IDK EXAM TECHNIQUE: EDEXCEL ECONOMICS UNIT 1- EVALUATION QUESTIONS

Mark breakdown

Two types of question: KAA and KAA+EVALUATION
Evaluation questions are signposted with the instruction words: "examine", "discuss", "evaluate", "assess" and "to what extent".
The evaluation component will always be worth less than 50% of the total marks for any given question i.e for any KAA + EVALUATION question, the mark split will be as follows:

8 marks total = 6 KAA + 2 EVAL
10 marks total= 6 KAA + 4 EVAL
14 marks total= 8 KAA + 6 EVAL

Valid EVALUATION marks points will be awarded 2 marks or 3 marks for more developed answers. To pick up 6 EVALUATION marks, you can either include two developed points or three lesser developed points. Always go for more points rather than less as this may be awarded 3 marks rather than 2 anyway.

"Go to" EVAL marks

These are the points you should be including as a priority in order to pick up your EVALUATION marks. Remember to evaluate the explanation points you have made (see video and worked solutions below). Note that there will often be overlap between these points:

COMMON SENSE answers: what do the extracts point to? What are the counter-arguments presented?
MAGNITUDE: state that the extent of the “effect” depends on the size of the cause. Assess any numbers mentioned in the extract for significance and/or reliability.
TIME PERIOD: will the effects in the short-term differ from the long- term? Are there any time lags?
GOVERNMENT FAILURE/PERFECT INFORMATION: always talk about this when discussing externalities. State that externalities are hard to quantify so it is difficult to bring about correct policy response.
DIFFERENT GROUPS: are different groups of people affected differently?
ELASTICITIES: when drawing a graph, discuss what happens when demand/ supply is inelastic vs when it is elastic.
OPPORTUNITY COST OF INTERVENTION: if the government imposes a tax, how much revenue will be raised? What will this revenue be spent on? If the government imposes a subsidy, how will this be funded? What else could this subsidy be spent on?

June 2012 Q9- full mark responses

KAA RESPONSES ARE IN BLUE, EVAL IN BLACK.
Note that more evaluations points are included than necessary here.
For KAA exam technique, click here.

Question paper: Edexcel economics unit 1- June 2012 question paper
Mark scheme: Edexcel economics unit 1- June 2012 mark scheme

(c) Evaluate the likely private benefits and external benefits of university education. Illustrate your answer with an appropriate diagram.

14 MARKS TOTAL= 8 KAA + 6 EVAL

Private benefits are those received by people within a transaction. External benefits are those received by people outside the transaction.

D represents marginal private benefit, whereas D1 represents marginal social benefit where both marginal private benefit and marginal external benefit are taken into account.

Using higher education as an example, the private benefits could include the £160,000 salary premium over A-level study. In spite of this, £160,000 is an average salary premium and this will vary across universities and degree courses. Students from a more prestigious university will receive a higher salary than those from a lesser ranked institution (Common sense, magnitude, different groups).

Moreover, the private benefit of an increased salary will vary between the short-term and long-term. For instance, an accountant may only earn slightly above the average graduate salary shortly after leaving university, but this increases significantly over time (Time period, different groups).

The external benefits could include the wider benefits that are received by society as a whole, e.g the higher incomes from a more productive labour force.

The true extent of external benefits are hard to quantify by definition. Figures showing the benefits of a degree-educated workforce can only be estimated- these will be highly aggregated. (Government failure)

(e) With reference to Extract 2 and using price elasticity of demand calculations, assess the likely impact on student applications of an increase in tuition fees from £3,290 to £7,000.

10 MARKS TOTAL= 6 KAA + 4 EVAL

Note that I've chosen to look at a different part (e) question here in order to look at a graph based government intervention question. Apologies if you had been expecting June 2012 Q9 part (e). This is June 2014 (R) Q10 part (e).

Price elasticity of demand is the proportionate change in quantity demanded for a given proportionate change in price.

PED = % change in quantity demanded/ % change in price

PED for lower income students= -0.14/ (3710/3290) = -0.12

Extract 2 shows that demand is more inelastic for students from high income families (9% fall forecast as a result of the rise in fees) compared to low income students (14% fall).

Price elasticity of demand is negative, but inelastic meaning that applications will fall in response to the rise in tuition fees, but less than proportionately. In spite of this, the estimates are generated using a small scale study of only 730 students. As a result, the figures may be unreliable (magnitude).

Moreover, there are government grants of £3250 per year and university bursaries for low income students. This may result in poorer students becoming less deterred by the rise in tuition fees (different groups).

Furthermore, there will also be differences across degree courses. Those applying to more traditional academic courses may be less sensitive to the rise in tuition fees. The same can be said about individuals applying to the more prestigious universities (different groups).

Extract 1 points to the fact that tuition fees are increasing up to £9,000 for many universities. Compared to the increase to £7,000, the impact on number of applications can be expected to be greater (time period).

(e) Evaluate the likely economic effects of an increase in indirect tax on bottled water. Use a supply and demand diagram in your answer.

14 MARKS TOTAL= 8 KAA + 6 EVAL

An indirect tax is a charge added to the purchase price of a good. It acts to raise the costs of production to firms.

The indirect tax causes supply to shift to the left from S to S1. This results in a reduction in quantity and an increase in price. Firms will cut back on output, make less profit and unemployment will rise.

However this is dependent on the size of the tax. For instance, if the size of the tax imposed is large, then price and quantity will change to a larger extent compared to if the tax is small (magnitude).

The extent of the price increase and quantity decrease depends on price elasticity of demand. If demand is more price elastic, then the quantity change will be greater but the price change will be less. If demand is price inelastic, the quantity change will be relatively less and the price change will be relatively more (elasticities).

Government finances are likely to improve as they raise more tax revenue. Moreover, the over-production of bottled water will be reduced as the quantity is reduced closer to the socially optimal level where MSC=MSB. However this is dependent on the size of the tax. For instance, if the size of the tax imposed is large, then tax revenue is likely to be greater (elasticities permitting) compared to when the tax is small (magnitude). The government may also decide to use the tax revenue to correct the externalities further by subsidising more environmentally friendly measures (opportunity cost).

Both consumer surplus and producer surplus will fall as costs and prices increase.