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IDK EXAM TECHNIQUE: AQA ECON1 Q3- DIAGRAM

Mark breakdown (12 marks max)

  • Start by writing 2 definitions. Always include definitions even if they don't add much value to your answer- there's no negative marking so you won't get marks taken off, but you may be awarded marks if the examiner deems these relevant (max. 2, one per definition) 
  • Include examples for these definitions (max. 2, one per example)
  • Fully labelled diagram. This means equilibrium values marked on the axes, axes labelled and the correct shift shown (max. 4)
  • Explanation (max 8/10 depending on the question)

June 2013 Q3

Question paper: http://filestore.aqa.org.uk/subjects/AQA-ECON1-QP-JUN13.PDF
Mark scheme: http://filestore.aqa.org.uk/subjects/AQA-ECON1-W-MS-JUN13.PDF

1. Start with 2 relevant definitions and add relevant examples. If you're struggling to identify relevant definitions, define demand and define supply.

"POSITIVE EXTERNALITIES ARE BENEFITS ENJOYED BY THIRD PARTIES OUTSIDE OF A TRANSACTION. E.G THE ECONOMIC BENEFITS OF REDUCED NHS COSTS THAT RESULT FROM THE CONSUMPTION OF HEALTHCARE."

"MERIT GOODS ARE GOODS THAT ARE UNDER-CONSUMED IF LEFT TO THE MARKET. THESE ARE OFTEN PROVIDED ON THE BASIS OF NEED RATHER THAN THE ABILITY TO PAY. E.G TRANSPORT IS SUBSIDISED THROUGH BUS PASSES."

2. Fully labelled diagram means:

  • equilibrium values marked on the axes (P₁, P₂, Q₁, Q₂) 
  • axes labelled
  • correct curves/shifts drawn on

3. Written explanation. Start by describing why the curve has shifted:

"EDUCATION CAN BE CONSIDERED A MERIT GOOD WHICH PROVIDES EXTERNAL BENEFITS AS WELL AS PRIVATE BENEFITS. THESE ARE OFTEN NOT APPRECIATED BY CONSUMERS, HENCE MARGINAL SOCIAL BENEFIT (D₁) IS GREATER THAN MARGINAL PRIVATE BENEFIT (D)."

Now explain what this means for your equilibrium values and make any other comments relevant to the question (excess demand, excess supply, over/under consumption, elasticities.

"AS A RESULT, THE SOCIALLY OPTIMAL LEVEL QUANTITY (Q₁) IS GREATER THAN THE MARKET QUANTITY (Q), THE SOCIALLY OPTIMAL PRICE SHOULD BE HIGHER (P₁) RATHER THAN (P) AND EDUCATION IS UNDERCONSUMED (QQ₁). THE LEVEL OF UNDERCONSUMPTION IS DEPENDENT ON PRICE ELASTICITY OF DEMAND. IF DEMAND IS VERY PRICE INELASTIC, THEN THE LEVEL OF UNDERCONSUMPTION WILL BE LESS."

Full mark response: 

Note that the following response is worth 18 marks (definitions=2 marks, examples=2 marks, diagram=4 marks, explanation=10 marks) though the question is capped at 12. It's important to include definitions and examples to compensate any missing links in your written explanation.

POSITIVE EXTERNALITIES ARE BENEFITS ENJOYED BY THIRD PARTIES OUTSIDE OF A TRANSACTION. E.G THE ECONOMIC BENEFITS OF REDUCED NHS COSTS THAT RESULT FROM THE CONSUMPTION OF HEALTHCARE."

MERIT GOODS ARE GOODS THAT ARE UNDER-CONSUMED IF LEFT TO THE MARKET. THESE ARE OFTEN PROVIDED ON THE BASIS OF NEED RATHER THAN THE ABILITY TO PAY. E.G TRANSPORT IS SUBSIDISED THROUGH BUS PASSES.

EDUCATION CAN BE CONSIDERED A MERIT GOOD WHICH PROVIDES EXTERNAL BENEFITS AS WELL AS PRIVATE BENEFITS. THESE ARE OFTEN NOT APPRECIATED BY CONSUMERS, HENCE MARGINAL SOCIAL BENEFIT (D₁) IS GREATER THAN MARGINAL PRIVATE BENEFIT (D).

AS A RESULT, THE SOCIALLY OPTIMAL LEVEL QUANTITY (Q₁) IS GREATER THAN THE MARKET QUANTITY (Q), THE SOCIALLY OPTIMAL PRICE SHOULD BE HIGHER (P₁) RATHER THAN (P) AND EDUCATION IS UNDERCONSUMED (QQ₁). THE LEVEL OF UNDERCONSUMPTION IS DEPENDENT ON PRICE ELASTICITY OF DEMAND. IF DEMAND IS VERY PRICE INELASTIC, THEN THE LEVEL OF UNDERCONSUMPTION WILL BE LESS.