9708_s02_er_1+2+3+4

SR6(IJ) 1 FOREWORD ....................................................................................................................... 1 ECONOMICS ...................................................................................................................... 2 GCE Advanced Level and GCE Advanced Subsidiary Level...................................................................... 2 Paper 9708/01 Multiple Choice (Core) .......................................................................................................... 2 Paper 9708/02 Data Response and Essay (Core) ........................................................................................ 3 Paper 9708/03 Multiple Choice (Extension) .................................................................................................. 5 Paper 9708/04 Data Response and Essay (Extension) ................................................................................ 6 GCE Ordinary Level ........................................................................................................................................ 9 Paper 2281/01 Multiple Choice ..................................................................................................................... 9 Paper 2281/02 Structured Questions .......................................................................................................... 10 This booklet contains reports written by Examiners on the work of candidates in certain papers. Its contents are primarily for the information of the subject teachers concerned. http://www.xtremepapers.net 2 GCE Advanced Level and GCE Advanced Subsidiary Level Paper 9708/01 Multiple Choice (Core) Question Number Key Question Number Key 1 A 16 D 2 D 17 D 3 C 18 C 4 A 19 D 5 C 20 A 6 C 21 A 7 D 22 B 8 C 23 B 9 C 24 A 10 D 25 D 11 C 26 C 12 D 27 B 13 B 28 A 14 C 29 C 15 D 30 D General comments The mean percentage score on this paper was 50.2%, compared with 48.3% on the corresponding paper in 2001. Only one item (Question 4) had a facility score above 80%. There were four items (Questions 10, 11, 13 and 28) that proved too difficult. Of these, 11, 13 and 28 also had low discrimination scores, as did Questions 2, 29 and 30. In Question 2, more candidates opted for B than for the correct response, D. B describes the opportunity cost to the newly-employed workers. The opportunity cost to society is the alternative output forgone, which in this case would be zero. In Question 10, only 21% of the candidates managed to work out that the equilibrium price was $2000, and that at this price, Z would want to add a further 2 clocks to his collection, while X would want to sell off 2 of his clocks. Virtually none of the candidates answered Question 11 correctly. Most candidates, if asked, could probably give examples of externalities. However, it is clear that very few are familiar with the basic definition of an externality, viz. a situation where the production (or consumption) of a good directly affects the production (or the utility derived by the consumers) of another good. The statistics suggest that most candidates resorted to guesswork in Question 13, which is puzzling since ‘minimum guaranteed price’ is a fairly standard item. 3 In Question 16, over one half of the candidates wrongly opted for A. The triangular area x in the diagram measures the deadweight loss to society from producing output OQ. The social cost is the area below the MSC curve. Question 28 was another item that caused candidates major problems. The basic idea behind this item, in fact, is very simple, viz. that if a country’s goods are relatively expensive, then this indicates that its exchange rate is over-valued. In Question 29, those candidates (38% of the total) who opted for A failed to recognise that if the demand for oil is price-inelastic, then an increase in the oil price will leave consumers in oil-importing countries with less money to spend on other goods. In Question 30, one third of the candidates opted for A, and one fifth for C. A depreciation of a country’s currency enables exporters to put up their prices (in their own currency), thereby increasing their profit margins. However, import prices increase by more than export prices, so that there will be a worsening in the terms of trade. Paper 9708/02 Data Response and Essay (Core) General comments This paper was taken by both AS Level candidates and A Level candidates. While a minority of the A Level candidates made use of knowledge from the extension (‘A2’) part of the syllabus, the full mark range remained available to those candidates who had completed only the Core (AS Level) syllabus. There were virtually no problems with the rubric and time management, and the relative lengths of sections were satisfactory. There are several issues that need to be addressed. The instruction ‘with the aid of a diagram’ was misinterpreted by some candidates, who made reference to the diagram in the data rather than providing their own. The quality of diagrams when supplied was often poor, with clumsily drawn curves and wrongly labelled axes. For essays, candidates must not feel compelled to offer all the information they know about a topic but should concentrate on being relevant to the title set. The best answers to the essays were those that paid attention to the specific wording of the title rather than responding to ‘trigger’ terms. In writing the essay, candidates should plan their response to avoid the repetition of information between sections. Despite these comments, there was much evidence of sound and comprehensive knowledge and understanding. This might have been more fully exploited by ensuring that ideas were not merely listed but explained in the first section of the essay and that ideas were not merely explained but discussed in the second part. Candidates should not tie or staple their scripts so tightly that it becomes difficult to turn the pages, should indicate the section they are answering by a number in the margin and should record the number of the questions attempted in the space on the cover sheet (if one is available). Comments on specific questions Section A Question 1 (a)(i) Relatively few candidates gave a succinct explanation of the difference between nominal and real prices that made clear the nature of the two measures. Most realised the relevance of inflation, although some were guessing with reference to taxes and costs. 4 (ii) A brief answer, which highlighted the trend over an extended period, was all that was required. Long detailed description of the behaviour of the nominal price of oil failed to reveal trends and absorbed excessive time. A satisfactory answer would have been that there was an upward trend between 1970 and 1982 which became a downward trend between 1982 and 1998. Alternatively, reference to the fluctuations in price would have been acceptable. Some candidates need guidance on the concept of a trend, which is frequently examined. They need to be warned against giving detailed chronological accounts. (iii) This was well done, with candidates either referring to the pattern of movement or the relative levels of the two prices. On occasions carelessness caused the two prices to be reversed. (b)(i) While many opted for the expected answers of 1973/4 or 1978/9, a surprising number opted for 1982 and 1991. In the first case there was no sharp rise while in the second the rise was not subsequently sustained. (ii) Most concentrated on difficulties with planning, stability of revenue/profits and menu costs. Few candidates failed to gain some credit here, although some were more focused on falling rather than fluctuating prices. The best responses concentrated on the issue of uncertainty. (c) Full marks were frequently gained for a clear diagram with an explanation that linked to the data. Some answers dealt only with supply or demand changes rather than both. The weakest responses offered no diagram and did not get beyond repetition of the data. A demand and supply diagram was the only format that gained credit: aggregate demand and supply diagrams were not appropriate. (d) Both micro and macro effects were acceptable. Candidates tended to concentrate on one of the approaches rather than combining them. There were many sound responses with detail on elasticity and tax incidence. Relevant diagrams were common. There was some misuse of the term disposable income and some considered a tariff rather than an indirect tax. A tendency which occurred was to change the emphasis of the question, this happened when having introduced the inflationary effect of rising oil prices the answer was turned into the problems of inflation. There were some rather tenuous links made between the tax and the balance of payments. Section B Each question attracted a reasonable proportion of the entry, with Question 3 the most popular. A wide range of achievement was evident in each case. Question 2 (a) It was expected that private and external costs in production and consumption would be defined and clarified with examples, and the relationship to social cost established. The main problem was a confusion between external and social cost which undermined some answers. The best answers gave clear definitions and introduced a diagram, while even the weakest managed some relevant examples. The standard diagram was not always drawn accurately. It was not relevant to introduce benefits at this stage. (b) The purpose, method and limitations of cost benefit analysis were required. While some thorough analysis with good applied examples was offered, a disappointingly large number of candidates were unable to get beyond the notion of cost and benefit comparison in a general way. They did not offer anything precise about the method. Some candidates chose to answer a different question on government policies to combat negative externalities, or to discuss the nature of public and merit goods. Question 3 (a) The methods to make domestic industry competitive in international trade needed to be identified, and the methods by which they were effective explained. Candidates were very knowledgeable about a wide range of methods, although they often took their method of operation for granted. Very few were able to introduce the type of policy e.g. restructuring, research and development or the improvement of factor quality, that would underpin long-term competitiveness. 5 (b) The arguments for protection needed to be examined in the light of the theory of free trade, and a judgement needed to be made about their validity. Most candidates were aware of the arguments about infant industries, dumping, unemployment and demerit goods, which they listed, and the case for free trade. However it was quite rare to find an integrated answer that brought all elements together and made the justification of the valid arguments clear. Dumping was not always defined accurately, and time was wasted on long considerations of absolute and comparative advantage. Question 4 (a) The question sought to establish the causes of inflation and the way they interacted. The broad categories of demand-pull, cost-push and monetary were known, although some Centres appeared confused about the Keynesian and monetarist perspectives. It was quite common for candidates to stop without making a detailed breakdown of the changes within the broad categories. It was not necessary to start the answer with lengthy accounts of the levels and measurement of inflation. Some who used a 45 degree diagram mislabelled the inflationary gap. (b) Candidates needed to consider the problems resulting from inflation and analyse how harmful they might be in the context of overall government policy. There was sound knowledge of the effects on redistribution, international competitiveness and the workings of the market mechanism. Some tended to be rather descriptive without bringing out the significance of the effects. The strongest answers looked at situations in which inflation might not be the main priority, such as when it was at an acceptable level or when other targets required more urgent attention. Again, some candidates changed the question in this case to one about policies to control inflation, or offered long accounts of the Phillips curve. Paper 9708/03 Multiple Choice (Extension) Question Number Key Question Number Key 1 C 16 C 2 D 17 A 3 A 18 A 4 A 19 A 5 C 20 D 6 D 21 D 7 D 22 B 8 D 23 C 9 A 24 A 10 D 25 D 11 C 26 C 12 C 27 C 13 D 28 D 14 D 29 D 15 B 30 B General comments The mean percentage score on this paper was 51.2%. This compares with 47.7% on the corresponding 40- item paper on the old syllabus in 2001. 6 Questions 5 and 25 proved to be easier than intended (with more than 80% of candidates answering correctly). Each item was answered correctly by at least 25% of candidates, so none was harder than the design limit. In Question 11, the number of candidates opting for D was twice the number who chose the correct response, C. This clearly suggests that most candidates are very unsure about the relationship between a firm’s ATC, AVC and MC curves. Candidates also appear to be unclear about what is meant by a deadweight loss and how this is measured. This is reflected in the fact that 39% chose D in Question 15, compared with only 25% who answered the item correctly. Those candidates (45% of the total) who opted for B in Question 26 were clearly unaware that one of the central tenets of monetarist theory is that in the long run changes in the money supply affect only the rate of inflation, and have no effect on unemployment. In Question 29, 38% of candidates, including (it would appear) many of the better candidates, chose A, compared with just 35% who chose the correct response, D. This is a little surprising, as one would have expected most candidates to realise that a fall in the exchange rate would make home goods more competitive, and would therefore probably increase the pressure of demand for home-produced goods. Paper 9708/04 Data Response and Essay (Extension) General comments There was a tendency for candidates to ignore the mark allocations in Question 1 and to write at length on parts (a), (b) and (c)(i), leaving insufficient time for (c)(ii) and (d). Some scripts also showed a misallocation of time, with their final answer being clearly unfinished. Not all diagrams were presented in a clear manner correctly labelled. Too many candidates failed to indicate in the margin where their answer to each part of the question began. Sometimes spare blank sheets of paper are tied into the script which can make it unclear where the answer to a question ends. Some candidates tied the sheets of paper in their script in the incorrect order which again makes marking difficult. Comments on specific questions Question 1 (a) The purpose of the data response question was to ask candidates to observe the information provided and to comment upon it. Too many candidates in this part of the question made general comments on inflation rather than focus on the data which was provided. (b) Many candidates simply quoted the section in the text relating to legislation. They did not seek a reason within the text which might give weight to the opinion that the economy had moved in a direction that required some constraint on wage increases. The point of the question was to ask candidates to find such evidence. (c)(i) Most candidates were able to identify the changes which occurred in each of the sectors. (ii) This question asked candidates to relate the changes that they suggested in part (i) to a developed economy. Some answers referred instead to developing economies. Good candidates discussed the typical dynamic changes of a modern developed economy and explained how technological development, growth and overseas trade combined to enable the changes evidenced in the text. 7 (d) The better answers focused on Belgium and were able to take precise examples from the text to discuss both the advantages and disadvantages. Candidates were not, of course, expected to know more about Belgium than that provided in the information. The main weakness of the answers occurred when candidates presented only general arguments about international trade without ever mentioning Belgium. The same information could have been used by referring to the text to much greater effect. Some weak answers considered only the advantages or only the disadvantages. Question 2 In this question candidates needed to structure an answer that began by discussing whether demand is influenced by advertising or impulse buying. Then they needed to describe how economic theory is determined according to economic theory, including utility. Finally they needed to discuss whether their conclusions in the first part of the argument led them to support the conclusion given in the assertion. There were some excellent answers that dealt with a range of determinants of demand and concluded that advertising is a rational part of demand theory and that the theory is therefore relevant, while impulse buying is a result of behaviour by consumers that is either irrational or is based on lack of good information. In general, however, there was a failure to address the question asked, even though most candidates had a good grasp of economic theory. Many clearly identified a range of influences on demand, but they did not always add that advertising could be encompassed easily in the framework of standard demand theory. Further, there was often no discussion of impulse buying and little reference to the role of utility in the theory. Some candidates were content to provide only vague general assertions and superficial analysis. Question 3 (a) In this part, candidates were expected to explain the advantages that a retail organisation might derive from being large, including economies of scale, large profits to invest or pay to shareholders, domination of the market and the ability to carry out research and development. Too many candidates treated this part as an opportunity to write a general essay on economies of scale but did not relate their answers to “a large retail organisation”. The level of understanding of economies of scale was generally good and there were some accurate diagrams produced that showed the change in the long-run average cost curve as the level of output changed. (b) Candidates were required to discuss whether the development of large companies is always a benefit to society, possibly in terms of employment, income generation, new technology and the effect of economic development in the area. This needed to be balanced against possible costs such as changes in the environment, increased traffic growth, extra pollution and the destruction of existing facilities. Candidates could also consider whether large companies always acted in the public interest with regard to prices and levels of output. There were some good answers that established the criteria by which large firms might be judged and then went on to look at the possible range of disadvantages including economies of scale, externalities and the abuse of monopoly power. There was also evidence of candidates misreading the question or wanting to include a pre-learnt answer about the advantages for companies of remaining small. Question 4 (a) Candidates were required to comment on the differing importance of the primary, secondary and tertiary sectors of the economy in developing and developed economies. They could also contrast the amount of training and the levels of income and employment between the two types of economy. While there were some good answers to this part, too many candidates either gave rather vague and generalised answers that