AS: Same as 15Specimen1C1AS .......................................................................................... 71
13JanP1C2AS: Same as 15Specimen2C2AS .......................................................................................... 71
13JunP1C1AS: Financing universities mainly through charging fees to students ................................ 71
Mark Scheme .................................................................................................................................... 71
Student Example Work ................................................................................................................. 73
13JunP1C2AS: For and against government influencing how mobile phones are manufactured and
used. ...................................................................................................................................................... 76
Mark Scheme .................................................................................................................................... 76
Student A....................................................................................................................................... 78
14JunP1C1AS: For and against governments intervening to prevent agriculture products from being
used to produce biofuel. ....................................................................................................................... 81
Mark Scheme .................................................................................................................................... 81
Student Example work ...................................................................................................................... 83
Student A....................................................................................................................................... 83
Student B....................................................................................................................................... 85
Student C ....................................................................................................................................... 87
14JunP1C2AS: For and against subsidising newspapers and online news. .......................................... 91
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Mark Scheme .................................................................................................................................... 91
Examiners comment on this question .......................................................................................... 92
Student Example Work ..................................................................................................................... 93
Student A....................................................................................................................................... 93
Student B....................................................................................................................................... 96
Student C ....................................................................................................................................... 97
15JunP1C1AS: The Government should intervene to correct market failures such as income
inequality, Monopolies and negative externalities. ........................................................................... 100
Mark Scheme .................................................................................................................................. 100
15JunP1C2AS: Firms in industries such as cars and energy should operate without any financial
assistance from governments. ............................................................................................................ 102
Mark Scheme .................................................................................................................................. 102
16JunP1C1AS: Markets can be relied upon to encrourage renewable energy. ................................. 104
Mark Scheme .................................................................................................................................. 104
16JunP1C2AS: Subsidies are the best way to ensure sufficient resources are devoted to the arts and
cultural activities. ................................................................................................................................ 106
Mark Scheme .................................................................................................................................. 106
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Operative Words
Don’t spend too much time fretting over the slight differences, but see below four possible operative
words you may see in your 25 mark questions. The main key for the 25 mark answer is using the
correct structure and answering the right question despite the technicalities of answering assess or
evaluate which are basically the same thing.
Assess - Make an informed judgement.

In order to assess if a particular method is ‘best’, at least one alternative must also be considered.
This must be analysed and evaluated in order to make an informed and supported judgement on the
question at the end.
Evaluate - Judge from available evidence.

In order to evaluate the view, its validity must be considered, together with counter arguments and
consideration of circumstances when it may or may not apply. These points must be analysed and
evaluated in order to reach a final judgement on the question from the available evidence at the
end.
Discuss - Present key points

In order to discuss the view, key points must be presented for and against. These points must be
analysed and evaluated in order to reach a supported judgement at the end.
Justify - Support a case with evidence.

To justify a recommendation, view or conclusion, key points must be presented in favour but their
weaknesses and the case against should be considered as well. These points must be analysed and
evaluated in order to reach a supported judgement on the question from the available evidence at
the end.
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How to Mark 25 Marker Answers
Knowledge (K)
Knowledge is focused on your understanding of economic theory: accurate definitions, ability to

consider a wide range of sources and ensure that you are not making few if any errors
Point (application), explain (analysis), elaborate (analysis) critique (evaluation)- PEEL
Application (Ap)
Application can be split into two: application to the data response and/or current affairs and
application of relevant economic issues. Firstly, it is very important you use evidence from the
extracts or your own knowledge and the extracts to support your answer. Secondly, you must be
applying economic theory and issues which are relevant to the question – if the question asks you to
consider the budget deficit you do not bring up the current account deficit.
Analysis (An)
We believe this is the most important skill in your exam to gain you the most marks. It will be
examined in nearly every question. When your teacher is asking for logical chains of arguments, they
are looking for analysis. To ensure you analysis is at its highest levels, you must ensure you fully
develop your chain. Throughout the year, you will be receiving examples of model answers, to help
you identify what excellent analysis looks like. To gain the highest marks in analysis you must also
develop a range of issues, especially in 15 and 25 mark questions.
Evaluation (Ev)
Evaluation is not just for the end of your essays but should be throughout your 25 mark questions.
Remember all economic arguments rely on a set of assumptions which can be questioned.
Economics is such a fascinating subject due to the ability to counter argue another economists point,
just consider two of the most famous economist: John Maynard Keynes and Fredrick Hayek.
Your evaluative skills must also be displayed in a strong justified conclusion – see the exam
technique pages for more tips on what the key areas are for this.
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How to mark economics work
1. You must have a grid for the question – there are different grids for 9 /15 mark
questions and 25 mark questions
2. As you read the question you will be looking to identify the key skills of K, Ap, An and
Ev, if the question is a 25 mark question.
3. Using the exam grids you must then identify the level at which the key skills of K, Ap,
An and Ev are at.
4. After giving the key skills levels, again using the 25 mark or 10/15 mark grid, give the
overall answer a level and a mark
5. Using the A Level Economics grid, you will then give your peer or yourself the
following: positives from their answer (max 2) , issues (max 2) and actions to
improve max 2)
6. Use the codes to give an answer – this will be on the marked work you have received
Example how to use coded marking

Example of levels and mark
Positives Kn 3
Ap 3
K1 An 3
Ev 4
Ap1 Level 3 15/25
Issues
An B
Action to improve
An 2
7. You must then write out the positive, issue and action and record the mark and
targets on homework feedback sheet
8. For your next piece of work, you will put your action codes at the top of the page –
so you and your teacher can see what you need to improve on
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Level of response marking instructions
Level of response mark schemes are broken down into levels, each of which has a descriptor. The
descriptor for the level shows a description of the response at the middle of the level. There are
marks in each level based on the division of the total number of marks for the question.
Before you apply the mark scheme to a student’s answer, read through the answer and annotate it
(as instructed) to show the qualities that are being looked for. You can then apply the mark scheme.
Step 1 Determine a level
Start at the lowest level of the mark scheme and use it as a ladder to see whether the answer meets
the descriptor for that level. The descriptor for the level indicates the different qualities that might
be seen in the student’s answer for that level. If it meets the lowest level then go to the next one
and decide if it meets this level, and so on, until you have a match between the level descriptor and
the answer. With practice and familiarity you will find that for better answers you will be able to
quickly skip through the lower levels of the mark scheme.
When assigning a level you should look at the overall quality of the answer and not look to pick holes
in small and specific parts of the answer where the student has not performed quite as well as the
rest. If the answer covers different aspects of different levels of the mark scheme, you should use a
best fit approach for defining the level and then use the variability of the response to help decide
the mark within the level, ie if the response is predominantly level 3 with a small amount of level 4
material, it would be placed in level 3 but be awarded a mark near the top of the level because of
the level 4 content.
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Coded Marking
Positives Issue Actions for student
Homer A. Incorrect definitions 1. Learn correct definitions
Simpson
Errors (HS) B. Diagrams have not been labelled 2. Proof read your work – to ensure you can self-correct
C. Diagram has been incorrect 3. Correct all errors in your HW or Key Assessment
labelled 4. Never insert a diagram without using it to make a point
D. Diagrams have been drawn using a
pen and without a ruler
E. Diagrams have not been referred
to or explained
F. Missing units/correct
dp/inaccurate use of data
G. Essay is not signposted 5. Ensure you explain to the examiner what you will be looking at in your
essay
E.g. In the following essay I will be…..
Knowledge 1. Is well organised A. Misunderstanding of economic 1. Revise the topic again : using your notes, your textbook or online
(K) 2. Develops a theory resources
selection of key B. Incorrect definitions 2. If you still do not understand the theory; make a list of specific
issues questions which you can ask your teacher or a fellow student
3. Shows sound C. Incorrect calculation 3. Go over all the key equations on your calculation sheet
knowledge of 4. Practise, practise, practise
economic 5. Ensure all key terms are defined
terminology,
concepts and
principles with few
errors
Application 1. Includes good A. Limited or no application to extract 1. Ensure you have highlighted or underlined all the key information in
(Ap) application of or their own knowledge the extract
relevant economic 2. When you write an essay plan; make sure you outline how you will
principles support evidence from the extract or your own knowledge to back up
2. Includes good use your analysis and evaluation
of data to support 3. When revising practise reading through extracts and writing all the
the analysis key information, closer to the exam practise in timed conditions
B. Incorrect economic theory has 4. Read the question very carefully
been applied to the question 5. Highlight the key words in the question
6. Practise planning essays and then checking the mark schemes on
Moodle to assess your plan
Analysis 1 Well focused A. Irrelevant issue raised 1. These issues will stem from a lack of knowledge or poor essay
(An) analysis B. Limited issues developed planning
2 Clear logical 2. Ensure you have a plan before you write your essay; you must look to
chains of reasoning develop at least three key issues
3. If it is a data response question – see above
C. No logical chains of reasoning have 4. Use point, explain, expand, critique to write economic paragraphs
been fully developed 5. Be as specific as possible e.g. what type of inflation is it? What has
D. Some points are well developed, caused AD to shift? Or costs of production to fall or consumption to
however there are sections where fall
logical chains have not been fully 6. Keep considering why? And what next? What else has been affected?
developed 7. Support your analysis with evidence – economic theory, extract,
evidence from your own knowledge (current affairs and economists,
Keynes, Friedman etc)
8. Always link your analysis back to the question – e.g. if it is a market
failure question – have you clearly explained how the intervention will
solve the failure
9. Always link your analysis back to an economic indicator
Evaluation 1. Supported A. Limited critique of economic 1. Repeat the structure for economic paragraphs – Critique, explain and
(Ev) evaluation theory expand
throughout B. Critique has not been fully Same as above
2. A strong justified developed
conclusion C. No or limited evaluation of the 2. Nothing is for certain in Economics – why may something not occur or
factors it depends on succeed?
Macro e.g. External factors ….
Micro e.g. imperfect information ……
D. Limited final judgment 3. Ensure you have given a clear final judgment e.g. ‘I do not believe that
inequality is good for us all.’
4. Recap the issues you have discussed e.g. In this essay I have
considered the impact of fiscal policy upon……
5. Justify your final judgment
6. Weight the issues - Is one factor more important in making your final
judgment than another
7. Have you considered the SR and LR?
8. Have you considered the impact of different economic agents?
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MICRO 25 Marks
25 Mark Marking table

Kn Ap An Ev
Includes some
Includes some well-
good application of Includes
focused analysis
relevant economic supported
with clear, logical
principles to the
Level 5 chains of reasoning. evaluation
given context and,
21 – 25 marks
where appropriate,
throughout the
Is well organised, An5 is a response and in a
some good use of
showing sound comprehensive final conclusion.
data to support the
knowledge and anlysis
response.
understanding of
Includes some Includes some well-
economic terminology,
good application of focused analysis
concepts and principles
relevant economic with clear, logical Includes some
with few, if any, errors.
principles to the chains of reasoning.
Level 4 reasonable,
given context and,
16 - 20 marks supported
where appropriate, An4 is an analysis
some good use of with only one or evaluation.
data to support the two minor
response. omissions
Includes fairly
Includes some
Includes superficial
Focuses on issues that reasonable well-
reasonable evaluation; there
are relevant to the focused analysis
application of is likely to be
question, showing but which might
relevant economic
satisfactory knowledge not be adequately some attempt to
Level 3 principles to the
and understanding of developed or make relevant
11 -15 marks given context and,
economic terminology, becomes confused judgements but
where appropriate,
concepts and principles in places. these aren’t well-
some use of data to
but some weaknesses supported by
support the
may be present. An3 is a patch
response. arguments and/or
analysis
data.
Includes some
Includes some limited Includes some
limited analysis but
knowledge and limited, application Includes some
it may lack focus
understanding of of relevant
Level 2 and/or become evaluation which
economic terminology, economic principles
6 - 10 marks confused. is weak and
concepts and principles to the given context
is shown but some and/or data to the unsupported.
An2 is a point with
errors are likely question.
a little analysis
Includes little relevant Includes attempted
knowledge and Includes application analysis which is
Level 1 understanding of to the given context weak and
1 – 5 marks economic terminology, which, at best, is unsupported.
concepts and very weak.
principles. An1 is a just point
Kn Ap An Ev
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25 Mark Marking Grid
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New Exam Style
14Specimen1C1AS: Should the government provide free school meals for all,
some or no children.
Mark Scheme
Areas for discussion include:
• possible market failures that might justify the provision of free school meals, eg food as a
merit good, externalities, inadequate information, inequality of income
• children and their parents do not necessarily make rational decisions
• the private and external costs of a poor diet
• ‘cheap food’ as a demerit good
• the case for universal versus means-tested provision
• the possibility of government failure and unintended consequences
• the financial and opportunity costs of providing free school lunches
• possible effects on tax rates and the budget balance in a time of austerity
• the effects of providing free school lunches upon the distribution of income and equity
issues
• the significance of the index of average disposable income and the index of prices (Extract A)
and/or the figures in Extract B showing the increasing proportion of income being spent on
food by low-income families
• the significance of other data included in the Extracts, such as: the growing use of food
banks, the push to persuade people to eat healthier foods, the spending patterns of low-
income households, bad diet and the wastage of food, the impact of pilot schemes
• an overall assessment of whether the government should provide free school meals for all,
some or no school children.
The use of relevant diagrams to support the analysis should be taken into account when assessing
the quality of the candidate’s response to the question.
Example student work

Student A
For the government to provide free school meals for all children they would have to raise taxes in
order to gain enough money to be able to provide all children with free school meals. This raise in
taxes could cause the lowest income families who already spend 66% of their household spending in
comparison to that of the 11.3% spent on food in an average household. This raise in taxes would
cause the poorest households to spend larger amounts of their household spending on food, and it
could also cause more health diseases related to bad diets as the poorest households are cutting
back their spending on fruit by 15% and vegetables by 12% yet their spending on sweets rose by 5%
all between 2007 and 2011. This worsening of a bad diet could cause more illnesses that have to be
treated by the NHS which cost £6 billion a year, this increase in illness could lead to their having to
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be more government spending in the area, which could mean higher taxes again. However it will
also lead to better pupil concentration and better academic performance, it would also lead to
parents saving over £400 a year, as well as improving health.
Some people believe that the £600 million a year would be better spent on directly supporting
children of low income families rather than subsidising children from well off families. This would
lead to health improvements of those in low income families and it would go only to those who need
it.
If free school meals were provided to no children than those in low income families will be subject to
deteriorating health and it would lead to a rise in the costs of the NHS and to combat this taxes may
have to rise, however it won’t equal the rise in taxes if all children received free school meals.
Examiners comment - 9 marks awarded
This is a fairly weak response with some understanding. The answer is quite well focused but there is
very limited application of relevant economic concepts and principles. The student makes some
reasonable use of the data but the economic analysis is thin. Attempts to use the data to support
judgements but the answer could have been provided by someone who has not studied very much
economics. This is a Level 2 response (at the upper end)
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Student B
There are many reasons and debates as to whether the government should or shouldn’t introduce
free school meals to all children.
The government should provide free school meals for all children. Parents will save on their
household budgets an average of £400 a year. The price of food from source A seems to be only
increasing by 18% since 2008 and incomes not so much; families may prosper from having this extra
expenditure taken care of. Introducing school meals as a ‘merit good’ a good which is provided to
everyone with positive externalities; gets rid of the stigma of receiving free school meals as people
don’t have to claim for it. Children will receive a healthy meal leading them to higher concentration
and therefore academic achievement. 1 in 20 children don’t have any fruit or vegetables in their
diet and the government will save £6 billion as they aren’t having to treat illnesses caused by bad
diets as much as previous.
The government could also only provide free school meals to the children whose families are on low
incomes. Is it right to subsidy – a subsidy is a payment the government pay for, subsidising the more
well off children is only welfare for the wealthy – you aren’t helping the disadvantaged families as
they already received free school meals. The government should concentrate on giving free school
meals to people who can’t afford them; and if the idea of a healthy meal is involved; the more well
off people aren’t having to rely on value products as much as the poorer people so nutrition should
be catered for by the family.
However, the case against completely letting no child receive free school meals is that its simply not
fiscally do-able’ unless a progressive tax is introduced which will tax the more wealthier peoples
incomes at a higher rate than the poorer people; however this tax isn’t hugely popular and the
wealthy may feel they are being punished for working hard. The government could always introduce
extra benefits to low income households in order to help them pay for school meals. Where would
the government get this £600 million a year to fund this operation? It shouldn’t be the governments
problem to ensure that people in schools are being fed; as in this current economic climate the
economy has greater problems. The opportunity cost (which is the next best alternative), is huge as
the economy is deteriorating with a failing NHS that needs funding, a shortage of skilled workers,
fluctuation economic growth and unemployment rising again the economy would much rather
spend this money elsewhere.
Overall I personally feel that the government shouldn’t just not provided free school meals to
anyone as this extra burden saves people on a smaller disposable income. I feel that the
government should provide free school meals to some children – to those families which income
wise are struggling; in this way money isn’t spent on providing governmental aid to those who don’t
need it.
Examiners comment – 13 marks awarded
The response identifies some of the important issues raised by the question and makes some use of
economic terminology, concepts and principles. There is some analysis but it is not very well
developed. Some use is made of qualitative and quantitative evidence to support judgements and
there is a focused conclusion. This is a mid-Level 3 response.
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Student C
The government aim to provide welfare for all and therefore would want to provide free school
meals for all children, but it faces problems. Humans have unlimited wants but there are limited
resources. Thus scarcity exists and choices have to be made. If the government were to provide
free school meals, it is using resources that could have been put to use elsewhere, this is opportunity
cost.
Providing “all infant school children in England” with “free school lunches” is an investment by the
government in the hope that school lunches will improve “concentration” and “academic
achievement”. This means that more children will be employed in the future, due to better
academic performance, which will boost the economy. Free school meals also means that some
parents will save “over £400 a year”. This means people will have an increased disposable income
and will spend more which may strengthen the economy. However, to provide free school meals,
the government will need to tax more in order to have the funding to do this. This also does not
help the current budget deficit in the UK. Another disadvantage is that well-off families can already
afford school meals and the “£600 million a year” can be better spent on other areas which “directly
support children from low-income families”. This can increase the size of the workforce which
increase the productive capacity of the UK.
The boundary has shifted outward from x to y which means

there could be an increase in output.
Providing free school meals to all infants also means that everyone is equal and it us “a fairer
society”.
Providing the free school meals for only some children may be the way to improve welfare and not
have a serious economic consequence, however, some people will think it is unfair and “would argue
that the scheme should be extended to all children”.
If the government does not provide free school meals at all, the prices will be left to the rationising
function. This means that only people who can afford to pay will, which results in people with low
incomes being left out.
This diagram explains the rationising function as there is a

decrease in quantity demanded, yet a rise in price which
would prevent some people from being able to afford school
meals. Some people will also argue that school meals are a
merit good and should expect the government to provide
them for free. However, not using money for the school
meals means that it could be used elsewhere that could
improve social wellbeing such as new public good like
pavements and street lights. This is a safer option than using
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it on school meals on the basis that it will improve children’s performance. Many people would also
say that school at infant level is not important and the money would be wasted.
Overall, I think that the government should only provide free school meals for those in need and not
all children as well-off families can already afford it. .
Examiners comments – 16 Marks
This is a well-focused response that covers a range of relevant issues. Good knowledge and
understanding of a selection of economic terminology, concept and principles is shown. There is a
reasonable attempt to apply these ideas to the context and some good use of the data. The
response includes examples of clear, logical analysis but some key ideas have not been developed,
e.g. externalities and merit goods. The answer includes some supported evaluation but the
conclusion is thin. This is a low Level 4 response.
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Student D
Free school meals are likely to be considered a merit good as it has positive externalities in
consumption. As firms don’t take externalities into account when producing goods, they would be
under produced if left to the free-market. As a result, government intervention may be required.
Due to rising food prices more and more

low income families are having to buy ‘value’ products. These are likely to be less nutritious than
more expensive items such as fruit and vegetables (consumption has fallen by15% and 12%
respectively). This may cause serious health problems as sweets are generally cheaper – this is
shown by spending increasing by 5%.
It would be beneficial therefore to fund school meals as children are likely to get ‘proper food’ at
lunch time thus improving their health. This would reduce the current obesity crisis in the UK and
would save £6 billion per year in the cost of treating illnesses cause by bad diet. This exceeds the
£600 billion a year that would be spent subsidising the children, so the social benefit outweighs the
cost making the venture worthwhile.
Others argue that all children should receive free school meals due to the positive externalities it
produces. A healthy diet is likely to improve concentration and lead to better academic
achievement. Higher qualifications improve labour productivity increasing the underlying growth in
the economy. This has a huge benefit to society as a whole.
However, this scheme involves a large opportunity cost. The ‘£600 million a year subsidising
children from well-off families’ means that government spending is likely to cut elsewhere. Some
may argue that the money would be better spent either in directly improving education or go the
ease the strain on the NHS.
Free market economist would argue that no children should receive free school meals as they
believe in minimal government interference. Allocation of resources should be left to the free
market and consumer sovereignty will determine what goods are produced.
The problem with this is that it can lead to an inequible allocation. The well-off have more money
and so their needs are likely to be catered for, whereas low income families consume less and so
there needs are neglected. As low income families are the most affected by rising food prices, there
is a good argument for government intervention in providing free school meals.
In conclusion, the provision of merit items are likely to be controversial as they inevitably involve a
value judgment. Some people may not value the benefits as much as others. In my opinion, I would
only provide free school meals to the least well off in society as it involves a huge opportunity cost.
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Furthermore, the government are currently trying to reduce their budget deficit and so I think it
would be more beneficial to use the money to prevent spending cuts elsewhere.
Examiners Comment - 20 Marks
The student’s response is well-focused and applies a variety of relevant economic principles to the
issues raised by the question. The answer is well organised and shows sound knowledge and
understanding with few, if any, errors. Good use is made of the extracts. There is some sound
analysis and the arguments presented are clearly explained. However, the analysis isn’t always
adequately developed, e.g. the externality diagram was not used or explained. There is evaluation
throughout the answer and in a conclusion. Judgements are supported by the use of both qualitative
and quantitative evidence. This is a High L4 response; it would have achieved L5 if the economic
analysis had been stronger.
Student E
In the following essay I will consider whether government intervention in the market for
school meals will increase economic welfare and help solve associated market failures.
Market failure occurs when the market mechanism leads to a misallocation of resources.
In the extract we can see that the three major market failures are the overconsumption of
demerit goods such as sweets, the under consumption of merit goods such as fruit,
vegetables and school meals and the growing inequality of income and wealth in the UK.
Diagram A: Demerit Goods
A demerit goods is one in which the social costs of consumption exceed the private costs. In
a free market, where consumers only take into account the private benefits (PB) derived
from consuming the product, the price will be P1 and the quantity bought and sold Q1. At
this point the good would be overconsumed and generating negative externalities such as
the cost of treating illnesses caused by bad diet costing the NHS £6 billion pounds a year
(Extract B Lines 20-21). The good would be overconsumed due to imperfect information as
consumers are myopic in nature and will not be aware of or ignoring the costs of consuming
the goods.
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Diagram B: Merit goods
A merit good is one in which the social benefits of consumption exceed the private benefits.
In a free market where consumers only take into account private benefits goods such as
FSM we will be at P1 Q1. At this point the good is under consumed; this may cause positive
externalities such as improvements in behaviour and concentration to not be generated.
The under consumption of the good can be caused by imperfect information, where
consumers do not fully realise the long term benefits of consuming this good.
The third issue dealt with in this essay is the rising income inequality in the UK economy.
The distribution of income and wealth is the way in which income and wealth are divided
among the population. An unequal distribution of income and wealth can lead to market
failure and a misallocation of resources as individual’s ability to consume goods and services
depends on their income and wealth
Government intervention will aim to move the market for merit goods and demerit goods to
P2,Q2 where there is an optimal allocation of resources.
One of the interventions the government have introduced is to ensure direct provision of
FSM to all students. Extract C (lines 1-3) state that from 2014 all infant children in England
will receive free school lunches. The direct provision of FSM will aim to solve the issue of
imperfect information and their under consumption. An information problem occurs when
people make wrong decisions because they do not possess or they ignore relevant
information. Very often they are myopic (short sighted about the future).The relatively high
cost of FSM compared to value products and the difficulty in claiming FSM may have led to
an information failure amongst some consumers. In a trial schemes where direct provision
of FSM has been made universal uptake has increased from 50% to 73% and 85% (Extract C
lines 4-7). This increase in uptake may move as from the under consumption of school meals
to a socially optimal level.
Universal provision of FSM may also be an intervention that may help to solve the growing
income inequality in the UK. Extract A shows that food prices are rising at a faster rates than
disposable income in the UK. This may led to growing food poverty in the UK, as those on
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lower incomes will have to pay a greater proportion of their incomes on food. This may
drive them towards value products and sweets and away from fruit and vegetables (Extract
B Lines 15-17). Consumer’s real incomes would rise if they did not have to spend any money
on their children’s school lunches, which may allow them to spend more on fruit and
vegetables.
A critique of this intervention is the cost to the government. Extract C states that it will cost
the government around £600 million a year (Lines 15-17. The issue is not just the monetary
cost but the opportunity cost of what this money could be spend on instead in the fight
against childhood obesity in the UK.
May also add cost of administering this for schools, other possible unintended consequences
and political self-motive
The second option for the government would be to make FSM means tested and to those
on incomes below a certain level. This will help solve the issue regarding rising income
inequality in the UK as discussed above.
There is also evidence that those on the lowest income perform poorer at schools then
peers on higher incomes. Through providing FSM to the poorest in society this may allow
them to benefit from the external benefits of FSM, such as improvements in concentration
and behaviour leading to better academic achievement and health. In the long run this may
increase social mobility and help deal with the issues of income inequality in the UK
One of the critiques of the second option is how does the government decide who
constitutes the poorest in society. Currently the level a student’s parent’s incomes should
be is at £12,500 a year. But is this the only criteria which can determine with a student
requires a FSM, there is a level of error on any such level as it is created using value
judgements.
May also consider whether the market failure is so great that it can only deal with direct
provision to all
Free market economists would argue that no children should receive free school meals as
they believe in minimal government interference. Allocation of resources should be left to
the free market and consumer sovereignty will determine what goods are produced. The
problem with this is that it can lead to an inequitable allocation. The well-off have more
money and so their needs are likely to be catered for, whereas low income families
consume less and so there needs are neglected. As low income families are the most
affected by rising food prices, there is a good argument for government intervention in
providing free school meals.
In my opinion the government should provide FSM for all students. Though the costs for the
governments and the schools will be very high I believe this is the best way to solve the
different market failures discussed. The ability to target the market failure associated with
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merit and demerit goods and maybe improve educational outcome is too great and can lead
to long term cost savings for the government
Means tested provision of healthcare may target those that are most in need and cost the
government less but I believe the issues of childhood obesity and illness are so great that to
reach an optimal allocation of resources all students should be provided with FSM. I believe
the issue of setting the correct level at which students are entitled to FSM is too difficult to
solve, as how do you know which students should be entitled to FSMs or not.
Although, I do believe that FSMs alone will not be able to solve the market failures discussed
as we need a concerted effort to change consumption habits in the UK, which can only be
done using a combination of interventions such as a sugar tax and more public health
initiatives.
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14Specimen1C2AS: Should market forces be left to determine the price of
commodities such as potash, oil and gas.
Mark Scheme
• why commodity prices matter and the importance of commodities as raw materials for
finished products
• the reasons why commodity prices fluctuate and the significance of such fluctuations
• the significance of elasticities
• why fluctuating and/or rising prices of commodities may cause problems and for whom
• monopoly power in commodity markets
• external costs associated with the production of some commodities that may not be
adequately reflected in the market price
• other market failures associated with high and/or fluctuating commodity prices
• the benefits of allowing commodity prices to be determined by market forces, eg rationing,
incentive and signalling functions of the price mechanism
• methods of government intervention in the markets for commodities and their
consequences, such as: the development of illegal markets, surplus stocks
• the difference between the short-run and long-run consequences
• the costs and opportunity costs of intervention
• the possibility of intervention leading to government failure and unintended consequences
• the different consequences for producers and consumers, including different countries
• equity versus efficiency arguments
• the significance of the data in the Extracts, such as: the volatility of commodity prices, the
nature of the market for potash, possible consequences of the changes that are occurring in
the market for potash, population growth and changing diets, the oil market and the role of
OPEC, externalities associated with developing new sources of energy.
the quality of the candidate’s response the question.
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15Specimen2C1AS: Best policy to reduce congestion on the roads
Mark Scheme
• Possible reasons that might justify government intervention to reduce congestion on roads,
e.g. roads as a scarce resource, excess demand, externalities
• The costs of driving imposed on road users and non-road users
• Examples of alternative policies, such as a higher tax on fuel, subsidising public transport,
road pricing, building more roads and their consequences
• The significance of price and cross elasticity of demand
• The financial and opportunity costs of alternative policies
• The possibility of government failure and unintended consequences
• The impact of alternative policies on different groups, such as drivers, taxpayers, local
businesses
• The effects of alternative policies on equity and efficiency
• Short term versus long term issues
• The significance of the growth in the number of cars (Extract A) and/or changing fuel types
• The significance of other data included in the Extracts, such as: the statistics relating to bus
and rail use, the finance provided to increase this, examples of recent intervention, the
likelihood of success
the quality of the student’s response the question.
Example Student Work

Student A
The pollution that arises from driving a card is a marginal external cost that is imposed on third
parties (i.e. it creates a negative externality) which are not involved in the market transaction. This
means that there is overconsumption of the roads by drives and this causes congestion. The UK
government as a consequence needs to use a variety of interventions to bring the market back to
the socially optimal level rather than the privately optimal level.
As shown below without intervention there will be overconsumption and the market will not be at
the socially optimal level:
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One policy that is currently used by the government is fuel duty i.e. an indirect tax on fuel. This is a
tax which increases the cost of using a car and therefore shifts supply to the left. This tax aims to
reduce demand so that the quantity of drivers on the roads are at the socially optimal level (MSC =
MSB). The effect of fuel duty is shown above if the government tax was equal to MEC then quantity
of drivers on the road is reduced from Q2 to Q1 therefore counteracting the overconsumption of
driving. It should be noted that any method of increasing the cost of driving such as a congestion
charge (either in peak periods or generally), increasing road tax or creating a per mile charge would
act as above.
However as this is a policy that is currently being used in the UK is shows that a singular policy is
insufficient to reduce congestion on the roads by a sufficient amount. As a consequence the
government needs to use a range of policies to solve the market failure. Another problem of this
policy is that the price elasticity of demand for driving is very inelastic i.e. an increase in the price of
driving through taxation will reduce the demand for driving by a less than a proportionate amount.
Driving is a necessity for some people as it is their only method of transport to and from work (e.g. if
they live in a rural area and the bus routes have been substantially reduced).
An advantage of increasing fuel duty is that it raises revenue for the government and this can be
used to subsidies alternative forms of transport for consumers. Also, as it is inelastic in terms of PED
this means that a rise in tax will not substantially reduce demand and therefore increase the amount
of tax revenue the government receives.
An alternative intervention is to subsidise other forms of transport that will take people away from
using the roads and therefore reduce congestion. For example the government could give either a
producer or consumer subsidy to reduce the cost of buses, train, cycling, walking/running or even
car shares. For example if the government subsidised the British train service through a producer
subsidy then this would increase supply (S1 to S2) and increase the quantity of users of the trains
from Q1 to Q2. As trains are a substitute to driving this will reduce the amount of people using their
cars and therefore reduce congestion. See diagram below:
An alternative is for the government to invest in developing our public transport network, for
example developing the train routes to be quicker and more reliant. By doing this they would
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increase the demand for public transport due to its comparative easy and efficiency and therefore
take people away from roads.
Although there is currently a market failure which would suggest that the government should
intervene they could leave it to the free market. One possible scenario is that as there is higher
demand for roads and therefore congestion this could signal to firms that they should invest in
private roads (i.e. toll roads where the individual user pays the owner of the road for the right to use
the road). This would mean that those that had a higher willingness to pay in terms of avoiding the
congestion would self-select out of public roads and into private roads, therefore reducing
congestion. Although having toll roads is common in mainland Europe (for motorways instead of
road tax) it is not something that British citizens are used to and therefore it would be very risky for
a firm to invest the massive amounts to build the necessary roads. It could also be argued that in the
current economic climate no firm would be willing to take such a risk and that it is very difficult to
know whether consumers have a high enough willingness to pay to make private roads viable and
therefore it is unlikely to occur.
In conclusion there is no one best policy to reduce congestion on Britain’s roads; instead we should
use a range of policies which complement each other. For example higher road tax which can enable
the subsidising of public transport tickets and infrastructure development. As London becomes more
and more of a hub to the country it is important that we plan our infrastructure investment and
attempt to foresee any future possible areas where congestion will be a real issue. For example we
need more investment like High Speed 2 and Crossrail.
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Student B
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Commentary by examiner
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15Specimen2C2AS: For and against Gov Intervention in the markets
for food and drink to encourage a healthy diet.
Mark Scheme

• Possible market failures that might justify government intervention, e.g. healthy food/drink
as a merit good, unhealthy food/drink as a demerit good, externalities, inadequate
information
• The private and external costs of being overweight
• The effects of leaving it to the market and the functions of the price mechanism
• Examples of intervention, such as tax, subsidy, ban, advertising, and their consequences
• The effects of intervention on equity and efficiency
• The significance of elasticity
• The financial and opportunity costs of alternative policies
• The possibility of government failure and unintended consequences
• The significance of data included in the Extracts, such as: the extent of the problem, effects
of obesity, changes in eating patterns, other causes of being overweight, examples of
government intervention in other countries, the likelihood of success
the quality of the student’s response the question.
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Student A
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Don’t go outside the lines – your essays are

electronically marked and it may not be seen by the
examiner!
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Student B
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Student C
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Student D
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Commentary by Examiner
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Student E
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Commentary by the examiner
15 marks were awarded
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Student F
This essay will focus on whether the government should intervene to solve two main market
failures; firstly in overconsumption of fatty foods due to them being demerit goods and
secondly in the underconsumption of healthy food due to it being a merit good. I will analyse
the impacts on consumer subsidise for healthy food, indirect taxes on unhealthy food and
information campaigns. It should be noted that the policy options for governments in these
markets are not limited to these options and there is a wide range of alternatives, such as
subsidising gyms and sports clubs, that I will not have time to analyse and are secondary to
the above points due to their indirect impact on a healthy diet.
The partial market failure that is occurring in the market for unhealthy food e.g. fast food is
that it is demerit good. This means that the long terms costs, such as the health implications,
are not taken into account when the consumer is considering their decision and instead they
focus on the short term benefits such as easy and convenience. As a consequence of this
partial information and information failure they demand more of these products than is
socially optimal, causing the market failure of overconsumption (Q1 to Q2). See below, on
the right hand side. At the same time and also due to information failure healthy food is
underconsumed (Q1 to Q2) due to consumers not taking into account the long term benefits
of eating it on their health but instead considering the short term costs such as the time to
cook healthy food. The diagram showing the market failure can be seen below, on the left
hand side.
One intervention is to subsidise health food through fruit and vegetable coupons. This would
be considered a consumer subsidy and would increase the demand for healthy food. This
would attempt to increase demand to the level of full information and therefore solve the
market failure. As shown below demand increases from D1 to D2 and quantity consumed
also increases from Q1 to Q2 (the socially optimal point).
However the exact amount that the government should subsidise the healthy food is
unknown and therefore due to imperfect information the government could fail to solve the
problem. However I would argue that if they solve the problem by too great an extent it
would not be a major problem because the consumption of fruit and vegetables should
always improve people’s standards of living. One disadvantage is that the subsidy will come
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at a cost to the government and there is an opportunity cost to the spending i.e. if it is spent
on subsidising healthy food then it cannot be spent on another worthy cause such as
education. Another possible problem with this argument is that if healthy food is price
inelastic then a reduction in its price due to consumer subsidise will not cause a significant
increase in consumption and therefore the governments money may be wasted.
It should be noted that the government could subsidise a range of things to promote a
healthy lifestyle, in which the person would start to eat a healthy diet. For example the
government could subsidise gym memberships and sports clubs to increase the use of
these.
An alternative intervention is to tax unhealthy food, for example chicken shops that sell very
fatty but very cheap food. This would be an indirect tax on the unhealthy foods and would
reduce supply for them due to the increase in cost (cost plus tax). As shown below supply
would fall from S1 to S2 and therefore the quantity of unhealthy foods would be reduce from
Q1 to Q2 (hopefully to the socially optimal level).
One problem with this intervention is that it seems unfair to tax everyone who wants to
consume unhealthy food even if it is just a rare treat for them and they are generally a very
healthy person. A citizen should have the freedom to choose what products they consume
and what impact they want to have on their body. However the counterargument to this
would be that there is a negative externality when people consume unhealthy food due to
the increase cost on the NHS of treating the related illnesses. Therefore it is the
government’s role to intervene and reduce the consumption of unhealthy foods. A benefit of
this policy is that it will generate additional tax revenue for the government and this can be
used to subsidise healthy food and solve both sides of the problem.
To take the idea of a tax and an intervention even further the government could also ban
excessively unhealthy food so to stop its consumption. However the socially optimal level is
not zero and they would be unlikely to do this as it would seem unreasonable to votes.
One final intervention is to use an information campaign to cause consumers to understand

the long term benefits of healthy food and the long term costs of unhealthy food. This would
help to bring demand in both markets to the point at which consumers have fully information
rather than partial information. This would mean that consumers would eat the socially
optimal level of each type of food and therefore the market failure would be solved.
However I would argue that it would be very difficult to give consumers full information about
either set of products as it means that consumers have to consider the impacts on their
health in the distant future e.g. 50 years. Even if the government gives people all the
necessary information it is human nature to give the most weighting to the short term
costs/benefits rather than the long term costs/benefits. As a consequence I believe that
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information campaigns can only be used as part of a mixture of policies rather than as the
single intervention.
In conclusion the government should use a mixture of policies to promote healthy eating.
The first should be a higher indirect tax on unhealthy food and then this additional tax
revenue should be used on subsidising fruit and vegetables. This means that price is
incentivising consumers to purchase food that will give them a healthy diet. In addition to this
the government should continue to intervene through regulation and information campaigns.
For example it should be made a legal requirement that all food includes traffic light labelling
to show how healthy the product is, this will allow customers to make more informed
decisions. In addition to this food that is fundamentally unhealthy should be banned, for
example ‘trans-fats’ could be outlawed in the UK. However I would argue that we would
need Europe wide cooperation to implement this type of policy.
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T2uP1(A): Section A: Tax on cigarettes is the only viable policy to reduce
market failure
06 Using the data in the extracts and your knowledge, assess the view that the only viable
policy to reduce market failures associated with smoking is a tax on cigarettes. [25 marks]
Mark Scheme
Issues and area’s for discussion include:
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T2u P1 (A): Section B: Monopoly not covered in year 1
06 Using the data in the extracts and your knowledge, assess the view that ‘monopoly is always harmful’. [25
marks]
Mark Scheme
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T2u P1 (B): Section A: For and against Gov intervention in UK housing
market
06 Using the data in the extracts and your knowledge, assess the case for and against government intervention
in the UK housing market [25 marks]
Mark Scheme
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T2u P1 (B): Section B: Effectiveness of policies to increase use and
production of clean energy and reduce use and production of fossil fuels.
06 Using the data in the extracts and your knowledge, assess the effectiveness of policies to increase use and
production of clean energy and reduce use and production of fossil fuels. [25 marks]
Mark Scheme
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Old Style of Exam
11JunP1C1AS: For and against Gov Intervention in Housing market
Mark Scheme
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Student Example Work
Student A
Market failure is where the market fails to produce what

consumers require at the lowest possible cost. Government
Intervention is when the government decide to alter the
market outcome by becoming involved in the market to avoid a
market failure. The market we are considering in this case is
that of owner-occupying and rental property. The main market
failure that is arising in this case is the unequal distribution of
income and wealth as a result of the increasing wealth of those
who own a house in relation to those who are in the rental market. In addition to this is the poor
living conditions some in the rental system are open to due to their lack of control over their housing
quality. In this essay, I will analyse and evaluate the government’s use of subsidies and price controls
as well as the possibility of leaving it to the free market to solve the misallocation of resources.
Extract C states owner-occupiers as well as landlords who rent out their homes benefit from the
wealth gains associated with owning homes; they are considered the 'haves'. The Extract then goes
on to say tenants are, therefore, the 'have-nots' as they are at the mercy of landlords and not able to
benefit from this 'growth in personal wealth'. As a result, the gap between the rich and poor in
society widens further worsening the inequality of distribution of wealth in the UK.
In addition to the market failure of increased inequality in the distribution of wealth, Extract C raises
the issue of poor quality housing for tenants. This can be regarded as a demerit good as people are
living in conditions that are, in the long-run, not beneficial to them health wise and 'adversely affects
people's health'. It can also create external third party costs such as health care issues that are
suffered outside of the market and hence the market price does not allow for them. This can be
seen on the diagram where the market is at the higher equilibrium P1,Q1 in the short term when it
should be at the lower equilibrium of P2,Q2 when full information is taken into account.
To add to this, the 'have-nots' have decreased geographical mobility as they are at the mercy of
landlords and high rents and are therefore unable to easily move to fill labour shortages. This
adversely impacts the economy as production levels are not at their maximum.
One intervention mentioned in Extract C is the use of a subsidy. In this market, it would be in the
form of a consumer subsidy as a method to increase demand and people's ability to become a home
owner. An example could be housing credits or new help to buy schemes providing equity loans and
mortgage guarantees. As a result of people's increased ability to pay due to funds from the
government, their demand curve will shift outwards as shown in the diagram below.
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As the government has subsidised consumers it will increase demand as now consumers are more
willing and able to become home owners as their costs have decreased and welfare increased.
Therefore, the demand curve shifts to the right from D1 to D2 due to this increase in demand. As a
result, quantity demanded increases from Q1 to Q2 and prices increase from P1 to P2
This will help to address the market failure of growing inequality as more people will be able to
purchase their own home and start to benefit from the 'wealth gain' as a result. They will also be
taken out of the poor quality housing in the rental sector which may have negative long term
impacts on their health.
In addition to this subsidy, they could also subsidise those in the rental market to enable them to live
in better quality homes and hence help eliminate the problem of people living in unsatisfactory living
conditions. This would not however address the inequality of wealth issue.
Subsidies would be effective in this case at helping more 'have-nots' become 'haves'. As people have
more ability to buy they will start to benefit from home ownership sooner. As a result, it will help
address 'one of the most prominent market failures in the UK housing market'; unequal distribution
of wealth.
However, it does come with drawbacks. One of those is the cost to government as shown on the
graph. With this comes an opportunity cost and other areas of the economy, such as health and
education, may lose out on funds. The government would need to consider the long run benefits of
this subsidy in relation to the costs that may arise from pulling funding from elsewhere. In this case,
the government may fail as costs may outweigh benefits.
Another disadvantage is the subsidy and subsequent demand increase might have adverse effects on
house prices. It will cause rising house prices and possibly a greater shortage of supply, the market
may respond by making it harder for consumers to purchase a house and add to the already growing
wealth of those already in the market. The fact that supply of housing is inelastic (due to time, space
and resource shortages) means that even if demand does increase, those providing the housing may
not be able to respond in the short run and hence the price will rise by proportionately more.
A second government intervention proposed in the extract is a 'rent ceiling' (price ceiling/ maximum
price). This works by preventing landlords charging a rent higher than the rent ceiling and results in
increased demand as consumer have to spend less of their income on the good. This lower cost of
rent will allow consumers to save to buy a house and therefore will overcome the market failure of
income inequality due to differences in home ownership, even if it is long term.
The diagram below shows how the rent ceiling must be placed below the equilibrium point to have
an impact on landlord's rent decisions otherwise the price will fall back to the equilibrium and the
price ceiling will have no effect.
This particular form of intervention works to decrease the market

failure because it makes it more affordable for people to rent and
means they will have more disposable income to save and use in
the long run to enable them to move from a 'have-not' to a
'have'.
Price ceilings are not always effective at addressing the market

failure. The graph shows that if the price is lowered to below the
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equilibrium quantity bought and sold, the quantity supplied decreases because there is less of an
incentive to rent your property. Coupled with this is the increase in demand as renting has become
more affordable. This then results in excess demand which is a new problem in the market. This is an
example of Government Failure as there is still a misallocation of resources.
Additionally, if landlords are limited in the prices they can charge they have an incentive to remove
their property from the rental market and sell it to make more profit. As a result, supply will fall in
this market and further increase the excess demand. If they do not go to this extreme, it may make
the market failure of poor quality housing worse as they will have less money/incentive to maintain
the appearance and quality of their home if there is a smaller finance benefit. This could result in
government failure due to the law of unintended consequences.
Some argue that if left alone, the market would be able to correct itself. In this case the 'rapidly-
rising house prices in the UK' would send out signals to producers of chances of high profits if they
enter this market. As a result, supply would increase as producers would reallocate their resources
to the production of this good and prices would fall making it more accessible to consumer.
Although, as mentioned above, the ability to build houses immediately is low so this may take a long
time to happen.
Additionally, the higher prices may remove some of the demand in the market as the signals sent
out would disincentivise consumers as their welfare levels will fall as a result of high prices. With this
fall in demand will come a fall in prices as the market attempts to equalise demand and supply.
Higher prices may also give an incentive for more people to live with their families for a longer
period of time which would reduce the housing shortage and make better use of the house we have
i.e. promote economic efficiency. This also does not address the problem of income inequality.
One of the biggest issues of leaving it to the free market is that the correction of the market failure
will take a long time and in the short term high prices will have a detrimental effect on consumers as
they have to live in poor housing at high rental prices.
On balance, I believe that even though there are a number of arguments against the use of
government intervention in the housing market, the fundamental problem of lack of housing and the
resulting inequality gap in society cannot be addressed by the free market and the government
needs to implement a combination of methods including price ceilings in the short run and subsidies
in the long run. To add to the effectiveness of these policies the government could also directly
provide housing to those in need as long as the costs of such an intervention outweigh the benefits.
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11JunP1C2AS: Minimum Price law tackles overconsumption of alcohol.
Mark Scheme
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12JunP1C1AS: Monopoly Power not covered in Year 1
Mark Scheme
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Examiners should note that credit can be given for basic evaluation if a student simply states
but does not develop arguments in favour of markets or government intervention. Stronger
evaluation is provided by students who are able to support arguments for both for and
against free markets and government intervention, and by clearly stating the assumptions
underlying the arguments being used. Reward the relevant use of diagrams to support
arguments, e.g. externalities diagrams in relation to the environmental costs of mining.

Student A
Rare-earth metals are vital for 'modern technologies', ‘vital factor of production in all
industries' and enable the 'growth of the renewable energy market'. Although they play a
major role in helping an economy develop it is at the risk of environmental damage from
negative externalities (costs to third parties external to the market transaction) such as
'radioactive waste' flowing into nearby deserts and water ways. Government intervention
to correct market failure and misallocation of resources may be a necessary step for this
market to take to ensure the damage inflicted on the environment is lessened. Market
forces allow the free market to allocate resources based on highest demand and use the
three functions of price: rationing, incentive and signalling to bring the market to
equilibrium. This essay will discuss the market failure of underproduction and overpricing by
monopolies and negative externalities and go on to discuss whether then free market can
correct them over time or whether intervention in the form of regulation and legislation is
necessary.
Extract C states that rare-earth metals are ‘clean energy’s dirty little secret’ as a radioactive
waste is often a by-product of the extraction process and ‘600,000 gallons of hazardous
waste’ has flowed into surrounding desert. As a result of this, external costs are imposed on
third parties who are external to the market, and over production occurs. This can be seen
in the graph below where the current level of production is at P1Q1, the private optimum
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where marginal external costs are not taken into account. To correct the market failure,
these external costs should be accounted for and production should occur at the socially
optimum point, P2Q2. Hence there is overproduction and consumption.
The second market failure is that of monopoly presence, ‘China produces about 97% of the global
supply of rare-earth metals’, which has resulted in high prices and a distortion of the world markets
creating ‘artificial competitive advantage’. Extract B refers to the ‘relatively price inelastic’ demand
for the product meaning China’s monopoly power is even stronger.
Minimum intervention refers to the market being left alone and using market forces to allocate
resources. The main way this happens is through the use of the 3 functions of price: signalling,
rationing and incentive.
Extract C mentions the use of regulations and making companies 'pay for much of the pollution they
generate' as a possible government intervention.
Both interventions are aiming to add to firms’ costs of production by internalising the negative
externalities namely, 'environmental damage'. One way in which they could do this is through a tax
or a pollution permit. A pollution permit makes polluters pay for the pollution they create by
attaching a monetary value to it. Extract C states that in ‘richer countries’, they ‘strictly regulate’ and
make mining companies ‘pay for much of the pollution they generate’. When deciding the level at
which to price permits, countries will need to consider the cost to the firm of cleaning up their
production methods as well as the cost to environment of their continued production. Ascertaining
these costs can be problematic as many firms will be hiding their level of pollution and firms will lack
perfect information when setting these levels, as a result, it may cause more wastage and
misallocation of resources than when left to the free market.
As you can see in the diagram, the supply curve will shift inwards resulting in a higher price and
lower output levels, this will have internalised the cost to third parties and incentivise firms to look
for cleaner alternatives.
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Pollution permits can be effective the government decides the level of pollution they think is
acceptable in the market and then allocates permits. Firms who are 'clean' can sell their spare
permits to less 'clean' firms who have insufficient permits. The incentives of the system drive it as
firms can make profits from being cleaner. As a result, it still uses the functions of a market in order
to work correctly.
However, as mentioned above, the price at which government sets permits may not be high enough
to have an impact especially considering this is a market dominated by a single producer who will
have a large amount of profit to fall back on. This may mean that the level of pollution might not be
reduced enough/at all if the permit level is not calculated correctly meaning there is government
failure and a misallocation of resources might still occur. Additionally, due to the trading element of
the system, it does not force all firms to become cleaner. Another negative of the system is that
costs of enforcement are high and might outweigh the benefits.
The rare-earth market is not a completely competitive market but one dominated by a single
supplier (i.e. a monopoly). As a result, it is fundamentally failing due to the power they exert over
the market and higher prices they can command which do not reflect the high level of demand so
much as the high level of control by a dominant producer.
However, extract C states that the higher prices may 'lead to the opening of new mines outside
China' and help the market to function efficiently. This is because the higher price sends out signals
to producers of the chance of profits and thus provides an incentive for them to allocate resources
into the production of such goods and 'improve resource allocation'. If this is able to happen then
there is less need for government intervention and it allows the market to correct itself without
being distorted by intervention. It will also keep costs low for governments as they can rely on the
functions of the market rather than costly legislation.
However, this does not necessarily address the environmental damage issues but more the higher
price demanded by monopolies and the 'cost of meeting tough environmental regulations' may, in
reality, prevent the incentive function from working properly. This market is hugely important and
plays a major role in enabling many other markets to function, for example, ‘the growth of the
renewable energy market would be held back’ without rare-earth metals and some would argue that
for this reason how free can the market actually be? Due to the positive externalities that stem from
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it, the argument for government intervention might not only be routed in addressing negative
externalities and controlling monopoly power but also ensuring positive externalities are accounted
for.
In conclusion, I think there is a need for government intervention in this market. Market forces can
only do so much when there is dominance by a single producer in the market and the negative cost
inflicted on the environment require intervention by government to ensure damage is not long term
and irreversible. Although the methods I have stated above could work, there are many drawbacks
to them and their effects could be enhanced with the use of additional policies such as subsidising
clean alternatives such as wind and solar energy. Although there is a cost of them to government the
short term costs could be covered by indirect tax revenues and this cost might be less than the cost
of cleaning up any long term damage.
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12JunP1C2AS: For and against NHS charging for its services
Mark Scheme
Students will need to demonstrate that they are able to evaluate issues and arguments to
support a conclusion if they are to be awarded more than 13 marks.
Extract E mentions a number of rationing devices: the price mechanism, queues and waiting
lists, and government decisions. In the context of the NHS, Extract F mentions the postcode
lottery’ in which drugs and treatments sanctioned in one PCT area were not available in
another region. Free provision at the point of use obviously indicates that the price
mechanism is not currently being used for allocating scarce resources within the NHS
between alternative uses. However, when evaluating, students may discuss whether the
price mechanism leads to a better outcome with private or non-NHS health care. Some
students may also discuss internal markets within the NHS, though at AS such discussion is
certainly not expected.
A maximum of 21 marks should be awarded if there is no explicit reference to the data.
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13JanP1C1AS: Same as 15Specimen1C1AS
13JanP1C2AS: Same as 15Specimen2C2AS
13JunP1C1AS: Financing universities mainly through charging fees to students
Mark Scheme
For this question, an answer should be limited to a maximum of 13 marks if there is
no evidence of evaluation.
A maximum of 21 marks may be awarded if there is no explicit reference to the data.
The case for and against charging fees to students can only be properly assessed if the
alternatives are also considered. Extracts B & C provide a number of prompts and it is
expected that candidates will make use of one or more of these when developing their
answers.
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Examiners should note that credit can be given for basic evaluation if a candidate simply
states but does not develop arguments in favour or against different methods of financing
higher education. Basic evaluation (and good analysis) would allow the answer to achieve
low Level 4. Stronger evaluation is provided by candidates who are able to support
arguments both for and against different types of finance, and by clearly stating the
assumptions underlying the arguments being used. Reward the relevant use of diagrams to
support arguments, eg merit good and subsidy diagrams.
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Student A
If left to the free market, the demand and supply for universities’ fees will be below the social
optimum level (MSB=MSC), due to several reasons. One being that consumers are myopic and do
not see the long term benefit of going to university such as securing a higher paid job but rather see
the short term cost such as the stress and financial fees. Therefore, it is argued the government
should intervene in the market to correct this market failure. Government intervention is when the
government decide to alter the market outcome by becoming involved (the intervention) in the
market to avoid a market failure.
As stated in extract B, it conveys that before 1998, universities were mainly funded through
“government spending and taxation”. Therefore, the government can subsidise producers, in this
case universities, which will encourage an increase in university places as there is a reduction in the
cost for university. This will cause an increase in the supply of universities which can be seen in the
diagram below:
Due to the government subsiding universities, the price of going to university will decrease as the
cost to universities have decreased and they may pass this savings onto consumers in the form of
lower price. Thus it will incentivise young people to go to university and increase the number of
people who go to university and reduce the market failure of under consumption to the myopic
nature of consumers.
However, though the government subsidies universities, it does not mean that universities will pass
this saving onto consumers in the form of lower tuition. Therefore, the government may wish to
subsidy attending university at the point of consumption. As a result, subsidising consumers and
“finance their living cost”. This effect of this can be seen in the diagram below:
If the government subsidies consumers, it will make it less expensive for consumers to go to
university. The government subsiding consumers can be seen between the points P3 P2. Thus if it
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less expensive for consumers to go to university, it will motivate young people to go to university
and therefore increase the amount of young people who go to university, especially those from low
income backgrounds as they are most affected by the increase in tuition fee as stated in extract C.
However, there are many drawbacks to this form of intervention. Firstly, subsiding consumers or
producers will have a huge burden on the government fiscal stance. As a result of this, there is an
opportunity cost as the money used to fund this needs to have be taken from somewhere else,
healthcare for example. As a result, government intervention to correct this market failure may
result in failure in another market and misallocation of resources. Further to this, as stated
previously, consumers are myopic so even though the government may subsidies universities
tuition, it does not necessarily mean consumers will attend to university if it is cheaper as they still
possess short term cost.
Furthermore, extract C discusses the use of a system of charging for university education. It states
that “'those who personally profit from education should contribute more toward the cost of
providing the service”. For example, large pharmaceutical companies such as Glaxo Smith Kline
should be persuaded to donate to pharmaceutical departments within universities as they profit
from those graduates. The rationale behind such an intervention is to encourage firms to help
finance universities as it is beneficial for them in the long term. Thus this will help universities to
cover their costs and hence they will be able to increase the quality of education on offer or increase
the amount supplied as seen in the diagram below with the outwards shift of the supply curve from
S1 to S2. This increase in supply will help to address the problem highlighted in extract C that the
market 'tends to under-provide' this service.
However, it is extremely difficult to persuade corporate firms to donate to universities as they are
profit maximisers and this will alter their profit levels. Further to this, as stated in the extract, though
tuition fees have increase, this actually did not discouraged young people from attending university:
“despite fees being charged, university applications continued to increase”. Therefore, it could be
argued that although the price of tuition has increased it will actually not discourage young people
as they know the benefit of attending university: “average graduate earns £160,000 more than the
average non-graduate over a lifetime”.
Finally, it could be argued that it is actually best to leave the provision of university and the fees to
the free market. If universities are allowed to freely choose the fees they want to charge their
students, it will create competition amongst universities. Universities will have to ensure that they
provide pupils with competitive tuition fees as well as outstanding services while attending their
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institution. Therefore, if left to the free market, it may actually correct both under consumption and
under production of higher education. However, this may actually not be the case. As seen in recent
news, the increase in tuition fees led to substantial student protest against such rise. Therefore, the
government should intervene in the market to prevent such event and to ensure the citizens of their
welfare are being met.
Extract C states that “education is a service which is essential to any society which claims to be
civilised”. This could be considered a strong argument for government provision of such a service,
especially considering that in a free market it is under provided and under consumed due to the
merit good nature of it. However, as discussed in this essay, the government does not necessarily
have the funds for this and may lack adequate information to ensure their intervention does not fail.
The essay asks about whether financing should mainly come from charging fees and I think that, to a
certain extent, it should. It is an effective way to fund universities and it adds to the importance it
holds as it increases the value of it. To avoid any regressive impact of such a scheme, government
could combine this policy with grants or subsidies so everyone in society is able to benefit from the
system both in the short and long term. The extracts state two further options a university could use
in conjunction with these interventions in order to make this a sustainable solution; selling
information from university based research and relying on donations. Although both have their
drawbacks (e.g. only produce small levels of funding), when combined with the other policies, they
will help to provide a holistic solution to the problem.
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13JunP1C2AS: For and against government influencing how mobile phones are
manufactured and used.
Mark Scheme
For this question, an answer should be limited to a maximum of 13 marks if there is no
evidence of evaluation.
Answers discussing only policies cannot rise above 16 marks.
A maximum of 21 marks may be awarded if there is no explicit reference to the data.
Answers discussing only phone manufacture or phone use cannot rise above 21 marks.
Candidates are likely to develop their answers to apply what they have been taught, namely
governments regulating or intervening in how mobile phones are manufactured and used.
While this is a valid response to the question, the wording also tries to prompt discussion of
how governments may try to ‘nudge’ manufacturers and phone users into certain types of
behaviour. For example, smartphone manufacturers such as Apple may voluntarily change
the way they hire labour and phone users may take action to minimise the chance of
suffering health problems.
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Student A
The extract suggests that there is a negative externality occurring in the form of radiation from
mobile phones increasing the likelihood of cancer and this essay will look to evaluate how a
government can intervene to bring the market back to the socially optimal output. Please note along
with the possibility of a third part spill over it could be argued that mobile phones are a demerit
good and that the long term health costs are not being taken into account by consumers, causing
overconsumption. Government intervention is when the government decide to alter the market
outcome by becoming involved (the intervention) in the market to avoid a market failure; reach MSC
= MSB (social optimal allocation of resources), redistribute wealth and income or to improve the
performance of the economy: domestically and internationally (promote growth and living
standards).
It can be argued that the government should intervene in the market in terms of more strict
regulations and legislations. As stated in Extract F, the World Health Organisation have stated that
there “could be some risk” of mobile phone use causing cancer i.e. a marginal external cost, showing
that there may be negative externalities associated with the use of mobile phones. Therefore, the
government should intervene in the market to internalise the social cost as if left to the free market
they would produce at point MPC i.e. MSC = MPC.
MEC
If the government intervenes in the market through means such as requiring mobile phone
companies to conduct greater research before releasing a new phone. It will increase firms cost and
internalise the external cost to society. Another way to make the producer internalise the externality
is to charge them a tax on production equal to marginal external cost, this will mean that MPC = MSC
and we will get the social optimal output. As a result, the supply curve will shift to the left, to MSC.
Thus output would reduce to from Q1 to Q2 whereas price increasing from P1 to P2.
However, it can be argued that though the government have increased the price of mobile phones
by increasing firms cost, it does not necessarily mean demand would decrease. As stated in the
extract, the smartphone market has been expanding; experiencing a growth of 54.7% in 2007 with
one out of every three phones being a smartphone in the UK. Therefore it can be argued that the
demand for smartphones are relatively inelastic, therefore if firms cost increase and they pass this
onto their consumers in the form of higher price, this will have little to no impact on demand. As a
result, the government would have failed in deterring consumption of smartphones and actually
worsen the gap between the rich and poor, as the poor will be mostly affected by this increase in
price; government failure will occur.
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Furthermore, the government could intervene in the market through correcting the information
failure i.e. that this partial information makes mobile phones a possible demerit good. If the
government make consumers aware of the potential long term cost of using a smartphone, through
the use of campaign and advertisement, it will educate the general public and thus deter them from
purchasing a smartphone. The impact of this can be seen in the diagram below:
If the government make consumers aware of the long term cost associated with the use of
smartphone, consumers will demand less smartphones. This is likely to occur as within the mobile
phone industry, there are many substitute phones. As a result, the demand curve will shift from D1
to D2. This will cause quantity demanded to reduce from Q1 to Q2. As a consequence if this
campaign reduces consumption to the socially optimal amount then it will solve the market failure
and be a successful intervention.
However, it can be argued that this form of government intervention will not actually work. If the
government intervenes in the market using this approach, it will extremely costly to the government
implementing such intervention. Secondly, as stated before, smartphones have become a part of
consumers’ lifestyle and are seen as ‘fashionable’ and a ‘must-have’ as stated in the extract.
Therefore, though the government may make consumers aware of the potential risk, they may still
choose to purchase and carry on using smartphones as they are myopic beings.
It can be argued that it is best to leave the free market. As seen in the extract, the mobile phone
market has become extremely competitive then firms will reallocate their resources to this market.
As a result, it will likely to firms conducting in extensive research and development to remain
competitive, as seen in extract E. Therefore, the government should leave it to the free market to
solve such problem as firms will naturally want to attract customers and therefore they will
inevitably look for cheaper and safer methods of producing mobile phones. This is because if firms
make high profits in a competitive market then they will be able to spend this on research and
development which will enable then to reduce the marginal external cost. As a result, consumes will
benefit from more safe mobile phones as well as lower price through more efficient use of
production.
On the other hand, it can be argued that this may actually not happen. As seen in the extract, this
has not happened and in other countries, government intervention became imperative; “French
Telecom Company was ordered to take down a mobile phone mast due to uncertainty about its
effect on health”. Therefore, it can be argued that the government is required to intervene as if left
to the free market, which it currently is, there will be little to no change to how firms operate at
least in the short term.
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On balance, I believe the mobile phone market requires both the government to intervene. There is
a need for the government to intervene not only because of the use of mobile phones, but also due
to the production of mobile phones. As seen in extract E, phones are being manufactured by Asian
workers who are being paid low wages. Therefore the government should intervene in the market to
ensure products are safe for use and that mobile phone companies are paying their workers in
developing nation’s appropriate wages. However, the government should still allow the market to
work within these parameters, as the free market will benefit consumers. As firms are in a
competitive market, they will have to provide consumers with the lowest price in order to remain
competitive. Therefore, consumes could benefit from both lower prices and a safer mobile phones.
In conclusion I would argue that a tax on mobile phones equal to MEC will be ineffective due to the
inelastic nature of the PED of mobiles. Information campaigns would also be ineffective as the use of
mobile phones is ingrained into people’s everyday lives and therefore the best intervention by
government is tighter regulation on safety and to require all firms to invest in research and
development in relation to the possible health issues surrounding mobile phones.
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14JunP1C1AS: For and against governments intervening to prevent agriculture
products from being used to produce biofuel.
Mark Scheme
It is expected that candidates might consider different types of government intervention in
answer to the question, though there is no requirement to do so. However, the best answers
will include some discussion of whether or not governments are able to or should ‘prevent’
agricultural products being used in such a way.
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states but does not develop arguments in favour or against the governments taking action.
Stronger evaluation is provided by candidates who are able to support arguments both for
and against government action, and by clearly stating the assumptions underlying the
arguments being used. Reward the relevant use of diagrams to support arguments, eg
externalities diagrams in relation to the use of biofuel. Answers which only consider the UK
government, or the government of a particular country will be narrower than those
considering more than one government. An answer which evaluates different policies without
considering intervention versus the alternative of letting the free market rule should be
restricted to a maximum mark at the top of Level 3.
Examiners comment on this question

A number of students chose to ignore the fact that the question asked them to evaluate the
case for and against government intervention to prevent agricultural products from being
used in the biofuel market. Instead, they identified/described/explained/analysed different
policies even if they were not relevant. No matter how good the skills demonstrated in these
cases, the answer could not score more than 16 marks, at the top of level three. Indeed, the
best answers started by analysing what might happen in the free market if governments did
not do anything to prevent agricultural products from being used to produce biofuel, either
using demand and supply analysis to examine the effect on price (and how this caused
famine/poverty) and/or using externality analysis. At this stage, students analysed and
evaluated a range of relevant policies that could solve the problem, before going on to
discuss the arguments against government intervention, given the fact that biofuel might be
a source of opportunity for developing nations to get themselves out of poverty. These
answers often included evaluation of other issues, such as long/short term considerations,
government failure, weighing up the externalities of biofuel compared to the externalities of
petrol/diesel or discussing the need for a united approach internationally, and making a
sophisticated final judgement. The key point here, as alluded to in the preamble, was that
not all students acknowledged the word ‘prevent’, and whilst this did not provoke a
constraint, the very best answers dealt with it effectively. Although many students drew
diagrams, fewer actually made proper use of them to support their theoretical analysis, and
this is something they should be encouraged to do to build in more analytical rigour. Similarly
regarding the data, many students did explicitly refer to the extracts, but some were better
than others at weaving this into their answer and using it to inform their discussion and
judgment.
The mean mark was 13.54
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Student Example work
Student A
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Commentary by the examiner
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Student B
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Student C
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24 marks awarded
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14JunP1C2AS: For and against subsidising newspapers and online news.
Mark Scheme
Although Extract F mentions that some online news possesses public good properties, the
possibility that newspapers and online news may also be judged to be merit goods is not
mentioned. However, it is implicit in the last paragraph of the Extract, part of which forms the
prompt to the question. Good answers may use public good theory and/or merit good theory
to provide analysis before proceeding to evaluation. Answers which lack such analysis are
likely to be superficial, though analysis and evaluation of subsidies can provide a valid way
of approaching the question.
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states but does not develop arguments. Basic evaluation (and good analysis) would allow
the answer to achieve low Level 4. Stronger evaluation is provided by candidates who are
able to support arguments both for and against the provision of subsidies, and perhaps
suggest alternative means of intervention, if at all. Reward the relevant use of diagrams to
support arguments.

There were some excellent answers to this question which were based on sound theoretical
analysis, often recognising newspapers as merit goods which give rise to positive
externalities.
Weaker answers lacked economic content, and were very ‘general’ in nature.
Students must be reminded that they need to demonstrate their ability to write/think like
economists in order to move into band three and beyond. ‘General’ answers remain within
band two and so would score no more than 9 marks. When making their choice of questions,
students should perhaps not choose from the context that they know most about, but rather
the context they can most easily and effectively apply their economics. Another issue with
this question was the purely theoretical subsidy answers which did not ‘get to grips’ with the
context. Whilst these answers can and do progress into level four in terms of marks,
students must not overlook the importance of ‘application’ as a skill which needs to be
evidenced. For example, in the scheme of things, should governments subsidise
newspapers, or is the decline in sales of newspapers simply evidence that the market is
working effectively as a result of a growing preference for online news?
The best answers assumed such a discussion. Many linked the markets to technological
progress, and also acknowledged that the focus of the question was on both newspapers
and online news.
The mean mark was 13.5
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Student A
Newspapers are seen as merit goods, where marginal social benefits are greater than
marginal private benefits. During the course of this essay I am going to assess whether or
not the production of newspapers should be subsidised to help them survive.
Diagram would have been

something like this
Currently, consumption of newspapers is at P1Q1 where marginal private benefits equal

marginal private costs. An example of the private cost would be the price in pounds paid by
the consumer in return for the newspaper. At this point of consumption there is an external
benefit of size AB on my diagram, with an example of this benefit being people being more
“educated” on real life situations. With the private and external benefit put together there is
the social benefit (MSB). Therefore at this point there is a positive externality shown by the
shaded triangle of ABC.
Ideally the government would want consumption to be at point P2Q2 – the social optimum –
where marginal social costs equal marginal social benefit. To get to this point the
government would look to increase consumption by amount Q1Q2 to resolve the
missallocation of resources currently present.
A subsidy is a payment paid by the government to firms (in this case newspaper companies)
to reduce the costs of production to the firms and increase output as well as lowering the
market price.
If a subsidy of size AB on my diagram was paid by the government (at a cost of P3BAP2)
then a rightward shift of the supply curve would be triggered due to lowering in production
costs to the firms (of size P3BCP1), which was needed as Extract E states that “costs of
producing newspapers has risen”. This shift will of caused an expansion along the demand
curve from P1Q1 to P2Q2, increasing demand by Q1 to Q2. The benefit to the government
putting this subsidy in place is that firstly they keep large firms like the “national newspapers”
referred too in Extract E in business, which will contribute large amounts of revenue to the
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government from paying corporation tax. This allows the government a larger opportunity to
invest in various parts of the economy that may need it, for example dealing with the over
consumption of a merit good.
Secondly, it will enable the public to be more educated and knowledgeable on the outside
world and what is going on. In addition to this it increased the consumption of advertising
campaigns that are used to “cover losses”. This may cause a positive multiplier for the
businesses that choose to advertise in the papers as they may gain increased awareness of
their brand or increased sales.
One drawback to implementing the subsidy at size AB is that it creates a large opportunity
cost as that money could of been invested in something different that the public may of
preferred, especially since it could lower the cost of buying the newspaper when more and
more people are using free internet news, shown in extract D.
In the case of the government subsidising newspapers and online news, the good (the
newspaper or online version) is seen as potentially a merit good – something which is under
consumed in the free market, but has positive benefits/externalities. People argue that if
reading a newspaper is beneficial for society as a whole, i.e. by people reading it they are
becoming more educated then the government should absolutely subsidise it.
On the other hand, people argue that the government subsidising newspapers and online
news is a waste of money, as there are already very good alternative substitutes, such as
the TV news, which is on frequently and essentially provides the same service, but doesn’t
actually provide the consumer to read.
Critically, however, I feel that if this subsidy implemented was to be fully successful for the
government, the increase in consumption of Q1Q2 on my subsidy diagram would have to
mirror the increase in demand of Q1Q2 on my positive externalities diagram, thus fully
internalising the externality of ABC present at the current point of consumption. Therefore, I
feel that a subsidy should not be implemented in the UK news market as it is near on
impossible for the government to find the right amount to subsidise to cause the
consumption to move to the social optimum without still causing an under or even an over
consumption of the good. Therefore I feel that it should be left to free market forces, as
technology and innovation is increasing daily and the newspaper is going to be left behind
eventually so the subsidy would present a large opportunity lost to the government.
Therefore if the market is left to be run by “rich owners” who cover costs then the market
mechanism will signal to consumers that news is changing in how it is being presented,
signal to firms to increase advertising costs and charge a higher price and ration out those
who are unwilling to pay for the news, and hopefully keep consumption of online news on the
increase and keep the public happy and more educated, even if it does come at a cost to
them.
This is a good, very clearly written answer, which contains good analysis and good
evaluation.
It begins by suggesting that newspapers might be considered as merit goods, and uses an
extremely clear, well-labelled diagram to illustrate this point. The response goes on to
analyse the diagram in some depth, and identify a misallocation of resources.
Then the student includes a definition of subsidy and a fully and accurately labelled subsidy
diagram, which is well-explained. As the student goes on to discuss the advantages and
disadvantages of using a subsidy he/she makes effective use of the data to support the
points made.
Finally, the student proceeds to evaluate and provides a lengthy conclusion, with a clear
judgement to leave newspaper provision to the free market.
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It has to be said that the knowledge demonstrated is good throughout, with few if any
weaknesses, there is good use of data to support the answer, the analysis is relevant and
precise, and provides a logical chain of reasoning, and the evaluation is good.
However, despite this, the answer is not placed in level 5 on the levels of response mark
scheme because it does not properly answer the question: there is no discussion of the
subsidy to online news. Students should ensure that they deal with all aspects of the
question. Consequently, the answer is placed at the top of level 4
21 marks awarded
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Student B
Government should subsidise newspapers as they are a key source of information, and
portray and tell people information which is needed. People need to know what is going on in
the world.
If the government subsidise newspapers, it will cause a shift out of supply curve as shown by
the diagram creating a new equilibrium at P2 q2 due to the extention along the demand curve
as more people are willing and able to buy the newspapers at the new, lower price. With the
governments introduction of subsidy, which is where money is given to pay for a given
amount of the production, reducing the cost of production and therefore the cost paid by the
consumer, this would stop the loses being made on newspapers and help them survive. This
also benefits the economy as it means more people will read the news, helping them
become more knowledgeable and therefore help education and the economy with more
people with higher knowledge.
However, a subsidy would not increase demand for online news as it is free already.
A subsidy for online news would help the companies surfing the websites but have no effect
on the consumer. Money is made by online news articles through advertising. Therefore as
online news is a free good it wouldn’t need subsidising. An alternative opinion would be that
a subsidy should not be imposed on newspapers as people can get the news for fee online.
So newspapers are no longer needed due the new technological advances. Everyone in the
UK has access to the internet even it is in the library, so the use of newspapers is no more
as they have been replaced. People can gain the benefit of the knowledge and education
through online news so newspapers and the subsidy of them would be a waste of
government spending which can be spend on education and health in other ways for
example in schools which would help education.
In conclusion, I think that a subsidy on newspapers is a waste of government spending. The
knowledge and education can be accessed for free through online news due to new
technology so the money should be spend on other things.
This is a concisely written response which simply considers arguments for and against the
government subsidising the newspaper industry. It starts with a reason for subsidising
newspapers, and goes on to provide an accurately labelled subsidy diagram. It explains the
diagram, provides a definition of a subsidy, and gives a number of reasons to support the
subsidy. However, whilst the analysis is correct, these points are brief and remain
underdeveloped. The student has clearly read the data – there is reference to the ‘…losses
being made…’, however, the data is not acknowledged.
The student raises a number of points against subsidising online news, and follows this with
points against subsidising newspapers however, these also remain undeveloped. In addition,
the explanation becomes rather general – for instance, there is no reference to positive
externalities, though this would fit well with the discussion of news as a source of education.
Finally there is a short conclusion which is largely repetitive.
Overall, the student’s knowledge appears to be satisfactory, there is no explicit use of data
though the response is written in context, the analysis is reasonably clear but is not fully
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developed, and there is some evaluation, though fairly superficial. It is placed in level 3 – mid
– 13.
13 marks awarded
Student C
Markets are generally thought to work well, with price changes sending signals and
incentives to suppliers and consumers as to where they can get most economic utility from.
An increase in prices incentives firms to produce more of a good or service as it is now more
profitable to do so: and falling prices send signals to consumers to consume more of a good
or service as they are now gaining more economic utility for the money they are spending.
When news is available completely free on the internet (Extract F), it is made a public good,
as it is non-rivalrous and non-excludable, meaning it can have unlimited consumption
without any effect on its availability to other potential consumers.
However, public goods can cause market failure as private firms tend not to provide them in
a free market, as they are not considered profitable. For this reason some firms such as ‘The
Times’ has begun charging for access to online news. This shows that the free market can
solve some levels of market failure. People have, however, complained at the price of
newspapers as well as internet news, as they see it as ‘such an important source of
information and education’.��
This call for government intervention proves that there is still a case of market failure to be
dealt with here, as the opinion is that in a free market, newspapers and online news will be
under consumed, making it a merit good.
One way the government could solve this problem is by subsidising newspapers and online
news. From the diagram it can be seen that there are external benefits gained from wide
availability of the news (such as education) so to take advantage of these benefits the
socially optimal point must be reached ‘A’.
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Political incentives aside, the case for government isn’t strong enough to reason the cost of
a subsidy on the tax pay. Many newspapers still provide online news free, such as the
Guardian and the Economist (to an extent). There is also TV news such as ITV and BBC
news which is free (once you have a TV licence) so there is no need to pay firms subsidies
when there is plenty of thriving firms in a market, providing news at little, if any, cost to the
consumer.
So to conclude, the case for a government subsidy of newspapers & online news is strongly
outweighed by the case against as there are plenty of alternatives for consumers than
paying for newspapers or online news, so the market failure is not clear enough for
government to interfere in an industry which has often criticised many governments for
interfering too much.
A good, clearly written answer.
The response starts with an explanation of the free market which provides a sound
introduction. Using the data to support their answer, the student identifies the fact that
internet news might be considered as a public good, and later, newspapers and internet
news as merit goods, and hence sources of market failure. He/she includes a diagram to
illustrate the external benefits associated with newspapers, and another to illustrate the
imposition of a subsidy. Both are well explained. Then the student goes on to deliver a
sensible and well-justified conclusion. He/she draws on his/her own knowledge regarding the
BBC, for example, and appears to properly ‘get to grips’ with the context of the question.
Overall, knowledge is good throughout; there is good use of economic terminology, though
there are a couple of weaknesses. There is good use of data to support the answer, initially
and in the final conclusion, analysis is reasonable and relevant, it could perhaps be more
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developed in place. Finally the evaluation is good, with a clear final judgement. There is not
quite enough depth of analysis to move into level 5, the evaluation could be better
supported, however, the answer is placed at the top of level 4 – 21 marks.
Contrast this with the first response – the analysis there is better in terms of depth and
technical prowess, yet, this answer properly answers the question!
21 marks awarded
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15JunP1C1AS: The Government should intervene to correct market failures such
as income inequality, Monopolies and negative externalities.
Mark Scheme
There is a number of prompts in all three extracts to help identify potential sources of market
failure relating to income inequality, monopolies and negative externalities. However there is
no need to consider all three, it is acceptable to consider other sources of market failure, but
candidates should consider at least two. There is also evidence to suggest that markets may
work well.
Candidates are expected to consider the arguments for and against government intervention
in these areas, and some may consider the method(s) of government intervention that is/are
most appropriate, though this should not be the main focus of the question. Better answers
are likely to make the link that problems associated with negative externalities and
monopolies are often exacerbated by income inequality.
An answer which evaluates different policies without considering the arguments for and
against intervention should be restricted to a maximum mark at the top of Level 3, as should
an answer which only considers ONE source of market failure.
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states but does not develop arguments for and against government intervention. Stronger
evaluation is provided by candidates who are able to support arguments both for and against
government intervention, and by clearly stating the assumptions underlying the arguments
being used. Reward the relevant use of diagrams to support arguments, eg externalities
diagrams.
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15JunP1C2AS: Firms in industries such as cars and energy should operate
without any financial assistance from governments.
Mark Scheme
There is a number of prompts in Extracts E and F to support arguments for and against
firms operating without government financial support. The question refers to firms in
industries such as cars and energy, but the answer need not be confined to these. A
candidate should not be penalised for references to the macroeconomy. Good answers
might be expected to consider whether or not a market failure exists to justify the
government intervention.
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states but does not develop arguments. Basic evaluation (and good analysis) would allow
the answer to achieve low Level 4. Stronger evaluation is provided by candidates who are
able to support arguments both for and against. Reward the relevant use of diagrams to
support arguments.
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16JunP1C1AS: Markets can be relied upon to encrourage renewable energy.
Mark Scheme
There are a number of prompts in all three extracts to help identify potential market failure
within energy markets, and the difficulties faced by firms in renewable energy provision.
There is also evidence to suggest that markets may work well.
Candidates are expected to consider the arguments for and against the view that markets
cannot be relied upon to develop renewable energy, and some may consider the method(s)
of government intervention that is / are most appropriate, though this should not be the main
focus of the question.
Better answers are likely to question the ‘extent’ of the government support, if they do
believe that markets need some support.
An answer which discusses different policies without considering the arguments for and
against intervention should be restricted to a maximum mark at the top of Level 3.
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Examiners should note that credit can be given for basic evaluation if a candidate simply states but
does not develop arguments for and against government intervention. Stronger evaluation is
provided by candidates who are able to support arguments both for and against the view that
markets cannot be relied upon to develop renewable energy, and by clearly stating the assumptions
underlying the arguments being used. Reward the relevant use of diagrams to support arguments, eg
externalities diagrams.

There were some very good answers to this contemporary question, and it was a pleasure to read
some interesting discussions as to whether or not markets can be relied upon to encourage the
development of renewable energy, ably supported by sound economic analysis and evidence from
the extracts. Many students, starting with an argument for relying on markets, used their knowledge
of the functions of the price mechanism to analyse what would happen as non-renewable resources
became increasingly depleted, before moving on to the market failure arguments. Even better
answers were able to use the clues in the extracts to comment on progress so far, including growth
in the contribution to electricity production from renewables, and the contrasting experience of
different firms mentioned. Many arguments against government intervention referred to
government failure, but it should be noted that some students used the term, without giving due
consideration to what it actually means, and why it might occur given the context. Inevitably, the
arguments for government intervention included discussion of various policies such as subsidies for
renewables and indirect taxation for non-renewables, but pleasingly this year, relatively few
students wrote a solely policies-based response. Diagrams featured largely in many of the answers
and these were most effectively used when they were properly integrated into the writing.
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16JunP1C2AS: Subsidies are the best way to ensure sufficient resources are
devoted to the arts and cultural activities.
Mark Scheme
There is a number of prompts in Extracts D, E and F to support the use of subsidies for encouraging a
greater participation in the arts and cultural activities, but the extracts also point towards other
methods of intervention / market approach. It is expected that candidates will refer to at least one
cultural activity but this is not essential. Please be aware that candidates might choose other cultural
activities not referred to in the extracts which is also acceptable, for example, ballet / opera /
craftwork. Answers which do not refer to at least one other method should be restricted to a
maximum mark at the top of Level 3.
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Examiners should note that credit can be given for basic evaluation if a candidate simply states but
does not develop arguments. Basic evaluation (and good analysis) would allow the answer to achieve
low Level 4. Stronger evaluation is provided by candidates who are able to support arguments which
fully justify why one method is likely to be the best compared to an alternative(s). Reward the
relevant use of diagrams to support arguments.

This was a very straightforward question and most students were able to use economic theory
comfortably to analyse the effects of subsidies with regard to arts and cultural activities. The basic
subsidy diagram was well used, and many students also included relevant externalities diagrams,
having identified such activities as merit goods, and recognised the prompts regarding social and
private benefits in the extracts. In order to establish whether or not subsidies were the ‘best’ way of
dealing with the issue, students were expected to consider at least one other method, which most
duly did with varying degrees of success. At this point some answers became very general and lacked
economic analysis whilst others provided a list of alternatives and the analysis remained incomplete.
The prompts in the extracts alluded to a number of methods, such as the provision of licences and
education/information provision, and some students suggested maximum price controls. The best
answers went on to properly analyse these methods in the context. As an example, the theoretical
analysis of a maximum price control for theatre/concert tickets, and the resulting disequilibrium and
creation of excess demand, which was then linked to the hidden economy and ticket touts/the
selling on of tickets, a problem which is of course extremely pertinent today.
When answering the essay questions students must be reminded that they need to demonstrate
their ability to write / think like economists in order to move into band three and beyond. ‘General’
answers remain within band two at the most, however, refreshingly fewer of these were seen, and
indeed, it should be noted that the quality of the essays was very high this year.
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25 Mark Micro Question Booklet Mark Scheme With Examples

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25 Mark Micro Question Booklet - Mark Scheme with

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Micro 25 Mark Questions – Mark Scheme with example material

Common errors with 25 mark answers

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Assess - Make an informed judgement.

Evaluate - Judge from available evidence.

Discuss - Present key points

Justify - Support a case with evidence.

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How to Mark 25 Marker Answers

Knowledge is focused on your understanding of economic theory: accurate definitions, ability to

Point (application), explain (analysis), elaborate (analysis) critique (evaluation)- PEEL

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How to mark economics work

Example how to use coded marking

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Step 1 Determine a level

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25 Mark Marking table

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Example student work

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Examiners comment - 9 marks awarded

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Examiners comment – 13 marks awarded

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The boundary has shifted outward from x to y which means

This diagram explains the rationising function as there is a

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Examiners comments – 16 Marks

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Due to rising food prices more and more

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Examiners Comment - 20 Marks

Diagram A: Demerit Goods

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Example Student Work

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Areas for discussion include:

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Don’t go outside the lines – your essays are

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