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Examiners Report Summer 2009

GCE

GCE Economics (8121/9121)

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Contents

1. 2. 3. 4. 5. 6.

6353 Examiners Report 6354 Examiners Report 6355_01 Examiners Report 6355_02 Examiners Report 6356 Examiners Report Statistics

5 7 19 23 27 33

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6353 Examiners Report Section 1 Question 1 (a)(i) Most candidates were able to point out the main difference between the ILO Labour Force Survey and the claimant count measures of unemployment, referring to JSA claims and availability for work (ILO). Many answers failed to achieve the additional mark for explaining clearly any difference between the two measures. (a)(ii) This question proved to be a good discriminator, with the better candidates attempting to find valid reasons for the different movements of the two measures. Most candidates failed to refer back to the data showing the increase in the ILO measure and the fall in the claimant count, and merely reiterated their answer to Q1(a)(i). (b)(i) The vast majority of candidates handled this simple calculation with ease, although a significant minority used the wrong denominator. (b)(ii) Most candidates realised that the differences revealed in the data were the result of currency changes. The better candidates talked about exchange rate changes but not all actually referred to the appreciation of sterling or the depreciation of the dollar. (b)(iii) Candidates sometimes followed the correct approach to this question, concentrating on the effects of rising energy prices on production costs and consequently on aggregate supply. Weaker answers focused on the effects of changes in oil and gas prices on consumers (ie micro analysis) mainly on the lines that oil and gas are expensive therefore AD falls, without considering the macroeconomic implications of these changes via net exports. Many were very confused (as on the new 6EC02) with students find thinking outside the box impossible. Evaluation for this question mainly focused on the size of the price changes. (c)(i) Most answers were able to deal with this question easily, drawing on their knowledge of supply side policies, and aware of the restriction on using spending on education and health care as examples. Some, however, failed to comply with the additional requirement that the supply side policies must be currently implemented in the UK. Thus answers that referred to the abolition of the national minimum wage, for example, were unlikely to score highly. Many candidates showed a very good knowledge of current government initiatives on employment which went beyond the standard supply-side responses. (d) This question presented candidates with the opportunity to provide a fairly standard answer to the macroeconomic impacts of government spending, looking at both long term and short term effects. Many candidates failed to consider the likely short-term effects of an increase of government spending, talking in very general terms about changes in aggregate demand rather than considering the impacts of hospital and school building programmes. The long term effects on employment and productivity were generally much better done. Candidates were clearly well aware of the need to provide definitions, diagrams, transmission mechanisms and evaluation. The impact on skills and workforce, the time lags and opportunity cost were well rehearsed.

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Section 2 Question 2 (a)(i) Candidates generally scored both marks available for this question by referring to the 2% CPI target and the 1% margin around this. Some candidates are under the impression that the target is set by the Monetary Policy Committee, rather than by the government. (a)(ii) Candidates often found it difficult to explain the concept of weights and changes in the CPI/RPI measure of inflation within the space provided on the exam paper. However most were able to do enough to obtain both marks available for this question. (a)(iii) Most candidates handled this question easily, referring to the negative wealth effect and the probability of the MPC reducing interest rates in order to stimulate aggregate demand. Generally marks were lost through concentrating on the housing market rather than the need for general economic reflation. (b)(i) Candidates generally appreciated the effects of a high value of the pound against the dollar on UK imports and exports, but a significant minority got this the wrong way around. (b)(ii) This question was generally less well answered. As with Q1biii, many candidates took a simplistic view of the situation presented, concentrating on the effects on consumers of a small cut in interest rates. A typical answer would show consumption rising after the fall in interest rates and hence causing increased demand for imported goods, rather than considering the effects on the exchange rate or on investment in exports, and although this approach was accepted it missed the more probably short term impact, suggested to them by part 2bi. There was confusion between the interest rate, inflation and exchange rate. Evaluation tended to be in terms of the size of the rate cut. (b)(iii) Candidates were mostly able to provide a credible reason to explain the current situation of the Balance of Payments, often in terms of the quality and or price of UK exports or overseas competitiveness. (c) Candidates demonstrated a good understanding of the relationship between overseas trade, exchange rates and aggregate demand in the UK, in the context of a downturn in the US economy. Most candidates wrote about the fall in demand for UK exports and the effects on US investment in the UK. Some commented on integrated capital markets. (d) Candidates provided some excellent responses to this question, with impressive analysis of the contradiction involved in the question, although the reference to inflation was often oblique. There were some very pleasing answers using the data to explain the oil and gas prices were cost push whereas AD was affected by demand pull inflation. Some candidates provided a standard answer considering the effects of cutting interest rates on aggregate demand and aggregate supply without attempting to address the contradiction. Good evaluation considered alternative approaches to the situation, such as fiscal policy, and some considered the current situation and the inability to cut rates further.

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6354 Examiners Report The examination paper was highly accessible and provided an effective means of differentiating between the qualities of candidate answers. The vast majority of candidates offered an explanation to all the supported multiple choice questions. In the data response section of the paper, Question 12 (UK Music industry) was a far more popular choice for candidates to answer than Question 11 (Increasing rail fares as passenger demand soars). However, the mean scores for both questions were quite similar. The mean score for June 2009 paper (44.9) was very similar to the mean score for June 2008 (45.1). The standard deviation for June 2009 (11.8) was the same as for June 2008 (11.8).

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Section A: Supported multiple choice questions These questions continued to differentiate between the quality of candidate responses and the full range of marks was awarded. Some candidates were very well prepared and demonstrated an excellent understanding of both the specification and the techniques involved in answering the questions. Some achieved scores over 35/40, providing excellent definitions, economic analysis and relevant application. The key to success involves defining key concepts and applying appropriate economic analysis and theory. Annotation of the diagrams and tables provided is a good strategy, for example, Q2 and Q4. Furthermore, Q1, Q2, Q5, Q8 and Q10 offered scope for candidates to introduce diagrammatic analysis as a means of demonstrating their knowledge and understanding of the issues at hand. As in previous years, candidates found some questions easier to answer than others. The three supported multiple choice questions which recorded the highest marks were Q2 (Firm in perfect competition), Q7 (Patent and contestability) and Q5 (Price discrimination for Apple iPhone). The three supported multiple choice questions which recorded the lowest marks were Q4 (Firm making supernormal profits at allocative efficiency position), Q9 (Product differentiation in the games console market) and Q8 (Loss making firm continuing in production). One interesting point to note is that some candidates attempted to gain marks by knocking-out incorrect options. Up to 2 marks are available for successfully knockingout two incorrect options. However, mixed success was achieved here. It requires candidates to explicitly state the option key which is being rejected and then to offer an appropriate explanation. Examples of how to successfully reject incorrect options are provided in the following comments.

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Question 1 (C): Takeover in sportswear industry Mean 2.25 out of 4 marks Most candidates selected the correct key and explained that the takeover was a form of horizontal integration, where two firms merge in the same industry and at the same stage of production. This was credited with a mark. However, one limitation of many answers was omitting the long run in the definition of economies of scale. It is important to refer to the term as falling long run average costs as production increases. The best responses offered application of economies of scale to the sportswear industry, for example: The takeover could lead to purchasing economies of scale where a firm could now gain greater discounts in purchasing raw materials such as cotton and linen in its sportswear range. Some candidates successfully rejected one or more incorrect options, for example: Option B is incorrect since vertical integration is where firms merge in the same industry and at different stages of production. This might be where a sportswear manufacturer was to merge with a producer of cotton, a raw material used in making clothing. Question 2 (C): Firm in perfect competition Mean 2.86 out of 4 marks There were many pleasing answers and the highest mean score was achieved here. The vast majority of candidates successfully calculated marginal costs and marginal revenue from the data provided and also offered definitions of the concepts. In addition, many candidates produced a diagram of a firm in perfect competition making supernormal profits. Total output 0 1 2 3 4 5 Total Cost 40 80 140 220 320 440 Total Revenue 0 100 200 300 400 500 Marginal Cost --40 60 80 100 120 Marginal revenue --100 100 100 100 100

Question 3 (A): Price fixing of milk among supermarkets Mean 2.74 out of 4 marks Most candidates selected the correct key and identified that price fixing is a form of collusion. This was usually followed up with a discussion on the impact it has upon consumers in terms of reduced consumer surplus or that the supermarkets may have been attempting to increase their profits. The role of Office of Fair Trading in terms of protecting the public / consumer interest was also included in most answers. These points were awarded one mark each. Some candidates successfully rejected one or more incorrect options, for example: Option E is incorrect since a high level of consumer surplus indicates that consumers are gaining a lot of utility above what they pay for milk. It implies that price competition exists in the industry and so prices are kept down, benefiting consumers.

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Question 4 (B): Firm making supernormal profits at allocative efficient output position Mean 1.42 out of 4 marks This proved to be the most difficult question on the multiple choice section and many candidates selected incorrect options such as A, C or D. This question tested candidates technical knowledge and many responses lacked understanding. Candidates who had an understanding of allocative efficiency and could work out the area of supernormal profits graphically, achieved an easy 4 marks. Marks were awarded for defining allocative efficiency (MC = Price), and supernormal profits as well as annotation of the diagram. It differentiated effectively at the top end of responses. Some candidates took the opportunity to successfully reject incorrect options for example: Option A is incorrect since the revenue maximisation output is at Q2, which is greater than the profit maximising output of Q1. Furthermore, option C is incorrect since the sales maximising price of P5 is less than the revenue maximising price of P2. Finally, Option E is incorrect since demand is unitary price elastic at the sales revenue maximisation output position. This question is a good example where the use of the knock-out technique is an effective way of gaining marks. Question 5 (C): Price discrimination for Apple iPhone Mean 2.76 out of 4 marks This question was successfully answered by many candidates and revealed a good understanding of price discrimination. Similar questions have been set on previous exam papers and so this is a good example of how practice makes perfect. The best responses identified and defined price discrimination, usually following up with diagrammatic analysis, revealing a higher price (and a lower price elasticity of demand) in the UK market compared to the US market for iPhones. This was sufficient for full marks. The weakest responses just repeated the correct key that different price elasticities of demand exist between the markets but did not explain its significance. A minority of candidates decided to reject one or more incorrect options, for example: Option D is incorrect since significant leakage between the US and UK markets would lead to firms exploiting the difference in price, that is, firms in the UK would simply import the cheaper iPhones from the US and eventually the price difference would be eliminated.

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Question 6 (E): The price of household gas in selected countries Mean 2.39 out of 4 marks The vast majority of candidates selected the correct key and referred to the data to gain an explanation mark. However, many responses did not develop their answers to gain full marks here. A good example of how to achieve full marks is shown by the following answer: Figure 1 shows that Britain has the lowest price of household gas at 3 pence per Kwh compared to Germany (4.2 Kwh) and Italy (4.9Kwh). It also had far more households switching gas suppliers (47%) than Germany (5%) and Italy (1%). This suggests significant consumer choice exists in Britain and that price competition is substantial, leading to greater consumer surplus. The willingness of consumers to switch suppliers also indicates a lack of brand loyalty and that choice exists in the market. Some candidates confused Figure 2 with a concentration ratio and selected incorrect option A. However, for the majority the problem was a lack of economic analysis of the data provided. Question 7 (B): Patent and contestability Mean 2.77 out of 4 marks Most candidates recognised that Microsofts patented technology is a barrier to entry to the computer software market and that forcing the company to share its technology with rival firms would lead to greater contestability. An explanation of contestability and its consequences would usually yield full marks, for example, increased market entry, lower prices, higher consumer surplus and lower sunk costs. Past experience also reveals that a mark is awarded for explaining the role of the Competition Commission in terms of promoting competition in markets and protecting the consumer interest. Often the use of a knock-out technique was successfully implemented, for example: Option D is incorrect since a patent is a barrier to entry. By forcing Microsoft to make freely available to its rivals some of its technical information, then barriers to entry are actually reduced. It reduces asymmetric information in the industry. Weaker responses often confused contestability with market concentration and ended up selecting incorrect option A. Question 8 (E): Loss making firm continuing in production Mean 1.74 out of 4 marks This was another question which required technical knowledge to successfully answer it. Unfortunately many candidates struggled in selecting the correct option and explaining how a firm might continue in production in the short run despite making a loss. A lot of candidates selected incorrect option A which reveals some confusion between the role of fixed and variable costs. However, it differentiated effectively between candidate responses. The best answers usually included a definition of variable cost and relevant diagrammatic analysis which showed a loss making firm (average revenue below average cost) but covering its variable cost (average revenue above average variable cost). Some candidates successfully knocked out incorrect option B, stating that a withdrawal of government subsidies would mean even less revenue for the firm and so it would be more likely to shut down immediately.

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Question 9 (E): Product differentiation in the games console market Mean 1.70 out of 4 marks This was a topical question which enabled most candidates to select the correct key and apply product differentiation to the games console market. However, the reason for the relatively low mean score was due to limited application. Candidates did not require detailed knowledge of games consoles to achieve full marks but rather simple reference to types of product differentiation was enough, for example, packaging, brand name, colour and availability of games to use on the console. The more sophisticated answers referred to the quality of graphics, speed of characters and specific functions on the consoles again revealing an understanding of product differentiation. Some excellent responses suggested that the high price of Sonys PlayStation 3 games console reflected its unique qualities or the higher unit costs of production. Both ideas were awarded with a mark each. A significant number of candidates selected incorrect option A, confusing the meaning of a high price elasticity of demand with an inelastic product. On the other hand, some candidates correctly used the concept of elasticity to justify the high price for the Playstation 3. This reveals how incorrect options can give pointers to what a valid response could include. Question 10 (A): Nail bar firm in monopolistic competition Mean 1.91 out of 4 marks This was a relatively easy question that was poorly answered by many candidates. The problem was that a great number of responses selected the correct key and then just repeated the information in the table without offering any development, for example: Option A is correct since a firm in monopolistic competition is not allocative efficient. The firm has a differentiated product and there is low entry and exit barriers in the industry. This type of response achieved no explanation marks. A more effective response from one candidate which gained full marks is: The firm is allocatively inefficient since MC Price. Nail bars have a differentiated product, for example, different opening hours, varied dcor of the shop and the type of patterns painted on finger nails. There are low entry and exit barriers which mean that supernormal profits are competed away in the long run, as more firms enter the industry. Another easy way of answering this question was to draw a diagram of a firm in long run equilibrium position under monopolistic competition. The diagram could be used to identify allocative efficiency / inefficiency, product differentiation (downward sloping average revenue curve) and the notion of normal profits in long run due to low entry and exit barriers.

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Section B: Data response questions There was a significant imbalance in answering the data response questions. Q12 (UK Music industry) was far more popular with 81.4% answering this question compared to Q11 (Increasing rail fares as passenger demand soars) where just 18.6% answered it. A likely reason for this disparity is the topical nature of the music industry and internet among teenagers. Fortunately the mean score between the two data response questions were very similar and just 1 mark separated them, revealing that both questions were equally accessible. The mean score for Q12 was 23.00 and for Q11 21.99 out of a possible 40 marks. Question 11: Increasing rail fares as passenger demand soars (a)(i) Mean 1.61 out of 3 marks Most candidates understood the meaning of a price cap. To achieve full marks a valid reason had to be offered, for example: To protect the consumer from the monopoly power of rail operating companies, who could otherwise increase prices to much higher levels and capture consumer surplus. (a)(ii) Mean 2.22 out of 4 marks Most candidates explained the change from RPI-1% to RPI+1% over the time period. The best answers indicated that rail fares had changed from decreasing in real terms to increasing in real terms and then offered a valid reason applied to the rail industry. Some excellent answers discussed the huge increase in passenger numbers from 38 billion to 47 billion passenger kilometres over the period and how this means rail firms require more funds for investment in trains and carriages to keep up with rising demand. Trains had already become overcrowded on many peaktime services. (b) Mean 3.59 out of 6 marks This was a question where candidates typically achieved full marks or very low marks depending on the diagrammatic analysis offered. The best answers used cost and revenue curves, shifting both the average revenue and marginal revenue curves outwards to reveal a higher equilibrium price and output level. Usually the equilibrium positions were established around the profit maximisation concept where marginal cost equals marginal revenue. Note that parallel shifts in the average revenue and marginal revenue curves should be made though examiners were instructed to allow pivotal shifts for this particular exam. However, a number of responses used basic supply and demand curves, shifting the demand curve outwards. This was awarded just one mark. It is important that candidates use suitable cost and revenue diagrams based on the theory of the firm for this unit rather than the basic supply and demand analysis associated with unit 1.

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(c) Mean 6.13 out of 12 marks Price discrimination has been tested frequently in past data response exam papers and many candidates were well prepared for answering it. By defining price discrimination, outlining the conditions necessary for it to work and offering suitable diagrammatic analysis, 7 marks could be achieved quite easily. The remaining 5 marks required two evaluative comments; the most popular typically discussed the costs involved in separating rail users into different markets and ensuring no leakage between them. For example, if the costs of employing ticket inspectors and barriers were very high it might reduce the profitability of price discrimination. Another popular and sound evaluative comment was discussion of the regulatory price cap on 40% of rail fares. This reduced the ability of train operators to fully exploit their market power and so limited the profits gained through price discrimination. Some candidates assumed that since there are 23 train operating companies, there must be lots of competition in the industry which would reduce the effectiveness of price discrimination. These responses did not recognise that monopolies often existed on individual rail routes. The weakest responses gave inappropriate supply and demand diagrams rather than the traditional two sector model using cost and revenue curves. (d) Mean 5.60 out of 10 marks By using the information provided it was relatively easy for candidates to achieve 6 marks by offering at least three reasons why consumer welfare may have increased (or decreased) over the period. For example: Consumer welfare appears to have increased since Figure 2 shows an improvement in the punctuality of trains. The percentage of trains arriving on time increased from 79.1% in 2000 to 90.8% in 2007. Similarly, the number of complaints per 100,000 rail passenger journeys fell over the same period from 131 to 52. These statistics suggest greater customer satisfaction with the rail services provided. Even the average age of trains fell from 20.67 to 13.95 years suggesting a more comfortable and reliable service for customers so fewer would be late for work or meetings. Evaluation marks could be gained by arguing the alternative view that consumer welfare may not have increased. The best answers made use of the information provided, for example, overcrowding on peak-time train services which really annoys customers who have paid a lot of money to stand up and be knocked about. Other responses referred to 60% of rail fares not being subject to a price cap and how these have increased well above the rate of inflation over recent years. Another good evaluative point discussed the complexity of rail fares with more than 70 types being on sale and the many restrictive conditions of use. These factors served to question whether consumer welfare has increased. The weaker responses typically failed to use the information provided or only offered one viewpoint with little evaluative comment. It is important that candidates take note of the instructions in the question.

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(e) Mean 2.84 out of 5 marks This was quite well answered by most candidates apart from those who ran out of time. It was expected that candidates would identify the train operating market as non-contestable due to various reasons, the most notable being the high start-up costs involved and the requirements of a government franchise. Not surprisingly, many candidates secured 3 marks here. The best answers offered an evaluative comment, for example, discussion of leasing rolling stock to reduce entry and exit costs or how the market may become contestable in the long run once a franchise becomes available to bid for. Other responses discussed the magnitude of the entry barriers, particularly the huge economies of scale available to a firm which secures several rail franchises. Question 12: UK Music industry (a)(i) Mean 2.55 out of 3 marks This proved to be a nice introduction to the data response question and the vast majority of candidates achieved full marks. This involved candidates identifying and defining an oligopoly and then calculating the four-firm or three-firm concentration ratio. A minority of responses suggested it was a monopoly-type market since Universal had 31.9% market share, exceeding the legal definition of a monopoly. This was acceptable and offered an alternative route to achieve marks. (a)(ii) Mean 3.07 out of 5 marks The mean score indicates that many candidates answered this question well by defining the term collusion and focusing upon the conditions which might enable firms in oligopolistic markets to collude. These included the ease of getting an agreement between relatively few companies, the high entry barriers which prevent new firms from competing away supernormal profits made, the cost structure of firms in the industry and the existence of what appears to be a dominant firm. Most responses concentrated on the music industry but it was totally acceptable to discuss any oligopolistic market such as air travel and pharmaceuticals. It was interesting to note that some students suggested that Universal is a market leader who could set price and other conditions and that other companies would simply follow them. This could give rise to the possibility of tacit collusion. A lot of scope existed for evaluation by discussing the alternative view that collusion is unlikely, mainly due to the severe penalties awaiting firms found guilty. Many candidates made reference to the possibility of imprisonment and fines of up to 10% of annual sales revenue and the possibility of whistle blowing. However, some candidates misinterpreted the question. They focused on the reasons why oligopolistic firms might collude, for example to gain higher profits or to guarantee market share. These points were not relevant since the question required consideration of the factors which may or may not enable firms to collude.

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(b) Mean 2.62 out of 4 marks This question required candidates to carefully look at the information provided to suggest a reason for falling CD revenue at a time of rising CD sales between 2001 and 2005. The best responses suggested that the conflicting trends could be explained by the falling price of CDs which are price inelastic in demand. However, very few candidates got this far and so the mark scheme was adjusted to make it more accessible. Two marks could be achieved by explicit use of the data and a further mark for suggesting that internet downloads were responsible for falling CD sales, forcing firms to reduce CD prices. Nevertheless, some answers became muddled by looking at the time period up to 2007 and so failed to focus on the opposing trends in CD sales and revenue. (c) Mean 4.43 out of 10 marks Like Q11 (b) this was a question where candidates typically achieved high marks or very low marks depending on the diagrammatic analysis offered. Good answers used cost and revenue curves, shifting both the average revenue and marginal revenue curves inwards to reveal a lower equilibrium price and output level. Usually the equilibrium positions were established around the profit maximisation concept where marginal cost equals marginal revenue. The best answers showed the original area of supernormal profit and how much this was reduced by the decrease in demand for CDs. Up to 7 marks were available for diagrammatic analysis and a significant number gained them quite easily. Note that parallel shifts in the average revenue and marginal revenue curves should be made though examiners were instructed to allow pivotal shifts in this particular exam. A number of responses used basic supply and demand curves, shifting the demand curve inwards. This was awarded just one mark. As mentioned earlier, it is important that candidates use suitable cost and revenue diagrams based on the theory of the firm for this unit rather than the basic supply and demand analysis associated with unit 1. The 3 evaluation marks available proved to be problematic for many students who seemed not to register the instruction word examine in the question. However, there were some excellent responses where candidates discussed the magnitude of the decline in CD sales (some 11 per cent in 2007 alone) or that music companies were diversifying fast into other mediums of selling music such as the internet and mobile telephone ring tones. This might help offset the collapse in profits from CD sales.

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(d) Mean 6.63 out of 12 marks This was a very open ended question, permitting candidates to think outside the box, which many duly did. There were lots of excellent responses which probably accounts for the higher mean mark on Q12 compared to Q11. Most answers focused on the advantages and disadvantages the internet has brought to music producers and consumers thereby providing an effective means of evaluation. Many candidates demonstrated an understanding of the advantages and disadvantages the internet has brought to music producers. Discussion of advantages included the low marginal costs involved in selling music through the internet, increased access to a global market, relatively low marketing costs of promoting music, the emergence of virtual shops online and an immediate payment system. Discussion of disadvantages tended to focus on the consequences of illegal music downloads and the decline of traditional music sales through CDs. Another disadvantage to existing music companies was how the internet has reduced entry and exit barriers to the industry. Many candidates demonstrated an understanding of the impact of the internet on music consumers. Frequently used advantages included lower prices, more consumer surplus, more consumer choice, more convenience of purchase and greater market knowledge. The most common disadvantages referred to safety issues of making online payments and the closure of music stores in town centres. The risk of prosecution through illegal music downloads and how viruses may infect personal computers were also issues frequently raised. Other factors included discussion on the quality of music downloads and the long term impact of reduced revenues for the industry less funds available for investment into developing new talent. Sometimes responses were imbalanced, focusing more on consumers than producers. However, the mark scheme was sufficiently flexible to allow high marks to still be achieved. The very best answers offered evaluation through discussing the advantages and disadvantages. Reasons for poor performance on this question tended to be due to the lack of points raised and their development. (e) Mean 3.71 out of 6 marks Candidates who did not run out of time tended to achieve high marks by identifying, explaining and evaluating two barriers to entry to the music recording industry. The most popular entry barriers included high start-up costs, high marketing costs, strong brand loyalty among artists and the existence of music contracts. Application and evaluation of these barriers tended to be quite effective. For example, start-up costs could be kept down by hiring music recording studios and equipment; marketing costs could be kept down through use of the internet; brand loyalty may not exist for new and up-and-coming artists who are seeking music contracts; existing music contracts could always be broken at a price or expire over time. The main limitations appeared to be one of time allocation or a failure to offer an evaluative comment.

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6355_01 Examiners Report General observations Candidates overwhelmingly opted 90:10 in favour of Question 2. They were clearly more confident in handling the familiar issues involved in Wage Differentials and the National Minimum Wage rather than the less familiar situation of Agency workers and the Working Time Directive. On both questions the best candidates displayed commendable application of the data material and produced excellent responses. Weaker candidates who chose Question 1 struggled with the interpretation of the individual sections, seemed unsure of the relevance of their comments, and were reluctant to make use of the large amount of data material provided. With the evaluation marks worth 40% of the total there is scope for more attention to this aspect; some candidates still fail to address it, or write too briefly for the available marks. Prioritising needs careful handling and, perhaps, should be avoided by the less able: far too many just summarise and repeat previous arguments without introducing some additional insight to justify their selection.

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Question 1 (a) This was the most confidently handled section with candidates comparing the relative Marginal Revenue Product and experience of Agency workers with the acquired human capital of more permanent staff. The better candidates made good use of the data material especially on the break-down statistics of temporary female staff and ethnic minorities. However, evaluation was lacking on many of the scripts. (b) Most candidates produced convincing diagrams illustrating the higher wage floor and the contraction in demand for Agency workers. Weaker candidates occasionally became confused with the Working Time Directive rather than focussing on the proposed changes in Agency workers rights, and failed to address the likely impact on both wages and employment levels. (c) Comprehension of the phrase opt-out from EU laws in Extract 2 proved challenging for those who were struggling: some felt it would limit the hours of working in the UK. The best responses focussed confidently on the increased flexibility of the opt-out, the potential for increased overall productivity rates, and the implications of macro benefits. Many incorporated the monopsony model in pointing to the possible exploitation of workers, and produced some thoughtful evaluation on the possible increased pressures on workers compared with the safeguarding of their morale and physical well-being given by the WTD. (d) Weaker candidates ignored the requirement to focus on the economic cycle and resorted to simple descriptive narrative about Trade Unions. More insight was shown by those who analysed the changing priorities of Trade Unions in times of recession or boom, their relationships with monopsonies and multinational corporations, and their degrees of effectiveness.

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Question 2 (a) Most candidates produced some thoughtful analysis on the reasons for differences in National Minimum Wages and made good use of the relevant data material provided. Too many of the weaker candidates ignored the obvious statistical correlations shown, for example, in Trade Union density and the level of the NMW, and strayed into part (b) in discussing what causes wage differentials in one country rather than comparisons between countries. Thoughtful use of the exceptions to this correlation as seen, for example, in France and Greece provided scope for some positive evaluations. (b) Most candidates felt comfortable with this question and wrote knowledgeably on the explanations for Wage Differentials with the best scripts focussing on why they are widening; often good use was made of monopsony diagrams to expand their analyses. More use could have been made of the data material in Extract 2, and weaker scripts ignored the relevance of MRP Theory. This was a high scoring question for many candidates. (c) Many candidates produced robust responses which demonstrated excellent use of diagrams, especially when evaluating the effect of the NMW in a monopsony situation. Most candidates were well-prepared and found scope to challenge the assertion that the NMW is a blunt tool for fighting poverty, producing incisive and well-balanced arguments. Not everyone appreciated the requirement to cover all three of the aspects of poverty, jobs, and competition, some being particularly reluctant to think too deeply about how the NMW might affect competition. Those who tried to develop arguments without using diagrams made their analyses far too generalised. One sensed most candidates enjoyed answering this section; it was a high scoring part of the paper. (d) So long as candidates had allocated their time efficiently, this question provided ample opportunity for them to write with knowledge and confidence, and many scored high marks. The best responses considered a detailed range of relevant policies and ensured they were targeted specifically on how they might reduce poverty. Weaker scripts referred too vaguely to, for example, general ideas like benefits and training without explaining the particular policy involved; some used the Lorenz Curve as a method of reducing poverty rather than as a way of showing the effects of a particular policy. Evaluation on this section was fully and convincingly developed by the majority of the candidates.

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6355_02 Examiners Report General Observations The standard was higher than in June 2008. This is partly reflected in the increased mean to 37.9 from 36.8. Question 2 was significantly more popular than Question 1 (4:1) largely owing to the return of the standard FDI and aid questions (covering 75% of the marks). The wording of parts of Question 1 was more convoluted than in Question 2, and the requirements more complex, especially 1(b) and 1(d). It was also felt that the data on Question 2 was far more accessible. The pie chart and other data presentation on Question 1 was potentially misleading, with the conical graphs especially hard to read. In Question 1(a), the main difficulty faced by answers was the lack of distinction between the consequence of industrialisation in (a) and the causes of backwardness for (b). This difficulty was matched in Question 2 where the less able answers also failed to distinguish between the factors that will determine FDI and the consequences of FDI. Almost inevitably those who failed to make this distinction then failed to evaluate their points. This led to a skewing of marks. In both the causes Questions 1(a) and 2(a) it was clear that the models of Lewis, Rostow and Harrod-Domar had been well drilled, and there was convincing use throughout the papers of the Prebisch-Singer hypothesis, although not always in the context of declining terms of trade for goods with low income elasticity of demand. In general it is suggested that the models are less important than the explanation and application. Of course the names are good labels to hang the ideas but it is far more important to see what the economists are driving at. Indeed the Rostow analysis was misconceived in a number of good answers and there is opportunity cost involved in using models in an inappropriate context.

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Question 1 (a) The process of a drive towards industrialisation was not readily grasped. Some good theoretical responses were given. The candidates that did best referred explicitly to Sudan and its industrialisation as discussed in the extracts. By discussing the dam and how it might reduce or increase poverty helped many answers. The concept of absolute poverty was generally well understood, but again it had to be linked to the data, and questioned as part of the evaluation. (b) This 20-mark question was not often well answered, either in that points chosen were not valid, or they lacked evaluation. Again the concept of factors contributing to backwardness needed grasping, and it was not clear whether it was a state of being backward or a movement backwards that was being referred to. Although either approach was accepted, there was nevertheless ambiguity in the concept required. It was surprising to see the numbers not identifying four economic benefits; some did fewer, others more. The best answers again used the data provided, using Figures 2 through to 4 to support their answer. They also explained how the information led to backwardness. (c) This was an open question with plenty of application available in Extract 2. There were many pieces of evidence to choose from, but they were perhaps not used fully because of a determination to get on with the question and not enough time being devoted to reading the extracts. Some chose to focus their answer on Chinas economy, which was not an expected response. As usual on a 10 mark question, there was a lack of evaluation. (d) This question split the answers well, and it was probably the hardest question on the paper (followed by 1(b)). Theoretical understanding was well demonstrated and the best answers used the data to good effect. Reference to the hydroelectric dam or to oil production and the associated environmental benefits and problems helped students to focus their answers. A significant number ignored the trigger words to what extent and responded with a one sided argument for or against the compatibility and this seriously limited the marks they could be awarded. The least competent candidates spent time looking at the Human Development Index. It could have been brought into relevance as was the case with one of the best answers which showed how the damaged environment could have an impact on health. One fruitful approach was to question the relevance of the environment when dealing with conditions of absolute poverty. In many ways this question, matched by 2(c), was not easily split into the standard point made and then evaluated formula and thus weakened many answers.

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Question 2 (a) Many candidates opted for a different (Unit 4) question why do firms offer FDI, with almost no creditworthy material. The parts 2(a) and 2(b) were similar to questions in previous years on FDI and generally well-handled. Candidates were able to demonstrate good KKA on three factors that determine the level of FDI. There were a number of theoretical responses that failed to apply this question to southern Africa when they were clearly directed to in the question, this meant they were penalised by the mark cap on this question. Evaluation is now commonplace, however many answers evaluated this question looking at the problems of FDI and did not focus on factors that determine the level of FDI, hence some students performed less well. It was good to see the high number of full marks in both questions. (b) This question was well answered by most candidates. It was a well-rehearsed question which had been practiced by a number of centres. For some answers they were limited by not applying their answer to Botswana, which they were clearly directed to do in the question. Most candidates clearly applied the case study and picked relevant information from the extracts and data to support their answer. The best candidates discussed each economic benefit and then evaluated its significance. It was not unusual to give high marks, many at 15/15. To some extent the evaluation on 2(a) and 2(b) covered similar areas as the analysis in the counter-part questions, and responses lacked clarity on the distinction between causes and consequences of FDI. (c) This was challenging, since it fell least into the standard answer format. In general this kept the answers to Question 2 nearer into line with marks for Question 1. The topical arguments in the media about the effectiveness of aid had generally not been considered. There were many answers that were unclear about the difference between aid and FDI, debt relief or commercial loans, and many with a very narrow view of aid as cash. It was this feature that triggered the most effective differentiation of the marks. (d) was again a good discriminator. Only the best candidates were able to move from the standard arguments about agricultural dependency and to apply them more widely to diamonds and other commodities. Primary product dependency, PrebischSinger and Dutch Disease were all well used in this answer to discuss the problems of relying on one product. Comparative advantage was also well discussed to explain the key benefits of reliance on one product for one third of GDP. The notion of price and income elasticity is a good way to approach this type of question, applying them, for example, to commodities and luxury goods. Many answers benefitted from direct use of Figure 2. It was felt in retrospect that more information on the export and other successes of Botswana would have helped candidates to lodge their arguments in the reality of a successful Sub-Saharan nation.

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6356 Examiners Report General Comments Mean mark: 56.2 Standard Deviation: 14.4

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

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Section A: Essays All three essays attracted a substantial number of candidates but the most popular were questions 1 and 3 with question 2 lagging slightly behind. All of the essays offered sufficient scope to enable able candidates to score highly. Candidates differentiated themselves in terms of the quality of analysis and evaluation together with their ability to apply it to current economic issues. Less convincing answers demonstrated ignorance about the UK and global economy, for example the inflation target is 2.5%; and the UK is a net exporter of oil. There has been a pleasing improvement in the quality of essays over the period of this syllabus (since 2002): the structure is better; the use of paragraphs has increased; diagrams are included more frequently; and there is more evaluation of the points made. Question 1 (a) Most answers included reference to the significance of the negative wealth effect for its impact on consumption. Weaker responses attempted an analysis based solely on falling house prices resulting in increased aggregate demand so missing the reasons for the causes of the fall in house prices. Evaluation was rather formulaic with many responses stating that it depends on the size of the fall in house prices ignoring the stem of the questions which mentions a substantial fall. (b) Although most candidates were able to consider a range of supply side policies only the best responses actually considered the effectiveness of further supply side policies in preventing a recession. The policies most frequently considered were cuts in income tax, cuts in benefits and reducing red tape. Privatisation was also frequently discussed although this ignored the invitation to consider further supply side policies. Better candidates focused on the problems of using supply side policies to prevent a recession and contrasted these with demand-side policies.

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Question 2 (a) Although this question was not as popular as question 1, it tended to be attempted by the more able students. There were many good responses showing a sound understanding and awareness of the range of issues affecting the exchange rate such as relative interest rates, relative inflation rates and speculation concerning the future state of the economy. Weaker candidates did not consider the significance of relative inflation rates and interest rates. Overall, many answers contained good supply and demand analysis and there was evaluation in terms of short run/long run effects. Weaker candidates discussed the consequences rather than the causes of the depreciation. (b) The best candidates appreciated that the UK is a net importer of oil and employed aggregate demand/aggregate supply analysis convincingly to discuss the likely implications of a fall in oil prices. Weaker candidates considered that the UK is a net exporter of oil and so included irrelevant analysis. Another characteristic of weaker answers was to examine either the effects on either aggregate demand or aggregate supply but not both. As with part (a), a common mistake was to consider the reasons for the fall in the price of oil rather than the likely effects. Further, some only examined the micro effects of the fall in oil price ignoring the macro effects entirely. Question 3 (a) It was pleasing that the vast majority of candidates maintained an objective stance over both these issues. Good responses dealt effectively with public finance issues making strong links with the NHS and state pensions. They also used supply and demand analysis effectively to examine the labour supply and wage rate implications. This enabled them to analyse the impact, both positive and negative, on international competitiveness with confidence. (b) This part was slightly less well answered with many responses drifting into narrative rather than employing focused economic theory. Nevertheless, most candidates understood the meaning of net migration and were able to trace the implications for wage rates and labour supply. Weak answers did not include supply and demand analysis at the micro level or aggregate demand/aggregate supply analysis at the macro level. Some candidates failed to read the stem of the question and so considered the implications of a net outflow of people from the UK rather than a net inflow.

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Section B: Data Response questions Although there was some improvement in the quality of answers to the data response questions, these were answered less convincingly than the essay questions. Nevertheless, there were some exceptionally good responses to both these questions in which candidates interpreted data accurately, applied economic concepts appropriately and were able to offer some relevant evaluation when required. In general, too many candidates failed to make adequate use of the information provided and so lost marks for application. A significant minority of candidates misinterpreted the information, for example Figure 1 in question 4(a), or misinterpreted the question, such as in question 5(e) by discussing policies to reduce a current account deficit rather than considering whether the deficit is a cause for concern. In both questions there was evidence of confusion between a current account deficit and a fiscal deficit. Question 5 was more popular than question 4 by a ratio of at least 2:1.

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Question 4 (a) Most candidates interpreted the data correctly and were able to explain the declining savings ratio and increase in personal debt as a proportion of GDP by reference to interest rates, the housing boom and the availability of credit. Weaker responses misinterpreted the data and then discussed a fall in aggregate demand as people reduced spending and paid off debt. (b) Most candidates saw the connection between the two sets of data and drew appropriate conclusions. Most made reference to the UKs high marginal propensity to import and how an increase in debt and decrease in the savings ratio would influence the current account. The high value of the pound and low productivity were often sited as evaluative points. Application marks were lost by many candidates because there was inadequate reference to Figure 2 and the extent of the deterioration in the current account of the balance of payments. (c) The majority of candidates focused on the implications for inflation and unemployment. However, not all used rigorous AD/AS analysis. The very best responses discussed the current recession and the problems caused by the build-up of household debt and low savings. Weaker candidates tried to predict government reaction and then considered the effects of that or they discussed the necessity of cutbacks in consumer spending in order to repay the high levels of debt. (d) This question discriminated well. The best responses demonstrated the importance of the USA as a trading partner for the UK and used X-M to explain how a recession in the USA might cause a downturn in the UK. Weaker candidates failed to discuss the links between the two economies and were not able to use the data concerning the UKs other trading partners by way of evaluation. Some candidates viewed the question as an opportunity to discuss the credit crunch which they then repeated in part (e)(ii). (e)(i) This question was usually answered well with the exception of those candidates who confused budget deficits with balance of payments deficits. (e)(ii) This question was generally answered well although some candidates failed to complete their answers. Most candidates accurately explained the nature of a fiscal stimulus and its effects on aggregate demand. The multiplier was usually mentioned although few were able to explain it succinctly. Many responses gained evaluation marks with references to crowding out, automatic stabilizers and the potential inflationary risk but, disappointingly, there was little discussion of the ineffectiveness of monetary policy in current circumstances. Weaker candidates did not explain the transmission mechanism of fiscal policy and how to link it with the prevention of a recession. Some relied heavily on the text while others were sidetracked into a discussion of non-fiscal measures.

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Question 5 (a) A sizable number of candidates simply said that a fixed exchange rate was one which was fixed. Better candidates highlighted the idea of a set value although some failed to mention against another currency. (b) Several candidates did not define the term depreciation or make any reference to the data. However, the majority of candidates analysed the impact of depreciation on the current account correctly. Evaluation usually included the Marshall-Lerner condition and the J curve although these were often not explained fully. For example, in the case of the Marshall-Lerner condition, this was not always defined precisely and the relevance of elasticities was not developed. (c) This question was usually answered quite well with most candidates able to score marks for discussing the possible effects on variables such as employment and inflation. However, many candidates wrote generalised answers with no reference to the UK economy. (d)(i) This was an accessible question which enabled most candidates to identify relevant points. The most popular factors included the increased availability of cheap transport, higher real incomes and the high value of the pound. Weaker candidates listed the actual and perceived shortcomings of the UK as a tourist destination without answering the question directly. Marks were also lost by not making data references and failing to provide effective evaluation. (d)(ii) Candidates were able to identify relevant factors from the extract. The 2012 Olympics and promotion of the UK as a tourist resort were the most frequently mentioned factors and evaluation was mainly centred on the short term/long term effects and the opportunity cost of promotions. Weaker candidates identified the factors without providing much in the way of economic analysis or evaluation. (e) Unlike parts (d)(i) and (d)(ii), this proved to be a challenging question for many candidates. A significant proportion of candidates failed to address the reasons for concern in favour of discussing the policies which might be used to correct a deficit on the current account of the balance of payments. Better responses analysed the implications for competitiveness, unemployment and the exchange rate and then evaluated by referring to the financial account, the possibility of automatic correction via exchange rate depreciation and to the significance of the composition of imports.

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Statistics Unit 3 - 6353 Grade Raw boundary mark Uniform boundary mark Unit 4 - 6354 Grade Raw boundary mark Uniform boundary mark Unit 5 6355/01 Grade Raw boundary mark Uniform boundary mark Unit 5 6355/02 Grade Raw boundary mark Uniform boundary mark Unit 6 - 6356 Grade Raw boundary mark Uniform boundary mark Max. Mark 100 120 A 62 96 B 55 84 C 49 72 D 43 60 E 37 48 Max. Mark 60 90 A 41 72 B 37 63 C 33 54 D 30 45 E 27 36 Max. Mark 60 90 A 40 72 B 36 63 C 32 54 D 28 45 E 24 36 Max. Mark 80 90 A 54 72 B 47 63 C 41 54 D 35 45 E 29 36 Max. Mark 40 120 A 29 96 B 25 84 C 21 72 D 18 60 E 15 48

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Further copies of this publication are available from Edexcel Publications, Adamsway, Mansfield, Notts, NG18 4FN Telephone 01623 467467 Fax 01623 450481 Email publications@linneydirect.com Order Code UA021260 Summer 2009 For more information on Edexcel qualifications, please visit www.edexcel.com/quals Edexcel Limited. Registered in England and Wales no.4496750 Registered Office: One90 High Holborn, London, WC1V 7BH