WEC13 Unit 3 — Combined Mark Schemes: All Series

NB: If correct answer is given award full marks regardless

354 min read

Pearson Edexcel International Advanced Level in Economics

Unit 3: Business Behaviour — Paper 01 (WEC13)

All series: January 2020 — January 2025

#Table of Contents

#WEC13 Mark Scheme — January 2020 {#january-2020}

Pearson Edexcel International Advanced Level in Economics (WEC13)

Unit 3: Business Behaviour — Paper 01

#General Marking Guidance

All candidates must receive the same treatment. Examiners must mark the first candidate in exactly the same way as they mark the last. - Mark schemes should be applied positively. Candidates must be rewarded for what they have shown they can do rather than penalised for omissions. - Examiners should mark according to the mark scheme not according to their perception of where the grade boundaries may lie. - There is no ceiling on achievement. All marks on the mark scheme should be used appropriately. - All the marks on the mark scheme are designed to be awarded. Examiners should always award full marks if deserved, i.e. if the answer matches the mark scheme. Examiners should also be prepared to award zero marks if the candidate’s response is not worthy of credit according to the mark scheme. - Where some judgement is required, mark schemes will provide the principles by which marks will be awarded and exemplification may be limited. - When examiners are in doubt regarding the application of the mark scheme to a candidate’s response, the team leader must be consulted. - Crossed out work should be marked UNLESS the candidate has replaced it with an alternative response.

#Section A

Question Quantitative skills assessed Answer Mark 1 C (1) 2 QS2: Calculate, use and understand percentages, percentage changes and percentage point changes. D (1) 3 A (1) 4 QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. B (1) 5 QS9: Interpret, apply and analyse information in written, graphical tabular and numerical forms. D (1) 6 QS8: Make calculations of elasticity and interpret the result. A (1)

#Section B

Question With reference to Figure 1, calculate the percentage change in electric car sales from 2013 to 2017. You are advised to show your working. Answer Mark

#Question 7(a)

Application 2

Quantitative skills assessed: QS2: Calculate, use and understand percentages, percentage changes and percentage point changes. QS9: Interpret, apply and analyse information in written, graphical tabular and numerical forms. 2 marks for correct workings and calculation: - 13 597 – 2 512 = 11 085 (1) - 11 085/2 512 x 100 = 441.28% (2) Accept 441% to 441.3%

NB: If correct answer is given award full marks regardless

of working. (2)

Question With reference to Extract A and Extract B, explain what is meant by specialisation. Answer Mark

#Question 7(b)

Knowledge 2 Application 2

Quantitative skills assessed: QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge Up to 2 marks for knowledge of specialisation - A firm uses its resources to produce a specific product/service OR a specific range of products/services (1) - Specialisation leads to a division of labour, whereby workers carry out specific jobs/tasks (1) - Specialisation may result in an increase in efficiency (1) - Specialisation often leads to an increase in productivity (1) - Specialisation may reduce a firm's LRAC/lead to economies of scale (1) Application Up to 2 marks for application to the contexts 1 mark for application to Extract A - Tesla specialises in the production of electric cars (1) - Tesla's products include the Model 3/Model S (1) 1 mark for application to Extract B - Dyson specialises in domestic appliances (1) - Dyson's products include vacuum cleaners/hand dryers/hair dryers (1) (4)

Question With reference to Extract A, examine the likely effect of a decrease in variable costs on Tesla’s profits. Illustrate your answer with an appropriate diagram(s). Answer Mark

#Question 7(c)

Knowledge 2 Application 2 Analysis 2 Evaluate 2

Quantitative skills assessed: QS4: Construct and interpret a range of standard graphical forms QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge Up to 2 marks for drawing a diagram that shows knowledge of: - Original supernormal profit/loss area (1) - New supernormal profit/loss area after MC and AC shift down (1) Analysis Up to 2 marks for explanation of or diagrammatic representation of: - Profit maximising price will fall from 0P1 to 0P2 (1) - Increase in profit maximising output from 0Q1 to 0Q2 (1) - Revenue would rise from 0P1 x 0Q1 to 0P2 x 0Q2 (1) N.B. Allow 1 mark for answers which have only shifted AC curve as follows - Increase in supernormal profit/fall in loss (1) Application Up to 2 marks for reference to Extract A, e.g.: - Senior managers are considering ways of decreasing variable costs (1) - Lower cost car parts (1) - Reducing the number of workers on production lines (1) - Tesla making a quarterly loss of $709.6m in one quarter (1)

Evaluation Up to 2 marks for evaluative comments, e.g.: - Magnitude: depends on size of the fall in variable cost (1), a small change will have little impact because Tesla's losses are significant (1) - Rise in profit (lower loss) will depend on Tesla's ability to meet demand (1) because there have been significant problems regarding failure to meet production targets e.g. a major shortfall in December 2017 (1) - Using cheaper car parts may result in a fall in consumer demand (1) as consumers switch to better quality cars sold by competitors (1) - Reducing workers on production line will reduce output levels further (1) leading to larger short-term losses (1) - Rise in profit (lower loss) may be offset by a rise in fixed cost/fall in demand (1), which would cause an upward shift in AC curve/ downward shift in AR and MR curves (1) (8)

Question With reference to Extract B, analyse the relationship between price elasticity of demand and total revenue. Illustrate your answer with an appropriate diagram(s). Answer Mark

#Question 7(d)

Knowledge 2 Application 2 Analysis 2

Quantitative skills assessed: QS4: Construct and interpret a range of standard graphical forms. QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge Up to 2 marks for: - Correct definition (or formula) of PED/total revenue (1) - Relevant diagram (1) e.g. Analysis Up to 2 marks for explanation of how a price change affects revenue. e.g.: - A rise in price where demand is inelastic (1) would cause revenue to rise (1) / a fall in price where demand is inelastic (1) would cause revenue to fall (1) OR - A rise in price where demand is elastic (1) would cause revenue to fall (1) / a fall in price where demand is elastic (1) would cause revenue to rise (1) Application Up to 2 marks for reference to Extract B, e.g.: - Dyson is entering the luxury segment of the electric car market (1) - Demand for electric cars is more price inelastic (1) - Specific reference to Extract B in diagram (1) - Increased competition in luxury car market may make demand more price elastic (1) (6)

Question With reference to the information provided, discuss the significance of barriers to entry and exit in the electric car market for new entrants, such as Dyson. Indicative content

7(e) Indicative content guidance

Knowledge, Application, Analysis (8 marks) – indicative content

Definitions of barriers to entry and barriers to exit
Barriers to entry: A cost of production which must be borne by a firm that wants to enter an industry but is not borne by businesses already in the industry
Barriers to exit: Something that prevents or impedes the ability of a firm to leave an industry - Barriers to entry and exit occur in imperfect markets - Barriers to entry and exit reduce contestability in the electric car market - High sunk costs e.g. high capital costs, advertising, means it is expensive to enter the market and those costs are not easily recoverable if a firm needs to exit the market - Branding is important in relation to attracting consumers. This possibly entails high levels of expenditure on advertising and promotion for new entrants, especially Dyson which is well known for domestic appliances - Patents create a legal barrier, meaning Dyson will have to be careful with regard to designs - Car production is more suited to large-scale production and existing firms benefit from economies of scale - Tesla has the advantage of being the first in the market - The electric car market requires a high level of investment to enter the market. Apple decided against producing cars for that reason - The likely entry of well-known and established car manufacturers, such as Jaguar, Porsche, Audi and BMW, may make it difficult for Dyson to enter and be able to compete successfully - Backwards vertical integration, where car manufacturers such as Tesla control electric car battery production - Dyson may have to set up its own retail network (as did Tesla) which is another major cost (forward vertical integration)

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 3 (7–8 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using relevant examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (6 marks) – indicative content

Dyson has a good reputation for quality and innovation and it has been very successful over a long period of time - Dyson has had previous success when marketing new products - Dyson may have accumulated significant reserves/profits, enabling it to finance the development of a new electric car - Dyson can learn from Tesla’s mistakes - Electric car market is rapidly growing, therefore there is scope for new entrants to be successful - Non-price factors may be significant in determining sales - Barriers may become less significant as the market becomes more competitive - Barriers may be less significant for Dyson and other entrants in the longer term Level Mark Descriptor
Level 0 (0 marks): No rewardable material.
Level 1 (1–2 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (3–4 marks): Evidence of evaluation of alternative approaches Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (5–6 marks): Evaluation recognises different viewpoints and/or is critical of the evidence. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

#Section C

Question In July 2017 the German retailer Metro Group demerged into two independent companies. Its wholesale and food division became New Metro and a separate consumer electronics business, CECONOMY, was formed. Evaluate the possible benefits of a demerger for the business and its workforce. Illustrate your answer with an appropriate diagram(s). Indicative content

8 Indicative content guidance

Knowledge, Application, Analysis (12 marks) – indicative content

Understanding of demerger- separation of one business into two or more independent businesses/this would apply in the case of the dissolution of a previous merger Award relevant diagram e.g. Benefits for the business: - Lower LRAC as the business was previously experiencing diseconomies of scale - Greater efficiency/less x-inefficiency - Increase in profits (or reduced losses) as a result of lower LRAC - An increase in funds through the sale of assets - which may be used to invest in R & D or to pay off debts - Avoid intervention from competition authorities - the business may have been dominant in certain markets - Focusing on the core business may lead to higher profits - Specialised workforce enable efficiency/productivity gains - Reduced risk of culture clash between different parts of the business

Benefits for the workforce: - A demerger may result in greater job security if the previously larger business had been experiencing inefficiencies and diseconomies of scale - More job opportunities - e.g. specialist staff will be needed for a food business and a consumer electronics business - Pay rises - if one or both companies find it difficult to recruit new staff - Working for smaller business units can be more motivating as communication improves (e.g. fewer layers of management) - A more focused business is able to provide more specialist training to improve skills making workers more employable

Restrict to a maximum of 9 marks for Knowledge, Application and

Analysis if no appropriate diagram provided or only one economic agent is considered. Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

Drawbacks to businesses - Raising of funds through the sale - the impact depends on how the funds are used – e.g. pay outstanding costs or debts (more short-term) compared with using for further investment (more long-term) - The business may regret decision (in long-run) – if the demerged firm performs well under new ownership and/or was undervalued at the time of sale - The business may experience a rise in LRAC and a reduction in economies of scale - size of business now below point of minimum efficient scale - The cost of the demerger may outweigh the potential benefits e.g. legal fees, dispute in breaking up, possible redundancy costs, new IT systems required etc - Less access to sources of finance - More specialisation may lead to issues retaining staff - Possible fall in market power leading to lower supernormal profit Drawbacks to workers - A demerger may result in rationalisation and some job losses/unemployment - Workers may feel less secure in their jobs and de-motivated - Possible loss of benefits as no longer working for very large business - Tasks become monotonous as more specialised - Fewer opportunities for promotions as the business is smaller General points e.g.: - Short-run vs long-run impacts - Depends on the size of the demerger Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

Question By 2017 Ethiopia was one of very few African countries that had not privatised its telecommunications market and introduced competition. The state-owned company, Ethio Telecom, was the only firm in the market. Evaluate the likely benefits of a monopoly to its consumers. Illustrate your answer with an appropriate diagram(s). Indicative content

9 Indicative content guidance

Knowledge, Application, Analysis (12 marks) – indicative content

Understanding of monopoly – the firm is the sole supplier in the market Benefits to consumers - A monopoly could offer new services with the knowledge that it will have no competition - Dynamic efficiency: Ethio Telecom might use supernormal profits for investment in new technology - If the monopoly is required by a government to produce the allocatively efficient level of output, then the price will reflect marginal cost and ensure that the goods produced reflect consumer demand - Some consumers may benefit if the monopolist price discriminates. This may reduce deadweight loss associated with a single price monopolist - A monopoly may need to keep prices low and continue to introduce new products in order to deter new entrants (contestable market) - price lowered from P1 to P2 and only normal profit made Award relevant diagram e.g.
Falling LRAC diagram. Greater productive efficiency – production will be at a lower point on LRAC curve than if there were more firms in the market. This may lead to a reduction in prices for consumers and higher consumer surplus - If the monopoly is state-owned it may have an obligation to keep prices low and provide subsidised products/services to consumers

Restrict to a maximum of 9 marks for Knowledge, Application and

Analysis if no diagram provided. Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

Consumers might suffer from higher prices, so moving away from the allocatively-efficient level of output - A monopoly might result in X-inefficiency, resulting in higher costs and higher prices - Profits may be used for dividends rather than for investment and innovation in the products or services of the business - Lack of competition may lead to less incentive to innovate and develop. Hence lack of choice. In terms of technological change, telecommunications is a fast moving market. The lack of competition could mean that products are out-dated and of relatively poor quality - A state-owned monopoly may not have a profit motive and may be inefficient - Any profits made by a state-owned monopoly may not be reinvested into the business because the government may cream off profits - The size of benefit/problems depends on level of regulation Level Mark Descriptor
Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

Question In 2018 the Malaysian Government increased the monthly minimum wage for garment and textile workers from MYR1 000 to MYR1 500. Evaluate the benefits of an increase in the minimum wage on businesses and workers. Illustrate your answer with an appropriate diagram(s). Indicative content

10 Indicative content guidance

Knowledge, Application and Analysis (12 marks) – indicative content

Understanding of minimum wage - the lowest wage that a business is legally required to pay its workers Benefits to businesses - Workers may be better-motivated and hence more productive. Labour productivity increases - An increase in efficiency may result in a fall in unit labour costs, more than offsetting the rise in the minimum wage rate - Lower unit labour costs may mean that the business becomes more competitive - Workers are more likely to stay employed with their current employer. Lower labour turnover rates means more experienced and loyal workers. Lower recruitment and training costs on replacement workers - Consumers may be on higher incomes which may result in an increased demand for the firm's products/services. Revenue and profit may rise - Businesses may replace workers with capital. Hence efficiency and profit may rise Award relevant diagram e.g.

Benefits to workers - A rise in income for low-paid workers. Greater purchasing power and a rise in living standards. Minimum wage rises from 0W1 to 0W2 - Less dependence on benefits to top-up household income level - Greater motivation and job satisfaction - Workers may be more inclined to seek promotions and pursue careers - If the employer is a monopsony, a rise in NMW may lead to a rise in employment

Restrict to a maximum of 9 marks for Knowledge, Application and

Analysis if no appropriate diagram provided or only one economic agent is considered. Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

Drawbacks of minimum wage to businesses - Increase in labour costs (see diagram). May make business less competitive especially in international markets - May exert upward pressure on wages for other workers not just the low-paid. This further increase production costs - May result in some businesses having to downsize or even leave the market - Small firms may be particularly vulnerable - Possible rise in administration costs Drawbacks of minimum wage to worker

Some workers may lose their jobs as the business seeks to lower the increase in labour cost (see diagram 1). Employment in the industry falls from OQ1 to OQ2 - Businesses may expect workers to work harder/more efficiently to compensate for higher costs - A minimum wage may result in a rise in inflation (demand-pull and cost-push). Hence real wages may not rise significantly (may even fall) - A minimum wage may increase the number of people working in the informal sector, so firms can avoid paying the legal minimum General points - Impact on a firm partly depends on number of low-paid workers it employs - Magnitude - depends on the extent of the rise in the minimum wage. E.g. for Malaysian textile workers the rise is 50% - Impact depends on how effective a government will be in enforcing the minimum wage Level Mark Descriptor 0 No evaluative comments.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

#WEC13 Mark Scheme — October 2020 {#october-2020}

Pearson Edexcel International Advanced Level in Economics (WEC13)

Unit 3: Business Behaviour — Paper 01

#General Marking Guidance

All candidates must receive the same treatment. Examiners must mark the first candidate in exactly the same way as they mark the last. - Mark schemes should be applied positively. Candidates must be rewarded for what they have shown they can do rather than penalised for omissions. - Examiners should mark according to the mark scheme not according to their perception of where the grade boundaries may lie. - There is no ceiling on achievement. All marks on the mark scheme should be used appropriately. - All the marks on the mark scheme are designed to be awarded. Examiners should always award full marks if deserved, i.e. if the answer matches the mark scheme. Examiners should also be prepared to award zero marks if the candidate’s response is not worthy of credit according to the mark scheme. - Where some judgement is required, mark schemes will provide the principles by which marks will be awarded and exemplification may be limited. - When examiners are in doubt regarding the application of the mark scheme to a candidate’s response, the team leader must be consulted. - Crossed out work should be marked UNLESS the candidate has replaced it with an alternative response.

Question Number Quantitative skills assessed Answer Mark 1 – The only correct answer is B A is not correct because they are in the same industry C is not correct because they are at the same stage of the production process D is not correct because they are at the same stage of the production process

(1) 2 QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is D A is not correct because the firm is able to cover its average variable costs B is not correct because the firm has not covered its’s average total costs C is not correct because the firm can cover average total costs and make normal profit (1) 3 QS8: Make calculations of elasticity and interpret the result. The only correct answer is A B is not correct because this would imply that the supply of aerospace engineers is elastic C is not correct because an increase in government support into training programmes would make the supply of labour more elastic D is not correct because a fall in the demand for aerospace products would impact the demand for labour not the elasticity of supply of labour

(1)

4 – The only correct answer is c A is not correct because a high number of small firms can still operate in a market with a small number of large firms and significant entry barriers B is not correct because high sunk costs increase barriers to entry D is not correct because imperfect information makes it more difficult for firms to enter the market

(1) 5 QS2: Calculate, use and understand percentages, percentage changes and percentage point changes. QS8: Make calculations of elasticity and interpret the result. The only correct answer is B A is not correct because demand for workers falls when wages rise C is not correct because the calculation is incorrect and the demand for workers falls as wages rise D is not correct because the calculation is incorrect.

(1) 6 QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is C A is not correct because an increase in the costs of production would cause a contraction in the demand for labour B is not correct because a decrease in the productivity of labour would cause a contraction in the demand for labour D is not correct because a decrease in net migration would decrease the supply of labour

(1)

Question Number Answer Mark

#Question 7 (a)

Quantitative skills assessed:

QS2: Calculate, use and understand percentages, percentage changes and percentage point changes. Application Up to 2 marks for calculation: - Rs5.3bn - Rs 3.7bn = Rs1.6bn (1) - Rs1.6bn/Rs3.7bn x 100 = 43.24% or 43.2% or 43% (1) Accept 43%, 43.2%, 43.24%, 43.243%, 43.2432% and other responses up to 43.2432432432%

NB: If correct answer (eg 43.24%) is given award full

marks regardless of working. (2) Question Number Answer Mark

#Question 7 (b)

Knowledge 2 Application 2

Knowledge - 2 marks for defining 'privatisation' - the sale of state-owned organisations (public sector) to the private sector (1) - Privatisation often involves removing barriers to enable private sector firms to enter a market (1) - Privatisation may make a market more competitive (1) - Privatisation may involve removing the monopoly power of a state-owned firm (1) Application - up to 2 marks for application to context of India's coal mining industry - The Indian Government decided to privatise part of India's coal mining industry (1) - In 2017 state-owned Coal India Ltd. was the sole producer but domestic private sector mining firms are now able to enter the industry (1) - Contracts to private sector mining firms would be awarded by auction (1) Any other valid application point - 1 mark for each (4)

Question Number Answer Mark

#Question 7 (c)

Knowledge 2 Application 2 Analysis 2

Evaluation 2 Knowledge Up to 2 marks for two of the following: - Effect on employment (1) - Effect on profitability of firms (1) - Effect on price of coal (1) - Effect on Government (1) - Effect on workers (1) - Effect on efficiency (1) - Effect on output (1) 1 mark for definition of deregulation - removing government restrictions/regulations in a particular market Application and Analysis Up to 2 marks for relevant application and up to 2 marks for linked expansion of effects - More employment of coal miners (1ap) if the coal industry is more profitable and efficient, higher demand for labour (1an) - Entry of firms such as Rio Tinto (1ap) leading to a more internationally competitive Indian coal mining industry (1an) - Entry of firms such as Rio Tinto (1ap) leading to a more internationally competitive Indian coal mining industry/ leading to a fall in coal prices because of greater competition (1an) - Indian Government raises revenue from sale of mines (1ap) leading to more funds available for government spending/opportunity to reduce taxes (1an) - More jobs in other industries in coal mining areas (1ap) as a result of higher incomes - regional multiplier effect (1an)

Evaluation Up to 2 marks for evaluative comments, eg: - Mining trade unions fear that privatisation and deregulation may lead to job losses if Coal India, for example, needs to become more efficient (rationalise) in order to compete (1+1) - Privatisation and deregulation may make very little difference to employees if Coal India continues to dominate the market (1+1) - Changes may have a negative effect on the environment if private sector firms prioritise profit above environmental factors (1+1) - Changes may have a negative impact on health and safety issues if private sector mining firms prioritise profit (1+1) - Price of coal may not fall (1) if Coal India continues to dominate the market/if large international mining companies are able to exert monopoly power (1) (8) Question Number Answer Mark

#Question 7 (d)

Knowledge 2 Application 2 Analysis 2

Quantitative skills assessed: QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge Up to 2 marks for an understanding of predatory pricing eg: - Predatory pricing is a deliberate strategy of driving competitors out of the market (1) by setting very low prices or selling below AVC (1) - Predatory pricing is a strategy used by monopoly firms or firms with a degree of monopoly power (1)

Analysis Up to 2 marks for linked explanation: - In the short-run both Ola and Uber are likely to experience a fall in profits and may even suffer losses (1) a loss will certainly occur where price is below AVC/ATC (1) - Pricing below profit max where MC = MR (1) so profit is bound to fall (1) - Ola or Uber may be unable to sustain a lengthy period of price cutting (1) One of the firms may be forced out of the market or they cease to adopt predatory pricing strategies (1) Up to 2 marks for an accurate diagram to show predatory pricing Application Up to 2 marks for application to context of India's ride-hailing market: - If Ola or Uber remove competition they will be able to raise their price again (1) and secure higher long term profits (1) - Low prices and possibly making losses may force some or all of the smaller rail-hailing market eg: - Jugnoo, Ixigo and Meru (1) - The 3 small firms only have 4.2% of the market between them (1) - Diagram related to context (labelling) (1) (6)

Question Number Indicative content

7 (e) Indicative content guidance

Knowledge, Application, Analysis (8 marks) – indicative content

Definition of price discrimination (third degree) – where a firm is charging different prices to different users for the same product/service - Conditions necessary for price discrimination - monopoly power (Zambia Sugar has over 90% of the market), different PED's, able to separate different consumer groups (domestic and overseas consumers) - A firm gains higher profits from price discrimination when it charges a higher price to consumers with inelastic demand and a lower price to consumers with elastic demand - Diagrams showing price dicrmination - Consumers who are negatively affected by price discrimination - consumers with inelastic demand
domestic consumers who were paying 40% more than consumers of Zambia Sugar's exports
consumers of industrial sugar who were paying higher prices than others - Consumers in Diagram A will lose out through price discrimination (extraction of consumer surplus by Zambia Sugar)
Consumers who may benefit from price discrimination - consumers with elastic demand (Diagram B)
consumers of Zambia Sugar's exports
consumers of industrial sugar who were paying lower prices than others

Restrict to a maximum of Level 2 for Knowledge, Application and

Analysis if no diagram is provided Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 3 (7–8 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using relevant examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (6 marks) – indicative content

Price discrimination may not have a long-term effect on consumers. Zambia Sugar was fined ZK76 million by the CCPC and told that it must stop price discrimination and set fair prices - If price discrimination ends Zambia Sugar will earn lower profits and this may lead to a drop in product quality - Zambia Sugar may set uniform prices by raising them to the higher levels paid by those consumers whose demand is inelastic, especially as it has significant market share - Depends on the degree to which the CCPC is prepared to enforce its decision - Market conditions may change eg barriers to entry are lowered (more contestable market) and other sugar producers are attracted into the market Level Mark Descriptor
Level 0 (0 marks): No rewardable material.
Level 1 (1–2 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (3–4 marks): Evidence of evaluation of alternative approaches Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (5–6 marks): Evaluation recognises different viewpoints and/or is critical of the evidence. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

Question Number Indicative content

8 Indicative content guidance

Knowledge, Application, Analysis (12 marks) – indicative content

Lack of managerial skills - so the business remains small - Lack of availability of suitable labour - Lack of scope for growth within the market - because of limited market demand - Limits on the extent to which the firm is able to diversify ALL OF THE POINTS ABOVE MEAN THAT THE FIRM'S ABILITY TO GAIN FROM ECONOMIES OF SCALE IS LIMITED. Minimum efficient scale (MES) is reached at a low level of output - MES is reached at a relatively low level of output of Q1. Any growth in size and output beyond Q1 means that the small firm is less efficient and experiences diseconomies of scale
The objectives of the owners/managers. Owner(s) may be satisfied with keeping the business small:
growth is risky
expensive
time-consuming
profit satisficing objective
owner's complacency - Limited access to finance:
relatively small amount of retained profits
banking sector may be unwilling to lend
fewer options when raising external finance - High financial costs of growth:
legal and administration costs
capital costs
hiring new staff - Many other firms competing in the market - may be perfectly competitive or monopolistically competitive - Small firms may be able to group together to share resources - no real need to grow - A small firm can offer specialised products/service - appeals to consumers - The macroeconomic climate: - Slow growth or recession in the economy - Low effective demand, low consumer purchasing power - Future uncertainty in the economy – economic, political etc. - High interest rates - High inflation rates - High unemployment rates Points above should be illustrated with relevant examples

Restrict to a maximum of 9 marks for Knowledge, Application and

Analysis if no diagram provided.

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

Short-run/long-run: most businesses start out small. Over time many will grow - Factors such as macroeconomic climate and limited market demand can change over time - Government financial support and a more favourable attitude from the banking & the finance sectors may result in small firms having the necessary funds to expand - A change of ownership may lead to a change of objectives, with the new owners keen to grow the business - Small firms may be prone to takeover bids by larger businesses

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

Question Number Indicative content

9 Indicative content guidance

Knowledge, Application, Analysis (12 marks) – indicative content

Conditions for perfect competition – large number of buyers & sellers, perfect information, no barriers to entry or exit, homogeneous products - Conditions for monopolistic competition (MC) – as above, but differentiated products and few or no barriers - Understanding of allocative, productive and dynamic efficiency
productive (lowest point of AC) allocative (p=MC) dynamic (technical) - Firms are price takers – hence perfectly elastic demand - Diagram to show that market forces lead to downward pressure on price
Any supernormal profit in short-run is removed in long-run with new entrants
Rightward shift in market supply curve, shift downwards in firms’ AR=MR=D curve i.e. lower price from P to PE PERFECT COMPETITION
Diagram shows that, in the long-run, a perfectly competitive firm achieves both productive and allocative efficiency and makes normal profit (p = AC = MC) MONOPOLISTIC COMPETITION - The firm is a price maker (differentiated product) and hence faces a downward sloping demand curve. Demand tends to be relatively elastic (large number of competing firms) Short-run monopolistic competition - MC firms can make supernormal profits where MC =MR Long-run monopolistic competition - No barriers means AR shifts downwards until only normal profits are earned and price is lower at profit max level of output - Diagrams show absence of efficiency in both short and long-run
output below lowest point of AC (where MC=AC), so not productively efficient -price above MC, so not allocatively efficient - Proliferation of brands under MC may lead to confusion for consumers so a possible loss of efficiency - Price is likely to be higher and output lower under monopolistic competition than under conditions of perfect competition Points above should be illustrated with relevant examples

Restrict to a maximum of level 3 for Knowledge, Application and Analysis

if no diagram provided.

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

Complete absence of dynamic efficiency under perfect competition (homogeneous products, no barriers) - so no incentive to innovate and carry out product development - Under monopolistic competition possible dynamic efficiency at least in the short-run. Availability of super normal profit and some barriers because of branding/differentiation - Entry of new firms into both types of market structure in the long-run means that both types of firm are likely to be x-efficient

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

Question Number Indicative content

10 Indicative content guidance

Knowledge, Application and Analysis (12 marks) – indicative content

Range of business objectives include: - profit maximisation - revenue maximisation - sales maximisation - profit satisficing will impact on profits - social objectives - growth - If maximising revenue is the main objective, output is where MR=0 and TR is maximised. The firm in the diagram is making a supernormal profit (AR exceeds AC), but profit is less than at profit maximising output. - Profit maximisation objective where MC = MR (Accept perfect competition or monopoly diagram). Firm makes highest possible supernormal profit.

If the firm's objective is sales maximisation this will be where AC=AR or TR=TC. In this case profit is lower but the firm is selling a higher quantity of goods. It is prioritising sales volume/market share over profit - Some private sector organisations are non-profit making (eg charities), others may prioritise social responsibility eg co-operatives. Therefore profits are likely to be lower or non-existent

Restrict to a maximum of 9 marks for Knowledge, Application and

Analysis if no diagram provided. Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

For public sector organisations which can be financed through tax revenues, a profit objective may be non-existent or less important eg health, education, transport, postal services - There may be conflicting objectives in a large private sector organisation where there is a divorce of ownership and control. Eg shareholders want higher profits, managers want sales maximisation - Business objectives can change depending on circumstances
macroeconomic conditions (eg in a recession survival will be a prime objective)
changes within a market (eg more competitive conditions may involve sacrificing some profit in the short-run)
new government legislation (eg tightening up on environmental laws may emphasise social responsibility)
short-run & long-run distinction. Eg a business may seek to maximise revenue in the short-run aiming to remove competitors. This may then enable to business to raise prices and hence profits in the long-run

Level Mark Descriptor 0 No evaluative comments.

Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

Pearson Education Limited. Registered company number 872828 with its registered office at 80 Strand, London, WC2R 0RL, United Kingdom

#WEC13 Mark Scheme — January 2021 {#january-2021}

Pearson Edexcel International Advanced Level in Economics (WEC13)

Unit 3: Business Behaviour — Paper 01

#General Marking Guidance

All candidates must receive the same treatment. Examiners must mark the first candidate in exactly the same way as they mark the last. - Mark schemes should be applied positively. Candidates must be rewarded for what they have shown they can do rather than penalised for omissions. - Examiners should mark according to the mark scheme not according to their perception of where the grade boundaries may lie. - There is no ceiling on achievement. All marks on the mark scheme should be used appropriately. - All the marks on the mark scheme are designed to be awarded. Examiners should always award full marks if deserved, i.e. if the answer matches the mark scheme. Examiners should also be prepared to award zero marks if the candidate’s response is not worthy of credit according to the mark scheme. - Where some judgement is required, mark schemes will provide the principles by which marks will be awarded and exemplification may be limited. - When examiners are in doubt regarding the application of the mark scheme to a candidate’s response, the team leader must be consulted. - Crossed out work should be marked UNLESS the candidate has replaced it with an alternative response.

#Section A

Question Number Quantitative skills assessed Answer Mark 1 The only correct answer is A B is not correct because the increase in house prices in Sydney relative to other parts of Australia would reduce geographical mobility of labour C is not correct because the increase in house prices in Sydney relative to other parts of Australia would reduce geographical mobility of labour D is not correct because the increase in house prices in Sydney affects geographical mobility of labour (1) 2 QS2: Calculate, use and understand percentages, percentage changes and percentage point changes. QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is B A is not correct because this is the 3- firm concentration ratio C is not correct because this is the sum of the market shares of the largest 3 firms and ‘others’ D is not correct because this is the 5- firm concentration ratio (1)

3 QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is D A is not correct because a firm in a monopolistically competitive market does not produce at the lowest point on the AC curve B is not correct because there is freedom of entry in a monopolistically competitive market so any short-run supernormal profits would be competed away in the long-run C is not correct because is not correct because a firm operating on a monopolistically competitive market does not produce at the output at which price = MC (1) 4 QS8: Make calculations of elasticity and interpret the result. The only correct answer is C A is not correct because a fall in net migration would cause a fall in the supply of labour B is not correct because a decrease in productive efficiency would affect output and not the elasticity of supply of labour D is not correct because a rise in trade union membership could cause a fall in the supply of labour (1)

5 QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is A B is not correct because the profit motive and an increase in competition resulting from privatisation would increase productive efficiency C is not correct because an increase in competition resulting from privatisation would lead to greater consumer choice D is not correct because privatisation involves the sale of shares to individuals and institutions (1) 6 QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is B A is not correct because if TR is rising at a constant rate then MR will be constant C is not correct because if TR is rising at a constant rate then MR will be constant and positive D is not correct because if TR is rising at a constant rate then MR will be constant and positive (1)

#Section B

Question Number Answer Mark

#Question 7 (a)

QS6: Calculate cost, revenue and profit.

QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Application 2 Up to 2 marks for calculation: - Total costs = total revenue - profit (1) OR - 73822 bn Rs - 22854 bn Rs (1) - = 50968 bn Rs (1)

NB: Award full marks for correct answer regardless of

working. If Bn omitted from answer award 1 mark only (2)

Question Number Answer Mark

#Question 7 (b)

QS9: Interpret, apply and analyse information in written, graphical,

tabular and numerical forms. Knowledge 2, Application 2 Knowledge: 1 mark for definition of monopsony employer: - Monopsony employer - where there is only one employer/buyer of labour in the market (1) PLUS ONE MARK FOR DEVELOPMENT - Monopsony employer has buying or bargaining power in the labour market (1) - Monopsony employer can exploit its bargaining power with employees to negotiate lower wages (1) Application – Up to 2 marks for application to context of Tata steel - Tata Steel and Thyssenkrupp would become a monopsony employer of steel workers in the UK and the Netherlands (1) - Employees expected job losses (1) and lower real wages if the merged company’s monopsony strength grew (1) - Steel workers would have no alternative employer for their skill set (1) (4)

Question Number Answer

#Question 7 (c)

Knowledge 2, Application 2, Analysis 2, Evaluation 2

Quantitative skills assessed: QS4: Construct and interpret a range of standard graphical forms QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Either Approach 1 Knowledge Up to 2 marks for drawing a diagram that shows knowledge of: - Original AR, MR, AC1, MC1 and profit-maximising equilibrium (1) - Decrease in variable cost would cause downward shift from MC and AC curves to MC2 and AC2 (1) Analysis Up to 2 marks for linked explanation of impact on car manufacturers’ profits e.g.: - Car manufacturers face lower manufacturing costs (1) and if demand is unchanged then supernormal profits will increase (1) - Diagram showing increase in output at new MC=MR (1) with new profit area shown (1) Application Up to 2 marks for reference to Extract B - The merger would result in savings of €400 million’ (1) - 4 000 reduction in staff from the merger (1) - The firms hoped to benefit from lower long-run average costs (1) OR Approach 2

Knowledge Merger causes increase in market power between the two firms. This enables them to increase prices. Up to 2 marks for drawing a diagram that shows knowledge of: -Original AR, MR, AC1, MC1 and profit-maximising equilibrium (1) -Increase in variable cost would cause upward shift in MC and AC curves to MC2 and AC2 (1) Analysis Up to 2 marks for linked explanation of impact on car manufacturers’ profits e.g.: - Profit-maximising (loss-minimising) output would fall from 0Q1 to 0Q2 / price will rise from 0P1 to 0P2 (1) - Final profit-maximising (loss-minimising) equilibrium showing higher price, lower output (1) and fall in supernormal profit (C1, P1, Q1 to C2, P2, Q2) (1) Application Up to 2 marks for reference to Extract B - The merged company would become the 2nd largest European steel manufacturer (1) - 48 000 workers & generate €15 billion in sales (1) - Increased market power (1) Evaluation 2 Up to 2 marks for evaluative comments, e.g.: - Increased market power of the merged firms creates price setting ability (1) firms could raise prices to car manufacturers reducing profits (1) - If demand is inelastic car manufacturers can raise prices (1) and increase revenues and profits (1)

If demand for cars is inelastic, car manufacturers will increase their prices (1) the increase in revenue will offset any increase in costs and profits remain the same (1) - It depends on the significance of steel as part of the production process. (1) If it is a small part of the total production costs the impact would be limited (1) - Merger may lead to lower average costs of production/economies of scale which may be passed on to car manufacturers (1) - Firms might be able to reduce costs elsewhere maintaining profits (1) - There is still competition in the steel market (oligopoly) (1) therefore prices may not increase significantly (1) - Car manufacturers may decide to switch to lower priced imported steel (1) steel costs may fall, increasing profits (1) (8)

Question Number Answer Mark

#Question 7 (d)

Knowledge 2, Application 2, Analysis 2

QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge and Analysis 1 mark for definition of merger, e.g.: - When two firms willingly join together / definition of competition policy- government policy that aims to make markets more competitive (1) Up to 2 marks for identification of two reasons why the merger was blocked and up to 2 marks for linked explanations e.g.: - Job losses/redundancy as firms cut back on excess staff (1) leading to job losses in the steel industry. (1) - Losses or fall in profit for firms that use steel in their production process (1) as the increase in market power of the merged firms enables these firms to increase the price of steel (1) - The increased price of steel (1) increases the costs of production for many products (1) - An increase in monopsony power gives the firms stronger bargaining power over wages (1) this could lead to lower wages in the steel industry (1) Application Up to 2 marks for reference to Extract C, e.g.: - Reduce competition (1) - Tata steel and Thyssenkrupp more dominance in market (1) - Monopsony employer of steel workers in UK and Netherlands (1) - Negative feedback from car manufacturers/firms in the packaging industry (1) (6)

Question Number Indicative content

7 (e) Indicative content guidance

Answers must be credited by using the level descriptors (below) in line with the general marking guidance. The indicative content below exemplifies some of the points that candidates may make but this does not imply that any of these must be included. Other relevant points must also be credited. Quantitative skills assessed QS4: Construct and interpret a range of standard graphical forms QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge, application, analysis (8 marks) – indicative content Definition of horizontal integration- when two firms merge at the same stage of the production process in the same industry - Firms in the Indian steel industry are dynamically efficient - Tata steel is the largest producer in India - It would become Europe’s second largest steel producer generating €15bn in sales - Firms would be able to recover the fall of profits of between 8% and 17% after the tariff was imposed by the US their biggest export market - The efficiency savings would be worth over €400m - Reducing the number of employees by 4 000 in administration (reduction in X-inefficiency) and manufacturing would reduce costs, increasing profits - The firm would benefit from lower LRAC - economies of scale - The firm may reach their minimum efficient scale - The firm may become more productively efficient - Dynamic efficiency may increase - Stronger monopoly power gives the firm greater price setting ability and higher prices may increase profits

Example of diagram showing LRAC falling as output increases Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 3 (7–8 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using relevant examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (6 marks) – indicative content

Culture clashes may make it difficult for the firms to merge - Uncertainty may reduce employees’ motivation and productivity - Diseconomies of scale may occur, e.g. if communication is difficult within the merged firm - Legal costs are high when merging, reducing profits - The firm will not become the largest steel producer in the market, limiting their price setting ability - Short-run impacts are not as significant as long-run impacts on the firm, it will take time for the new firm to establish how it will operate to see the maximum benefit - Cost saving might not be big enough to recover costs from fall in profits after tariffs imposed by the US - Risk of government intervention - Magnitude of the benefits in terms of size of the new merged firm - Tata Steel is already dynamically efficient Level Mark Descriptor
Level 0 (0 marks): No rewardable material.
Level 1 (1–2 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (3–4 marks): Evidence of evaluation of alternative approaches Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (5–6 marks): Evaluation recognises different viewpoints and/or is critical of the evidence. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

#Section C

Question Number Indicative content

8 Indicative content guidance

Disadvantages for Consumers: - A small number of producers limits competition, this limits choice for the consumer, reducing consumer welfare, e.g. limited number of mobile phone companies to choose from - Interdependence between firms may increase barriers to entry and high barriers to entry reduce the ability for new firms to compete. This reduces choice and consumer welfare - Firms may engage in anti-competitive practices such as price fixing or form cartels. These lead to higher prices, reducing consumer surplus. Disadvantages for Producers: - A large producer in the market may use price leadership to stop any price competition. This may stop other firms entering the market, as barriers to entry have increased. - Interdependence between firms may increase barriers to entry and reduce the ability for new firms to compete, e.g. no new entrants into the insurance industry - If few large firms dominate, they may all achieve economies of scale, making it difficult for new firms to enter the market and compete - Lack of competition may encourage more regulation in the market - Danger of price-cutting wars leading to lower profits or losses - Need for non-price competition which may require large marketing/advertising budget - Uncertainty in the market, e.g. ability to break the cartel agreement

NB if no industry referred to candidate can achieve a maximum of Level 3

NB if no diagram candidate can achieve a maximum of Level 3.

NB if producers or consumers are omitted the candidate can achieve a

maximum of Level 3

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

Possible benefits to consumers - If price wars occur, prices might fall for the consumer - Firms may achieve economies of scale, reducing costs and prices for the consumer, increasing allocative efficiency and consumer surplus. - Firms will need to compete to gain market share improving quality and lowering prices Possible benefits to producers - Collusion/cartels could lead to an increase in profits of firms - If goods are not homogenous there might be price competition and choice - Larger firms are more able to achieve dynamic efficiency, improving production and/or quality increasing sales - Greater profits from large firms enables them to have greater investment funds - Price wars reduce contestability - Competition laws may protect small businesses from being exploited - Small firms can still operate in some markets - Limited competition is preferable to a monopoly Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

Question Number Indicative content

9 Indicative content guidance

In the short-run this firm can still continue production as it just covers its AVC at a price of OP If price is below AVC the firm will shut down Long Run In the long-run if AR is below ATC then the firm will shut down (the firm is making a loss or earning less than its normal profit AR < AC). Shut-down point is any price and output resulting in less than normal profit For perfect competition & monopolistic competition, firms would need to profit maximise (MC = MR) in the long-run to avoid losses Monopoly & oligopoly - firms can survive in the long-run without necessarily maximising profit

NB if no diagram candidate can achieve a maximum of Level 3.

NB if no industry referred to candidate can achieve a maximum of Level 3

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

The firm may be pursuing predatory pricing therefore continue producing whilst making a loss until other firms leave the market - The firm may be cross subsidising the product, and cover losses with profits from sales of other goods - If the firm is able to reduce costs/increase revenue it will be able to survive in the long run - Public sector firms are able to run at a loss as there is no profit incentive - A start up firm may not have a profit incentive in the short run and will accept losses as its objective is survival - A firm may be able to survive if it has large cash reserves - Airlines may continue to operate with the help of financial supports from governments - During 2020 many firms experienced financial losses and were able to continue to operate Level Mark Descriptor
Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

Question Number Indicative content

10 Indicative content guidance

Effect on the workers - The introduction of a minimum wage will increase the supply of labour to the tourist industry as there is an increase in the incentive to work - Unemployment will rise if firms make workers redundant if the firm can not afford the rise in wage rates - If the increase in wages is above the rate of inflation then real wages will rise - A rise in minimum wage would increase standards of living for those still employed in tourisum

NB if no diagram candidate can achieve a maximum of Level 3.

NB if no reference to tourism industry referred to candidate can achieve a

maximum of Level 3

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

In the tourism industry many workers are paid below the minimum wage, therefore the change will have a significant impact on businesses or employees. - However, in some parts of the tourism industry, e.g. management, the new national minimum wage may be below the equilibrium wage - Tourism is labour intensive and therefore business will face significantly increased costs of production and fall in profits. - Depends on the ease with which the tourism industry can substitute labour to capital - If businesses can offset the increase in costs, jobs may not be lost/ profits will remain constant - If demand for tourism is price elastic, it will be difficult for firms to pass on higher costs to consumers so resulting in a fall in profit for hotels - Depends on where the tourist comes from – those from high income countries are likely to absorb any increase in price, enabling the hotels etc to pass on any increased costs - In the short-run firms might be slow to respond to changes in minimum wage, therefore job losses may only occur in the long run - Magnitude – how far above the equilibrium wage the minimum wage is set will determine the impact on costs and employment - Impact will depend on how well minimum wage law is enforced Level Mark Descriptor 0 No evaluative comments.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

Pearson Education Limited. Registered company number 872828 with its registered office at 80 Strand, London, WC2R 0RL, United Kingdom

#WEC13 Mark Scheme — June 2021 (Provisional) {#june-2021-provisional}

Pearson Edexcel International Advanced Level in Economics (WEC13)

Unit 3: Business Behaviour — Paper 01

#General Marking Guidance

All candidates must receive the same treatment. Examiners must mark the first candidate in exactly the same way as they mark the last. - Mark schemes should be applied positively. Candidates must be rewarded for what they have shown they can do rather than penalised for omissions. - Examiners should mark according to the mark scheme not according to their perception of where the grade boundaries may lie. - There is no ceiling on achievement. All marks on the mark scheme should be used appropriately. - All the marks on the mark scheme are designed to be awarded. Examiners should always award full marks if deserved, i.e. if the answer matches the mark scheme. Examiners should also be prepared to award zero marks if the candidate’s response is not worthy of credit according to the mark scheme. - Where some judgement is required, mark schemes will provide the principles by which marks will be awarded and exemplification may be limited. - When examiners are in doubt regarding the application of the mark scheme to a candidate’s response, the team leader must be consulted. - Crossed out work should be marked UNLESS the candidate has replaced it with an alternative response.

#Section A

Question Number Quantitative skills assessed Answer Mark 1 QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms The only correct answer is B

A is not correct because this is profit maximisation

C is not correct because this is revenue maximisation

D is not correct as this will not maximise sales (1) 2 The only correct answer is D

A is not correct because the government does not own the business

B is not correct as these firms are not starting a new business

C is not correct because these firms produce the same items (1) 3 QS4: Construct and interpret a range of standard graphical forms QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms The only correct answer is B

A is not correct because this is an average variable cost curve

C is not correct as there is no change in cost per output

D is not correct because the curve is upward sloping (1) 4 The only correct answer is C

A is not correct because this will affect the supply of labour

B is not correct as this will affect the supply of labour

D is not correct because will affect the supply of labour (1)

5 QS6: Calculate cost, revenue and profit (marginal, average and totals) QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms The only correct answer is B

A is not correct because this is an inaccurate calculation

C is not as this is an inaccurate calculation

D is not correct because this is average total costs at 4000 units (1) 6 QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms The only correct answer is A

B is not correct because it is not producing at the lowest point on the AC curve in the short run

C is not correct because these firms make normal profits in the long run

D is not correct because price is not equal to marginal cost in the short run (1)

#Section B

Question Number In 2018 total car sales in China were 23.7 million. With reference to Figure 2, calculate the 4-firm concentration ratio for the car market in China 2018. You are advised to show your working. Answer Mark

#Question 7(a)

Application 2

Quantitative skills assessed: QS2: Calculate, use and understand percentages, percentage changes and percentage point changes. QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms Up to 2 marks for calculation: - 2.07m + 2.04m + 1.97m +1.66m = 7.74m (1) - (7.74 million ÷ 23.7 million) x 100= 32.66%(1)

NB: Award full marks for correct answer regardless of

working. Also allow: 32.65%/32.67%/33% Award 1 for 32.66/32.65/32.67/33 (2)

Question Number With reference to the third paragraph of Extract B, explain what is meant by a ‘takeover’. Answer Mark

#Question 7(b)

Knowledge 2 Application 2

QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms Knowledge 1 mark for definition - Definition of takeover- the acquisition of one business by another (1) Plus one mark for development - A business may decide to undertake a takeover as part of its strategy e.g. to increase market share/reduce competition/entry into new markets (1) - A takeover is an example of inorganic growth (1) - Can be friendly or hostile (1) Any other valid knowledge point - 1 mark Application - up to 2 marks for application to context of China's car industry - Geely has taken over Lotus/Geely bought a majority share in Lotus (1) - Geely hopes the takeover will increase its European sales (1) - Geely is trying to expand internationally through takeovers (1) - Horizontal integration as both are car manufacturers (1) Any other valid application point - 1 mark for each (4)

Question Number With reference to Figure 1 and Extract A, analyse two reasons for the fall in car sales in China since 2017. Answer Mark

#Question 7(c)

Knowledge 2 Application 2 Analysis 2

QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms Knowledge and Analysis Up to 2 marks for identifying 2 reasons for the fall in car sales and 1 mark for linked expansion of each reason e.g. - China’s economic slowdown (1K) caused a fall in the demand for expensive goods such as new cars (1AN) - Increased availability of taxis (1K) which are a low-cost substitute for new cars so consumers are switching to taxis causing a fall in demand for new cars, reducing sales (1AN) Application 1 mark for reference to Figure 1 - Car sales decreased (1) - 24.7 million in 2017 to 23.7 million in 2018/21.4 million in 2019 (1) - 13% decrease between 2017 to 2019/4% decrease between 2017 and 2018 (1) NB data must relate to 2017 and after 1 mark for reference to Extract A - Economic growth rate was 9.4% in 2009 and decreased to 6.6% in 2018/ - 100 different car-hailing platforms/ - Chinese car buyers are increasingly looking for low-cost alternatives (1) (6)

Question Number With reference to Extract A, examine the likely effects of the Chinese Government’s subsidy on the profits of an electric car manufacturer. Illustrate your answer with an appropriate diagram. Mark

#Question 7(d)

Knowledge 2 Application 2 Analysis 2 Evaluation 2

Quantitative skills assessed: QS4: Construct and interpret a range of standard graphical forms. QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms Knowledge Up to 2 marks for drawing a diagram that shows knowledge of: - Original AR, MR, AC1, MC and profit-maximising equilibrium (1) - Subsidy would cause downward shift in AC and MC curves to AC1 and MC1 (1) Analysis Up to 2 marks for explanation of impact on Chinese electric car manufacturers, e.g.: - Manufacturers face lower costs and if demand is unchanged then supernormal profits will increase (1) - Diagram showing increase in output at new MC=MR (1) with new profit area shown (1) Application Up to 2 marks for application to context of electric car market from Extract A e.g.: - The government are giving up to 90 000 yuan of subsidy per car (1) - To encourage more production (1) - Government is incentivising consumers to purchase electric cars (1) - Explicit reference to data in diagram (1)

Evaluation Up to 2 marks for evaluative comments (1+1 or 2+0) e.g: - Size of subsidy as a proportion of average cost (1), if it is a high proportion then profits may rise significantly (1) - Subsidy may be offset by an increase in costs of producing cars (1) so profits may not increase (1) - Magnitude of subsidy (1), 90 000 Yuan is a significant amount (1) - Electric car manufacturers may not pass on the full subsidy to the consumer (1) therefore prices may not change significantly, having a limited impact on demand and profit (1) - If the demand for electric cars is inelastic, a fall in the price will cause a less than proportionate increase in quantity demanded (1) and, therefore, a limited impact on profits (1) - Length of time subsidy is offered for (1) (8)

Question Number With reference to Extracts A and B and your own knowledge, discuss the types of non-price competition that could be used by car manufacturers to increase the sales of cars. Indicative content

7(e) Indicative content guidance

Knowledge, Application, Analysis (8 marks) – indicative content

Non-price competition involves ways to increase sales and attract custom through methods other than price - Methods of non-price competition include: product differentiation, advertising and branding, quality, endorsement, product placement, after sales service - Car manufacturers operate in an oligopolistic market with high levels of interdependence - Innovation and quality are important to the Chinese consumer - 79% of consumers plan to purchase a connected-car in the future - Chinese consumers are highly influenced by reputation of the firm and social media when choosing to purchase a car - Younger consumers are attracted to cars with a more modern design - Non-price competition is important as it increases demand and revenue - Non-price competition can increase the profits for Chinese car manufacturers - Number of joint-ventures able to offer product differentiation e.g. Alibaba and BMW Maximum L2 if no reference to car manufacturers Level Mark Descriptor
Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models.

Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.

Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 3 (7–8 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using relevant examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (6 marks) – indicative content

Some types of non-price competition are likely to be more expensive than others e.g. advertising at prime time on TV may be more expensive than branding - Some types of non-price competition may be more effective (in increasing demand and making demand less price elastic) than others e.g. connected-cars; high quality may be more effective than branding - The most significant factor when buying a car for many young Chinese consumers is the environment. Therefore, other forms of non-price competition may not as significant - Price is the most important factor as new cars are expensive and this is causing their demand to fall - New car sales have declined in China as consumers seek low-cost alternatives - There are lots of available substitutes to cars - Consumers are using car-hailing apps instead of cars as they are more price competitive - Electric cars are becoming more price competitive as the government is subsidising them and other car manufacturers will need to lower their price to compete.

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–2 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (3–4 marks): Evidence of evaluation of alternative approaches Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (5–6 marks): Evaluation recognises different viewpoints and/or is critical of the evidence. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

#Section C

Question Number In 2019 the Indian Government announced plans to privatise up to 25 airports across India. These airports are not the largest in India, but they each have annual passenger numbers between 1 million and 1.5 million. Evaluate the possible benefits of privatisation for the consumer. Illustrate your answer with an appropriate diagram(s). Indicative content

8 Indicative content guidance

Knowledge, Application, Analysis (12 marks) – indicative content

Privatisation is the transfer of assets from public to private ownership -Privatised firms have an incentive to cut costs in order to maximise profits and the firm moves closer to productive efficiency/reduce X-inefficiency c - Reduced costs as privatised firms will increase efficiency (falling MC and AC), leading to lower prices and increased output - Lower costs may be reflected in lower prices for consumers of flights, increasing consumer surplus

If privatisation increases competition there is an incentive for firms to deliver more choice and quality in order to boost sales. An increase in choice improves consumer welfare - Incentive to innovate in order to boost sales and, therefore, profit. Firms may become more dynamically efficient, improving the quality of products produced - Increased quality of goods and increased innovation increases consumer choice e.g. better quality airports or more flights - Wider share ownership – consumers may be able to buy shares in privatised firms to spread the rewards of capitalism to more people

Restrict to a maximum of Level 3 if no appropriate diagram provided

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question.

Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

Competition may not be increased if state-owned airports become privately owned by a private sector monopolist - Some public monopolies become private monopolies, with the objective of profit maximisation causing prices to increase and resulting in a reduction in consumer surplus and welfare - They may become X-inefficient if there is a lack of competition in the private sector - Market forces may not ensure greater efficiency - State-owned firms may provide loss making services that private firm would not, reducing choice and consumer welfare - Choice may be reduced if service becomes unprofitable Level Mark Descriptor
Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

Question Number In the UK for any given rail journey, there are usually more than five different ticket prices depending on the time and day of travel. Evaluate the view that price discrimination is always beneficial for producers. Illustrate your answer with an appropriate diagram(s). Indicative content

9 Indicative content guidance

Knowledge, Application, Analysis (12 marks) – indicative content

Price discrimination occurs when a firm charges different prices for the same product in different segments of the market e.g. business travellers and tourists - Conditions necessary for price discrimination - monopoly power, different PED's in sub-markets, able to separate different consumer groups e.g. age, students and travelcard holders - A firm gains higher profits from price discrimination when it charges a higher price to consumers with inelastic demand and a lower price to consumers with elastic demand - REWARD MARKS FOR RELEVANT DIAGRAMS - showing separation of markets

Benefits to the producer - Greater overall revenue and profits - Producer is able to extract consumer surplus and turn it into producer surplus - Lower prices in the market segment in which demand is elastic, makes the market less contestable, reducing the threat of competition - Cross-subsidies may allow all areas of the business to survive - Increase in economies of scale because of higher output - Higher dividends to shareholders - Increased profits would enable the firm to increase investment or could be distributed to the owners of the firms

Restrict to a maximum of Level 3 if no appropriate diagram provided

Accept reverse argument for KAA Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

The increase in cost of keeping markets separate could exceed the additional revenue from price discrimination - Firms are exploiting consumers in markets where demand is inelastic who may not have an alternative which could lead to negative publicity or government action e.g. to price caps - Exploitation of consumers might attract the attention of regulatory authorities who might take action e.g. heavy fines - Higher prices are allocatively inefficient - Difficulty in discriminating between 5 or more markets - Businesses may not use additional profits to improve quality - Price discrimination might be difficult to maintain if it leads to the entry of new firms into the market - Price discrimination might be difficult to maintain if the PEDs are fairly similar in each of the sub-markets Level Mark Descriptor
Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

Question Number In New Zealand in 2018, it was estimated that the average worker employed in the private sector earned 30% less than the average worker in the public sector. Evaluate the reasons why wage differences exist. Illustrate your answer with an appropriate diagram(s). Indicative content

10 Indicative content guidance

Knowledge, Application and Analysis (12 marks) – indicative content

This labour market equilibrium may differ between markets and this will cause the wage rate to differ as the equilibrium determines the wage rate Or
If the supply or demand for labour changes in a market, this will also change the equilibrium price of labour. Therefore, the supply or demand of labour in a market will cause the wage to differ - The level of education/skill required for the job. Jobs which require more training and education offer higher wages because the supply of workers with this training and skills will be lower than the supply of unskilled workers - Wages in the private sector could be lower than the public sector because public sector pay is funded from taxation and not dependent on profit - In some parts of the private sector firms may have monopsony power and so be able to pay lower wages than firms in other sectors - Other factors such as age, gender and ethnic background may account for wage differences - A monopoly/trade union may be able to increase the wage rate through collective bargaining - Workers may have non-financial benefits that account for some of the difference e.g. hours of work, holidays, security - Workers may have financial benefits that account for some of the difference e.g. pensions, private healthcare, longer holidays - If the demand for labour is inelastic wages would be higher than if elastic - Wages tend to be higher in the sector that has more inelastic demand and /or inelastic supply

Restrict to a maximum of Level 3 if no appropriate diagram provided

Accept reverse argument for KAA Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models.

Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.

Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

If labour is homogenous wage differences may not be different - If workers and employers have perfect knowledge of the labour market wages will be more similar - High mobility of labour enables workers to move between jobs and areas keeping wages stable - If there is no (age/gender/ethnic) discrimination in the market, everyone should be paid the same for the same job - Relative significance of relevant reasons - Private sector in some countries may be able to offer higher wages due to higher levels of profit - In the public sector, the government may have monopsony in the labour market and so can drive down the price of labour as workers have a lower price setting ability - The wage differential in NZ between workers in the public and private sectors may be temporary e.g. due to a downturn/recession - Government may limit pay rises for public sector workers e.g. to reduce budget deficit Level Mark Descriptor 0 No evaluative comments.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning. Pearson Education Limited. Registered company number 872828 with its registered office at 80 Strand, London, WC2R 0RL, United Kingdom

#WEC13 Mark Scheme — October 2021 {#october-2021}

Pearson Edexcel International Advanced Level in Economics (WEC13)

Unit 3: Business Behaviour — Paper 01

#General Marking Guidance

All candidates must receive the same treatment. Examiners must mark the first candidate in exactly the same way as they mark the last. - Mark schemes should be applied positively. Candidates must be rewarded for what they have shown they can do rather than penalised for omissions. - Examiners should mark according to the mark scheme not according to their perception of where the grade boundaries may lie. - There is no ceiling on achievement. All marks on the mark scheme should be used appropriately. - All the marks on the mark scheme are designed to be awarded. Examiners should always award full marks if deserved, i.e. if the answer matches the mark scheme. Examiners should also be prepared to award zero marks if the candidate’s response is not worthy of credit according to the mark scheme. - Where some judgement is required, mark schemes will provide the principles by which marks will be awarded and exemplification may be limited. - When examiners are in doubt regarding the application of the mark scheme to a candidate’s response, the team leader must be consulted. - Crossed out work should be marked UNLESS the candidate has replaced it with an alternative response.

#Section A

Question Quantitative skills assessed Answer Mark 1 QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is D A is not correct because the takeover would decrease contestability B is not correct as the takeover will combine the two businesses and is likely to increase total costs C is not correct because the takeover would reduce competition in the market (1) 2 QS2: Calculate, use and understand percentages, percentage changes and percentage point changes. QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is C A is not correct as it does not use the correct firms in calculation A is not correct as it does not use the correct firms in the calculation D is not correct because it includes ‘others’ in the calculation (1) 3 QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms The only correct answer is D A is not correct as the increase in minimum wage would cause unemployment B is not correct because there is a contraction of demand C is not correct because there is an extension of supply (1)

4 QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms QS6: Calculate cost, revenue and profit (marginal, average, totals) The only correct answer is B A is not correct as there are increasing returns to scale C is not correct as diminishing returns have already set in D is not correct as diminishing returns have already set in (1) 5 The only correct answer is A B is not correct as this would affect the demand for labour C is not correct as this would increase the supply of labour D is not correct as this would affect the demand for labour (1) 6 QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is A B is not correct because monopolistically competitive firms are productively inefficient and make normal profits in the long-run C is not correct as they make normal profits in the long-run (1)

D is not correct as monopolistically competitive firms are not allocatively efficient

#Section B

Question With reference to Figure 1, calculate the percentage change in the average world price of coffee beans from 1 July 2017 to 1 May 2019. You are advised to show your working. Answer Mark

#Question 7(a)

Application 2

Quantitative skills assessed: QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. QS2: Calculate, use and understand percentages, percentage changes and percentage point changes. Up to 2 marks for calculation: 1.57 – 2.31 ÷ 2.31 (1) -0.32 x 100 = -32% (1) Award full marks for correct answer (-32, -32.03, -32.035, - 32.0346) regardless of working. Award only 1 mark if they do not identify that it has decreased/is negative (2)

Question With reference to Extract A (line 12), explain what is meant by ‘short-run shutdown point.‘ Answer Mark 7(b) Knowledge 2 Application 2 Quantitative skills assessed: QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge: up to 2 marks for any two of the following: - Shut down point occurs were AR=AVC (1) - In the short-run a firm may shutdown if the price it receives does not cover its average variable costs of production (1) - Where AVC>AR then each additional item sold adds to losses (1) - Understanding of short-run (at least one fixed factor of production) (1) - Examples of variable costs (1) Or Accurate diagram to clearly show short-run shutdown (1+1) Application - up to 2 marks for application to context of the coffee market - Supply of coffee beans greater than demand/ surplus 4 million bags/global production (1) - By May 2019, the global price of coffee beans fell to its lowest level in over 10 years (1) - Caused serious problems for small coffee growers in coffeeproducing regions/Central America/Africa (1) - Farmers in Africa and Central America were making large losses (1) (4)

Question With reference to Figure 2 and Extract A, analyse two possible reasons for the increase in supply of coffee beans between 2015 and 2019. Answer Mark

#Question 7(c)

Knowledge 2 Application 2 Analysis 2

Quantitative skills assessed: QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge and Analysis 1 mark for definition of supply- the quantity of goods that suppliers are willing to sell at a given price in a given time period (1) Up to 2 marks for the identification of two reasons for the increase in supply of coffee and 1 mark for the linked expansion of each point - Favourable weather conditions (1K) enables crops to grow, increasing the harvest yield, increasing supply (1AN) - Improvements in farming equipment (1K) improvements in technology improves productive efficiency, increasing output and increasing supply (1AN) - Improvements in farming methods of production (1K) improves the efficiency of factors of production used in farming, increasing output (1AN) Application Up to 2 marks for application to Figure 2 and Extract A - Global coffee production rose from 150 million bags in 2015 to

#Question 171

million bags in 2019 (1)

World coffee bean supply increased by 8.2% in 2019 (Figure 2)/ supply increased 8% (Extract A) (1) - Global coffee bean surplus of 4 million bags (1) - Large coffee farming countries such as Brazil had increased production (1) (6)

Question With reference to Extract B, examine two barriers to entry into the US coffee shop market. Mark

#Question 7(d)

Knowledge 2 Application 2 Analysis 2 Evaluation 2

Quantitative skills assessed: QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge and Analysis Up to 1 mark for the correct definition of barriers to entry Definition of Barriers to entry – obstacles that prevent new firms from entering the market (1) up to 2 knowledge marks for identification of two barriers to entry and 1 mark for the linked expansion of each barrier to entry (2+2) - A number of well-known firms operating in the coffee chain market (1K), making it more difficult for a new firm to establish itself because of brand loyalty, this increases barriers to entry (1AN) - Firms compete using non-price competition such as advertising. (1K) This increases the costs of operating in the market and may prevent new firms entering if they cannot afford to cover the costs of large advertising campaigns (1AN) - New firms will need to develop high quality coffee beans to compete with established coffee chains (1K) This requires expertise that a new firm may not have (1AN) - Firms will need to compete using social media (1K). This requires knowledge of social media and the ability to finance the campaign. This would increase barriers to entry to new firms (1AN) Application Up to 2 marks for relevant application to Extract B (1+1) - Starbucks, Tim Hortons, Dunkin’ Donuts, Dutch Bros Coffee and Peet's Coffee operate in the market (1) - US coffee shop market is likely to be oligopolistic (1) - Starbucks large with 27 000 stores worldwide (1) - The firms compete using special offers, large advertising budgets and loyalty schemes (1)

Investing heavily in developing mobile phone apps and online ordering systems (1) - Social media advertising is the most effective form of marketing for coffee shops (1) Evaluation Up to 2 marks for evaluative comments (2+0 or 1+1), e.g.: - A large number of successful, small independent coffee shops in the USA (1) A new firm can enter the market as it does not need to operate at the same size and scale as the bigger coffee chains (1) - Product differentiation such as different drinks and food options, require limited skills (1) reducing barriers to entry (1) - New firms can locate in different areas to well-known coffee chains (1). These areas might be lower cost, reducing start-up costs and barriers to entry (1) - Social media marketing may be free if using apps such as Instagram and Facebook (1) reducing the costs of advertising (1) (8)

Question With reference to the information provided, discuss the reasons for the increase in Starbucks‘ profits in 2019. For one of these reasons, illustrate your answer with an appropriate cost and revenue diagram.

7(e) Indicative content guidance

Knowledge, Application, Analysis (8 marks) – indicative content

Definition of profits = total revenue - total costs - Starbucks revenue increased by 7.24% in 2019 - Starbucks profits increased by 7.11% to $17.98 billion - Globally sales of coffees have increased by 2%, this would increase both the average revenue and marginal revenue curves outwards, increasing profits - Many new shops opening in China - Attracting younger coffee drinkers - Diagram to show an increase in both average revenue and marginal revenue shifting outwards with a new equilibrium price and quantity showing profit increasing - AR and MR increase to AR2 MR2 with a higher area of profit from P1C1 x 0Q1 to P2C2 x 0Q2 - The price of coffee beans has fallen to $1.57 per kg in May 2019 reducing the costs of production for coffee shops. This would cause the marginal cost and average costs curve to fall, increasing profits

The fall in the price of coffee beans causes the MC and AC to fall, creating a higher output at a lower price. Profit increases from PAC x 0Q to P1AC1 x 0Q1 Maximum level 2 if no diagram Maximum level 2 if only one reason is discussed Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 3 (7–8 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using relevant examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (6 marks) – indicative content

The price of coffee beans fluctuates and costs may increase in the long-run reducing profits - Other costs of production may increase offsetting the fall in costs from the reduction in the price coffee beans, reducing overall profits - Costs of advertising and expansion will reduce overall profits - A large number of firms competing in the coffee shop market which may reduce sales and revenue in the long-run - A 32% fall in price of coffee beans is very large and might have had a significant impact on profits - The impact of the fall in the price of coffee beans on Starbucks’ profits depends on the significance of coffee beans as a proportion of total costs - The rise in profits might be short-term only Level Mark Descriptor
Level 0 (0 marks): No rewardable material.
Level 1 (1–2 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (3–4 marks): Evidence of evaluation of alternative approaches Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (5–6 marks): Evaluation recognises different viewpoints and/or is critical of the evidence. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

#Section C

Question For an industry of your choice, evaluate why many businesses have growth as their main objective. Illustrate your answer with an appropriate diagram(s). Indicative content

8 Indicative content guidance

Knowledge, Application, Analysis (12 marks) – indicative content

Businesses can grow either organically or inorganically through mergers and takeovers - Business objectives goals/targets for business including profit maximisation, revenue maximisation, sales maximisation and satisficing - Increase in demand leading to higher revenue and profits/higher profits generates more funds for investment, improves innovation, further increasing profits - Businesses such as Visinema would benefit from having more control over every aspect of their business allowing them to expand into new areas such as animated films - Businesses may benefit from increased profits by internalising new areas of the business that they previously outsourced. This reduces costs and increases profits. Fall in AC to AC1and MC to MC1 showing a new equilibrium with a higher profit level P1 x Q1 (TR) - AC1 x Q1 (TC)
Businesses can benefit from economies of scale and a fall in long-run average total costs - The cost savings could be passed onto the consumer in the form of lower prices increasing competitiveness - Businesses may be able to achieve monopsony power over suppliers and labour enabling them to negotiate better terms when purchasing supplies and workers reducing costs - Increased market share gives higher price-setting ability, potentially increasing prices and profits - Businesses such as Visinema can benefit from risk diversification. If the animated film industry declined other areas of their film production may offset the losses Accept reverse argument as KAA

Restrict to a maximum of Level 3 if no appropriate diagram provided

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

Firms may wish to stay small to avoid diseconomies of scale if they move beyond their MES - Some businesses benefit from operating in a niche market and are able to be profitable from selling at a higher price with a lower output - Small businesses can maintain high levels of flexibility/innovation as the market changes - Some businesses do not have the finances to grow and therefore getting bigger is not an option - Large businesses can attract the attention of the competition authorities. Therefore a business may wish to stop growing to stop any form of intervention - Business owners may have an objective of staying small and keeping total control of all aspects of the businesses - Alternative business objectives e.g. satisficing Level Mark Descriptor
Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Identification of generic evaluative comments.

No supporting evidence/reference to context. No evidence of a logical chain of reasoning.

Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning. Question For an industry of your choice, to what extent is a monopoly market structure inefficient? Illustrate your answer with an appropriate diagram(s). Indicative content

9 Indicative content guidance

Knowledge, Application, Analysis (12 marks) – indicative content

A monopoly market structure is when there is one single dominant supplier in the market. These firms possess price setting ability - Allocative efficiency occurs when P=MC, productive efficiency occurs when the business is producing at the lowest point of it LRATC curve, Xinefficiency occurs when a business allows average costs to rise, dynamic efficiency occurs when a business is investing to reduce it costs - Firms with monopoly power, such as MTN Ghana, face limited competition therefore it has price setting ability - MTN Ghana can abuse their dominant position by offering low quality products to consumers to save on costs of production. As consumers have limited other options but to purchase from them, consumer welfare decreases - Monopolies will not be allocatively efficient as the lack of competition, such as MTN Ghana controlling 70% of the market, allows them to charge higher prices (P>MC) than in a more competitive industry - Monopolies benefit from high producer surplus, reducing consumer surplus and causing a deadweight welfare loss
A monopoly may be productively inefficient if it restricts output below the lowest point on the AC curve - A monopoly may restrict output and produce at a point below the lowest point of the AC. The monopoly produces at 0Q - 0Q is profit-maximising output, shaded area is supernormal profit - A monopoly will be x-inefficient. The lack of competition and inelastic demand enables the business to increase the price without a proportionate fall in quantity demanded. If costs increase the monopoly can allow prices to increase to cover the rising costs Accept reverse argument as KAA

Restrict to a maximum of Level 3 if no appropriate diagram provided

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

Monopolies are large firms and have a greater capacity to be productively efficient and achieve economies of scale. The fall in LRAC may cause the price to fall for consumers, improving consumer welfare - Monopolies have greater potential for dynamic efficiency –financial resources for investment in R & D and product innovation for consumer benefit - A monopolist in a contestable market may choose to set the price low to deter potential entrants (making close to a normal profit) where P is closer to MC and therefore closer to allocative efficiency - A monopolist may be able to cross subsidise loss-making parts of its business and cover the losses with the supernormal profits made in other parts of the business. This increases consumer choice - If the monopoly is a natural monopoly it is more efficient to have a single seller in the market achieving economies of scale, than to have firms competing - Regulation may ensure efficient operation of monopolists - Monopoly power is dependent on the firm’s share of the market and the market shares of its competitors Level Mark Descriptor
Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning. Question Evaluate measures to reduce the occupational and geographical immobility of labour. Indicative content

10 Indicative content guidance

Knowledge, Application and Analysis (12 marks) – indicative content

Occupational immobility of labour occurs when there are barriers facing people active in the labour market moving from one job to another - Geographical immobility of labour occurs when there are costs or barriers facing individuals who need to move from one area to another to find employment - Immobility of labour is a form of market failure - The Indian Government is making access to university easier by allowing universities to offer online degrees. This should increase the number of people taking a degree so increasing the skill level of young people in India and reducing the occupational immobility of labour Measures implemeted by government, businesses could include: - offer training or subsidise businesses that provide specific training for their staff. This improves the skills of the workforce enabling them to fill gaps in the labour market more easily - offer subsidies to businesses who take on workers from groups with very high unemployment levels. Businesses are incentivised by the lower labour costs and the work experience these individuals receive to improve their skill level making them more employable in the future - encourage more apprenticeships to improve the skills of young people entering the workforce, to overcome occupational immobility, by improving their skill level - introduce relocation subsidies or support for individuals who live in regions with lower house prices, that need to move to regions with higher house prices for work - improve the knowledge of job opportunities available across the country to help individuals know where they could locate to find better work - reduce barriers to immigration to overcome occupational immobility of labour - improve infrastructure to reduce geographical immobility of labour

Restrict to a maximum of Level 3 if reference is not made to both

occupation and geographical immobility

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

The labour force may not have the potential to fill the vacancies for high skilled occupations - Many individuals will not move if they have family ties or friends, even if the government/ business provides relocation subsidies - If the training/education provided does not fill gaps in the labour market, the occupational mobility of labour will not improve - There are time lags for education/training to have an effect. Therefore there may not be any change in the mobility of labour in the short-run - It will depend upon the magnitude of the government/ business expenditure on measures - Lack of information for those putting in place measures mean the wrong level of support is offered

Level Mark Descriptor 0 No evaluative comments.

Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

#WEC13 Mark Scheme — January 2022 {#january-2022}

Pearson Edexcel International Advanced Level in Economics (WEC13)

Unit 3: Business Behaviour — Paper 01

#General Marking Guidance

● All candidates must receive the same treatment. Examiners must mark the first candidate in exactly the same way as they mark the last. ● Mark schemes should be applied positively. Candidates must be rewarded for what they have shown they can do rather than penalised for omissions. ● Examiners should mark according to the mark scheme not according to their perception of where the grade boundaries may lie. ● There is no ceiling on achievement. All marks on the mark scheme should be used appropriately. ● All the marks on the mark scheme are designed to be awarded. Examiners should always award full marks if deserved, i.e. if the answer matches the mark scheme. Examiners should also be prepared to award zero marks if the candidate’s response is not worthy of credit according to the mark scheme. ● Where some judgement is required, mark schemes will provide the principles by which marks will be awarded and exemplification may be limited. ● When examiners are in doubt regarding the application of the mark scheme to a candidate’s response, the team leader must be consulted. ● Crossed out work should be marked UNLESS the candidate has replaced it with an alternative response.

#Section A

4 QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is B A is incorrect because more passengers are a likely to cause a rise in employment C is incorrect because it is unlikely to cause a rise in unemployment since costs have decreased D is incorrect because it is unlikely to cause a rise in unemployment since costs have decreased (1) 5 QS4: Construct and interpret a range of standard graphical forms QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is A B is incorrect because this was unemployment at the lower minimum wage C is incorrect because demand would contract from Q2 to Q1 D is incorrect because supply would extend from Q3 to Q4 (1) 6 QS4: Construct and interpret a range of standard graphical forms QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is D A is incorrect because the firm will be allocatively efficient and only normal profit will be made in the long-run B is incorrect because the firm will be allocatively efficient C is incorrect because the firm will make normal profit (1)

#Section B

Question With reference to Figure 1, calculate the four-firm concentration ratio for the US car market in 2019. Answer Mark

#Question 7(a)

Application 2

Quantitative skills assessed: QS2: Calculate, use and understand percentages, percentage changes and percentage point changes QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Up to 2 marks for calculation: - 16.9 + 14 + 14 +13 (1) = 57.9% (1)

NB: Award full marks for correct answer (57.9%) regardless of

working. Award 1 mark without the percentage sign award e.g. 57.9 (1) (2) Question With reference to Extract A, explain what is meant by ‘horizontal integration’. Answer Mark 7(b) Knowledge 2 Application 2 Quantitative skills assessed: QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge: Up to 2 marks for the definition of horizontal integration: When two firms merge at the same stage of the production process (1) in the same industry (1) Application: Up to 2 marks for application to context of PSA Group and Fiat Chrysler merger - PSA Group and Fiat Chrysler merge to create Stellantis (1) - PSA Group and Fiat Chrysler merge to create the world’s third biggest car manufacturer by volume (1) - PSA Group and Fiat Chrysler both produce cars (1) (4)

Question With reference to Extract A, analyse two barriers that Stellantis are likely to experience when trying to increase market share in China. Answer Mark

#Question 7(c)

Knowledge 2 Application 2 Analysis 2

Quantitative skills assessed: QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge and analysis 1 mark for a definition of barriers to entry- factors that prevent or make it difficult for new firms to enter a market (1) Up to 2 marks for identifying two barriers and 1 mark for linked expansion of each e.g. - Lack of knowledge/experience/ language/cultural awareness of the market (1) makes it more difficult for Stellantis to adapt cars to meet consumer’s needs (1) - High levels of competition in the Chinese market (1) increases marketing costs and risks (1) - Brand loyalty (1) consumers will have habitual consumption of cars making it difficult to sell in the market (1) - High sunk costs (1) makes it more expensive to enter the new market/gain market share (1) Application Up to 2 marks for application to Extract A - In 2020 the two firms had a total 1% market share in China (1) - Chinese car firms had a 40% market share (1) - The Chinese car market is dominated by many well-established firms including Volkswagen/Honda/Toyota (1) (6)

Question With reference to Extract A, examine the impact of an increase in car sales in the USA on the profits of Stellantis. Illustrate your answer with an appropriate diagram. Answer Mark

#Question 7(d)

Knowledge 2 Application 2 Analysis 2 Evaluation 2

Quantitative skills assessed: QS4: Construct and interpret a range of standard graphical forms QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge Up to 2 marks for drawing a diagram that shows knowledge of: - Original AR1, MR1, AC, MC with profit maximising output (1) - Outward shift of AR1 to AR2 and MR1 to MR2 (1) Analysis Up to 2 marks for impact of the merger on the new firms profits, e.g. - Original supernormal profit A B AC1 P1 (1) - New supernormal profit C E AC2 P2 (1) - The increase in revenue increases supernormal profit (1) Application - Following the merger/in Q1 2021 Stellantis experienced a 25% increase in revenue (1) - PSA will gain access to Fiat Chrysler 3 000 car showrooms (1) (8)

Evaluation Up to 2 marks for evaluative comments, e.g.: - Growing into new markets may be difficult to manage causing diseconomies of scale (1) increasing costs and reducing profits (1) - Car sales growth may help achieve economies of scale (1) helping increase profits further (1) - The USA is only one of a number of markets for Stellantis (1) so profit levels could be impacted from other markets (1) - Changes in costs may impact the profit levels (1) - The increases in car sales may be temporary (1) Question With reference to the information provided and your own knowledge, discuss the possible impact of the merger between PSA Group and Fiat Chrysler on workers and consumers. Indicative content

7(e) Indicative content guidance

Knowledge, Application, Analysis (8 marks) – indicative content

Workers - If factories close to reduce costs, 3000 Vauxhall workers will lose their jobs making them unemployed and decreasing their standards of living - Workers are highly skilled, the factory closure could cause occupational immobility of labour in the sector. This may cause long-term unemployment - The government may need to increase training for these workers to provide more transferable skills - There may not be many job opportunities for car manufacturing employees. Workers may not want to move to areas with jobs available as a result of geographical immobility of labour

Consumers - Stellantis may not lower prices in response to cost savings - If diseconomies of scale arise e.g. from managing a large number of brands, prices may rise - Development in technology only happens in the production process, quality may not improve - Increased market power may lead to increased prices - Choice may reduce as Stellantis reduce the models available If only one economic agent is considered then limit KAA to Level 2 Accept reverse argument Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 3 (7–8 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using relevant examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (6 marks) – indicative content

Workers - The trade union is in talks with Stellantis and there might not be any factory closures - Employees might have some transferable skills and find job opportunities in other industries

If training programmes are available, employees may become employed in the long-run - If factory closures are limited then the significance may not be as great - High skilled workers have high productivity and therefore are likely to find employment in other occupations Consumers - Increase in consumer surplus if prices fall after the merger and the firm benefits from economies of scale - Increase choice as firms share research and development into areas such as electric cars; creating new cars for consumers to purchase - Increase in quality products from the sharing production expertise and technological knowledge - New cars take a long time to develop and may have little impact in the short-run Level Mark Descriptor
Level 0 (0 marks): No rewardable material.
Level 1 (1–2 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (3–4 marks): Evidence of evaluation of alternative approaches Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (5–6 marks): Evaluation recognises different viewpoints and/or is critical of the evidence. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

#Section C

Question Evaluate the possible benefits of collusive behaviour between firms. Use a simple game theory model in your answer. Indicative content

8 Indicative content guidance

Knowledge, Application, Analysis (12 marks) – indicative content

Indicative content - Definition of collusion – where firms agree to cooperate in their pricing and output policies. - Applies where the market is an oligopoly and the firms are interdependent. - Collusion provides the pharmaceutical companies with the ability to fix prices and limit output that wouldn’t be possible if the firms were competing - Ability for each firm to increase its supernormal profit as consumers have to pay higher prices for goods - Collusive behaviour might increase entry barriers so enabling existing firms to increase their supernormal profits - Barriers enable firms to restrict competition increasing revenue and profits - Reduces unpredictability and uncertainty in the pharmaceutical market which may lead to higher levels of investment from firms/firms can save money by not competing helping to reduce costs and increase profits - Candidates provide an appropriate diagram e.g. below

Firm colluding will agree to sell at the high price, high price outcome to increase revenues - Without collusion both firms will sell at the low price, low price outcome with lower revenues - Collusive firms may act like a monopolist to increase supernormal profits. (May draw cost and revenue diagram) - Super-normal profits are made at PABC - If the profits of the pharmaceutical firms increase, this may enable them to invest in more research and development, leading to new pharmaceutical drugs being produced - Prices may be less volatile, making it easier for healthcare providers to plan their expenditure on pharmaceutical products - Possible benefit to consumers is that sharing of information between firms can help with product development e.g. vaccine development, or safety data

NB if no game theory model candidate can achieve a maximum of level 3

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

Higher prices after the agreement reducing consumer surplus - Less choice if firms reduce output, reducing standards of living - Exposure of illegal price fixing by the government may increase costs to the firm if they have to pay heavy fines (£1.2 million) - It negatively impacts firms trying to enter the pharmaceutical market as barriers to entry have increased - Breakdown of trust between colluders may lead to breakdown of any collusive agreements - Short run may be sustained but more problematic in the long run - Lack of coordination - New entry into the market
Collusive behaviour resulting in more non-price competition could increase costs of firms Level Mark Descriptor
Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning. Question Evaluate methods that a government could use to control monopoly behaviour. Illustrate your answer with an appropriate diagram(s). Indicative content

9 Indicative content guidance

Knowledge, Application, Analysis (12 marks) – indicative content

A monopoly market structure is when there is one single dominant supplier in the market. These firms possess price setting ability - Government intervention is in response to a market failure - Monopolies tend to charge a higher price than in a competitive market. - The introduction of a price cap/maximum price- price ceiling above which firms cannot charge - Diagram to show impact of maximum price on a monopoly diagram
The introduction of the price cap at Pmax stops the monopoly charging a price at Pm reducing the level of supernormal profits and producer surplus made - Monopolies are inefficient and government intervention is needed to improve efficiency and to avoid consumer exploitation - The government can use maximum price on goods, such as water to stop prices increasing and force the monopolist to charge the allocatively efficient price (P = MC) - The price is set below the monopoly equilibrium, reducing the price level, increasing consumer surplus - Price regulation can stop a firm increasing prices in line with inflation if there is any X-inefficiency in the business - The government may use profit regulation, this limits the amount of total profit that can be earned by a firm operating in an industry, encouraging lower prices or increased investment
Quality standards may be set e.g. to ensure a minimum legal quality of water being produced - Performance targets aim to regulate the quality produced by the monopoly through ensuring there is adequate output/safety standards of water produced - Imposition of fines for poor performance - Nationalisation of the monopoly - Measures to reduce entry barriers/increase contestability

NB if no diagram candidate can achieve a maximum of level 3

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

Government failure and unintended consequences: examples below - If regulatory capture occurs the regulator may become focused on the interests of the firms they regulate rather than on the public interest - Profit regulation/price control may limit the ability for the monopoly to be dynamically efficient or improve the quality of drinking water production - Profit regulation/price control may reduce profits leading to the companies having insufficient funds for investment e.g. to improve water quality - The level of X-inefficiency can be hard to estimate. If overestimated the firm may find it difficult to be profitable - Performance targets may move the focus of the firm away from essential services reducing quality in other areas of the business - If there is asymmetric information/information gaps in the market, the regulator may not know the issues/problems associated with specific monopoly therefore may not put in place sufficient regulation to control the firm - If the regulator has inadequate resources it may not be able to control the monopoly or fully investigate the level of inefficiency/market abuse - Lack of regulatory power may stop any regulation being implemented effectively Level Mark Descriptor
Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

Question Evaluate the view that revenue maximisation is always the main objective of a firm. Illustrate your answer with an appropriate diagram(s). Indicative content

10 Indicative content guidance

Knowledge, Application and Analysis (12 marks) – indicative content

Business objectives defined or listed - Revenue maximisation MR=0 - This point allows the business to achieve the highest level of revenue - At point A the firm is maximising revenue - Firms in competitive markets may not maximise profits in order to increase their market share, therefore they operate where MR=0 - Revenue maximisation will increase the output and sales, helping to increase market share, compared with the profit maximisatin level of output - Increasing quantity may also help the firm to achieve economies of scale as it grows in size, lowering average costs - In the short-run firms might have a revenue maximising goal to establish themselves in the market e.g. in China
If there are low barriers to entry into the market a firm may have a revenue maximising objective to deter new entrants into the market - If demand is elastic firms may have a revenue maximising objective to maintain low prices - Firms may revenue maximise in the short-run to increase market share and build monopoly power in the long-run

NB if no diagram candidate can achieve a maximum of level 3

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

Divorce between ownership control may occur and satisficing behaviour may cause the managers and owners to have different objectives - Revenue maximisation may only be a short-run objective - The firm may wish to change its objective in the long-run when the firm is more established and can increase prices more easily/market conditions may change - Level of contestability will impact the objectives of the firm, the higher the barriers to entry the more likely the firm will be profit maximising - Other objectives might be more significant: - Firm survival for small or new firm in the industry Profit maximisation occurs when MR=MC - This enables the firm to achieve supernormal profits PABC Sales volume maximisation occurs when AC=AR Level Mark Descriptor 0 No evaluative comments.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning. Pearson Education Limited. Registered company number 872828 with its registered office at 80 Strand, London, WC2R 0RL, United Kingdom

#WEC13 Mark Scheme — June 2022 {#june-2022}

Pearson Edexcel International Advanced Level in Economics (WEC13)

Unit 3: Business Behaviour — Paper 01

#General Marking Guidance

All candidates must receive the same treatment. Examiners must mark the first candidate in exactly the same way as they mark the last. - Mark schemes should be applied positively. Candidates must be rewarded for what they have shown they can do rather than penalised for omissions. - Examiners should mark according to the mark scheme not according to their perception of where the grade boundaries may lie. - There is no ceiling on achievement. All marks on the mark scheme should be used appropriately. - All the marks on the mark scheme are designed to be awarded. Examiners should always award full marks if deserved, i.e. if the answer matches the mark scheme. Examiners should also be prepared to award zero marks if the candidate’s response is not worthy of credit according to the mark scheme. - Where some judgement is required, mark schemes will provide the principles by which marks will be awarded and exemplification may be limited. - Crossed out work should be marked UNLESS the candidate has replaced it with an alternative response.

#Section A

Question Quantitative skills assessed Answer Mark 1 The correct answer is B A is incorrect because this would increase the geographical mobility of labour C is incorrect because this would increase the geographical mobility of labour D is incorrect because this would increase the geographical mobility of labour (1) 2 QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The correct answer is D A is incorrect because price is greater than MC B is incorrect because the firm would remain in the industry as ceteris paribus it would be making supernormal profit C is incorrect because the firm is not producing at the lowest point on the AC curve (1) 3 QS6: Calculate cost, revenue and profit (marginal, average and total) QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The correct answer is C A is incorrect because this is average fixed costs at 300 units B is incorrect because this is average variable costs at 400 units D is incorrect because this is average total costs at 300 units (1) 4 QS1: Calculate, use and understand ratios and fractions QS2: Calculate, use and understand percentages, percentage changes and percentage point changes. QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms The correct answer is B A is incorrect because this is the four-firm concentration ratio C is incorrect because this is the four-firm concentration ratio plus others D is incorrect because this is the six-firm concentration ratio (1)

5 The correct answer is D A is incorrect because this is not related to the impact of government intervention B is incorrect because this would improve the impact C is incorrect because this would improve the impact (1) 6 QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The correct answer is A B is incorrect because the number of employees would be lower C is incorrect because wages would be lower D is incorrect because wages and the number of employees would be lower (1)

#Section B

Question (a) With reference to Figure 1, calculate the percentage change in Amazon’s revenue between 2010 and 2020. Answer Mark

#Question 7(a)

Application 2

Quantitative skills assessed: QS2: Calculate, use and understand percentages, percentage changes and percentage point changes. QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms Up to 2 marks for calculation: - (386.06-34.20)/34.20 (1) or 351.86/34.20(1) 10.2883 x 100 = 1028.83% (1) Accept within the range 1028 to 1029 Award full marks for correct answer regardless of working. Accept 1029/1028.8/1028.83 (2)

Question With reference to Figure 2, explain the market structure of cloud infrastructure providers. Answer Mark 7(b) Knowledge 2 Application 2 Quantitative skills assessed: QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge: One mark for identifying oligopoly (1) And one mark for understanding of the market structure e.g. An oligopoly is when a few large firms dominate the market/ There is interdependence in the market/ An oligopoly market structure is an imperfect market structure/ Oligopolies have some market power (1) Reward for identifying legal monopoly (1) with understanding (1) Application up to 2 marks for application to Figure 2 - Calculating: o two-firm concentration ratio is 51%/ o three-firm concentration ratio is 59%/ o four-firm concentration ratio 65%/ o five-firm concentration ratio is 70% (1+1) - Amazon web services has a 33% market share (1) - Microsoft Azure has an 18% market share (1) (4)

Question With reference to Extract A, analyse the impact on consumers of two methods by which Amazon competes with other retailers. Answer Mark

#Question 7(c)

Knowledge 2 Application 2 Analysis 2

Quantitative skills assessed: QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge, analysis and application For each of the two methods identified: 1 mark for application to Extract A, 1 knowledge mark for identification of one method of competition and 1 mark for linked analysis e.g. - Amazon focuses on convenience (1AP) by providing access to its goods and services online (1K) making it more convenient for consumers than having to travel to a store (1AN) - Amazon competes with low prices (1AP) making it more price competitive (1K) encouraging consumers to switch from alternative products/increase in consumer surplus (1AN) - Amazon offers faster delivery (1AP) by providing better customer services (1K) customers receive their goods without delay (1AN) - Amazon focuses on choice for its consumer (1AP) by providing alternatives/more options (1K) helps Amazon meet its consumers’ needs (1AN) (6)

Question With reference to Extract A, examine two likely effects of the global health crisis on Amazon’s profits. Answer Mark

#Question 7(d)

Knowledge 2 Application 2 Analysis 2 Evaluation 2

Quantitative skills assessed: QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge, analysis and application For each of the two effects identified: 1 mark for application to Extract A, 1 analysis mark for expansion of this and 1 mark for knowledge linked to profit e.g. As consumers could not access physical stores (1AP) leading to increased demand for goods and services from Amazon (1AN) resulting in increased profit (1K) As Amazon increased their sales to $386.1 billion (1AP) due to higher demand for online shopping (AN) resulting in increased profit (1K) Additional 400 000 workers employed by Amazon (1AP) this increase in number of workers employed adding to costs (1AN) resulting in decreased profit (1K) Due to a fall in labour productivity (1AP) as the workforce at Amazon expanded so rapidly (1AN) resulting in decreased profit (1K) Increase in costs of production by $4 billion (1AP) reducing profit margins (1AN) resulting in decreased profit (1K) Evaluation Up to 2 marks for evaluative comments, e.g.: - The effect on profit depends on the relative increase in revenues and costs. Revenues increased by $105.6 billion whereas costs of production increased by $4 billion (1+1) - The increase in revenues may not be sustained in the long-run if the global health crisis is resolved as shops will reopen and consumers use alternatives to Amazon (1+1) - The increase in revenues may not be sustained in the long-run if the global health crisis continues (1+1) - With experience, staff will become more skilled, helping to improve productivity in the long-run (1+1) - Amazon may substitute out labour for capital due to lower productivity helping to restore profits in the long-run (1+1) (8)

Question With reference to Extract B and your own knowledge, discuss reasons why many SMEs in South Africa shut down in 2020. Illustrate your answer with an appropriate diagram. Indicative content

7(e) Indicative content guidance

Knowledge, Application, Analysis (8 marks) – indicative content

Definition of shut-down point. o In the short-run a firm may shut down if the price it receives does not cover its average variable costs of production. o In the long-run firms will shut down as they cannot afford to produce more output therefore cannot make enough revenue to cover average total costs. - Reasons for shut down: o Fall in demand decreasing TR and AR o Increasing costs- ATC and AVC o Difficulties specific to SME- e.g. lack of retained profit
Many SMEs are not receiving enough revenue to cover their variable costs. If this happens the firms will need to shut down in the short-run - Diagram showing short-run price below AVC curve 0-P1 and shut down output 0-Q1 - The survey showed that small enterprises were 26 times more likely to close than larger enterprises - SMEs required R1.1 trillion of government financial support if they were to have any chance of not shutting down in 2021 - When price is below ATC, the business would shut down in the longrun - Reward diagrams that shift AR/MR appropriately NB A diagram is required to achieve Level 3

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Chains of reasoning in terms of cause and/or consequence are evident, but they may not be developed fully, or some stages are omitted.
Level 3 (7–8 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using relevant examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (6 marks) – indicative content

Not all firms were negatively impacted, essential services either increased profits or profits stayed the same - 64% of the enterprises that were closed indicated that they expected to reopen - If the R1.1 trillion of government financial support by the government is provided, enterprises would survive - 70% of enterprises reported that they cut back on business spending and possibly were able to survive by lowering costs - Half of medium-size enterprises were able to either close parts of their business or reduce capacity to decrease costs and prevent having to shut down

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–2 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (3–4 marks): Evidence of evaluation of alternative approaches Some supporting evidence/reference to context. Evaluation is supported by a partially developed chain of reasoning.
Level 3 (5–6 marks): Evaluation recognises different viewpoints and/or is critical of the evidence. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

#Section C

Question Evaluate the benefits of growth by merger. Illustrate your answer with an appropriate diagram(s). Indicative content

8 Indicative content guidance

Knowledge, Application, Analysis (12 marks) – indicative content

Definition of merger: joining of two or more firms to form one organisation - Businesses such as PhotonLens and Shadow Creator would benefit from sharing resources, human capital, and expertise, to enable them to develop new products more quickly - Growth by merger enables businesses such as PhotonLens and Shadow Creator to enter new markets that they do not operate in such as moving from VR glasses into the software needed for these to work. This allows these firms to diversify and benefit from risk bearing economies of scale - Mergers increase market share more quickly than organic growth. This would increase sales, revenue, and profits - Businesses may benefit from increased profits through economies of scale if the merger allows production to rise and costs to fall. PhotonLens and Shadow Creator may be able to share development and innovation costs, reducing overall costs and increases profits - Firms may merge to guarantee supplies/lower costs of supplies (backward vertical integration) - Firms may merge to increase market share - Firms may merge to become more competitive - Firms may merge to eliminate competitors (horizontal integration) - Businesses can benefit from economies of scale and a fall in long-run average total costs. Long-run average total costs fall as output rises. Reducing costs and reaching the MES, improving productive efficiency

Benefits to economic agents- e.g. consumers benefit from higher quality goods Accept reverse argument

NB if no diagram candidate can achieve a maximum of Level 3.

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident, but they may not be developed fully, or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

Growth by merger is more costly than organic growth, which may reduce profits for the firm - If there is a culture clash, the merger may not be successful and harmful to the business’s profits and reputation - Some businesses may not have the option to grow by merger as it may be blocked by the competition authorities - If communication problems occur between the firms, diseconomies of scale may set in - Entering new markets where the business does not have expertise may cause the business’s costs to rise - If the merger causes job losses, employees may become demotivated, reducing productivity

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

Question Evaluate methods that a government could use to promote competition in a market. Illustrate your answer with an appropriate diagram(s). Indicative content

9 Indicative content guidance

Knowledge, Application, Analysis (12 marks) – indicative content

Definition of competition: a number of rival firms operating in a market - The Government in Singapore introduced tax incentives to new firms to encourage them to operate. A reduction in the tax burden should incentivise more new firms to start up in Singapore which increases the level of competition in the market - The tax incentives of S$100 000 should result in a decrease in average costs leading to an increase in profits - Fall in AC to AC1 showing a new equilibrium with a higher profit level AC1-P, 0-Q - Government intervention will increase the level of supply in the market causing the supply curve to shift otwards, with a higher quanity and lower equlibrium price
Deregulation makes it easier for a firm to set up and expand, as it reduces time/costs. This increases the number of firms entering the market improving the level of competition - Deregulation reduces the barriers to entry into the market, as less legal expertise is needed, increasing competition - Privatisation moves an industry from the public sector into private sector, allowing an increase in competition between firms, if more firms enter the market - Competitive tendering for public sector contracts encourages firms to compete over price and quality, encouraging firms to become more competitive. The removal of long-term contracts also reduces the barriers to entry in the provision of public sector services - Trade liberalisation removes barriers to entry that may stop foreign firms from being able to enter a market, encouraging more market entrants and competition - Measures to control mergers must relate to how this improve competition

NB if no diagram candidate can achieve a maximum of Level 3.

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident, but they may not be developed fully, or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

If tax incentives are not generous enough, they may not incentivise small business to set up - Reducing the tax burden may not be enough for small firms/FDI to enter the market. There might be more significant factors stopping firms, such as market conditions or access to finance - Deregulation may reduce the costs of production for incumbent firms, allowing prices to fall, making it more difficult for new firms to enter the market and compete over price, increasing barriers to entry - If deregulation encourages more FDI, smaller domestic firms may find it hard to compete, reducing competition
If privatisation creates a private monopoly, then competition may not be increased - Competitive tendering may not reduce barriers to entry/improve competition if a cartel is in operation in the industry, as new firms would not be able to undercut the cartel to make an offer and win the bid - Trade liberalisation can lead to foreign monopolies undercutting smaller domestic firms, reducing the level of competition and increasing barriers to entry in the market Level Mark Descriptor
Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

Question Evaluate the use of non-price and price competition in oligopolistic markets. Illustrate your answer with an appropriate diagram(s). Indicative content

10 Indicative content guidance

Knowledge, Application and Analysis (12 marks) – indicative content

Non price competition may include improvements in the features, quality and design of the product; such as new technology in smart phones, advertising and branding, celebrity endorsement, after-sales service . - These forms of non-price competition are designed to increase demand for smartphones and make demand less price elastic - Non-price competition may increase revenue for firms e.g. Apple, Samsung and OnePlus - Non-price competition may increase choice for consumers as there are more phone providers in India - As only a few large phone companies dominate the premium phone market, each firm has a high market share. Producing at a larger output enables the firms to spread their long-run average costs across a higher output than in competitive markets. This enables the firms to reduce xtheir prices to compete on price. This increases consumer surplus - The phone companies like Apple may use their supernormal profits to invest in technology enabling the quality of the products to be improved so benefitting consumers - Limit pricing, predatory pricing, price wars analysed - Diagrams showing pricing decisions and impact on profits. Use of game theory diagram – analysis may be used as KAA or Ev as appropriate NB Price and non-price competition must be included to achieve Level 3 NB if no diagram/pay-off matrix candidate can achieve a maximum of Level 3

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident, but they may not be developed fully, or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

Non-price competition increases the costs of production which may result in a reduction in profits if there is little impact on demand - Non-price competition generates sunk costs for oligopoly - Price competition may result in a reduction of profits for the firms, limiting their ability to invest and product quality may be reduced - Price wars/predatory pricing may result in some firms leaving the industry so reducing choice for the consumer - If the oligopolies collude or form a cartel then price competition will not occur - Interdependence means reaction from competitors are unpredictable
Some practices are illegal, e.g. predatory pricing resulting in possible government action Level Mark Descriptor 0 No evaluative comments.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

Pearson Education Limited. Registered company number 872828 with its registered office at 80 Strand, London, WC2R 0RL, United Kingdom

#WEC13 Mark Scheme — October 2022 {#october-2022}

Pearson Edexcel International Advanced Level in Economics (WEC13)

Unit 3: Business Behaviour — Paper 01

#General Marking Guidance

All candidates must receive the same treatment. Examiners must mark the first candidate in exactly the same way as they mark the last. - Mark schemes should be applied positively. Candidates must be rewarded for what they have shown they can do rather than penalised for omissions. - Examiners should mark according to the mark scheme not according to their perception of where the grade boundaries may lie. - There is no ceiling on achievement. All marks on the mark scheme should be used appropriately. - All the marks on the mark scheme are designed to be awarded. Examiners should always award full marks if deserved, i.e. if the answer matches the mark scheme. Examiners should also be prepared to award zero marks if the candidate’s response is not worthy of credit according to the mark scheme. - Where some judgement is required, mark schemes will provide the principles by which marks will be awarded and exemplification may be limited. - When examiners are in doubt regarding the application of the mark scheme to a candidate’s response, the team leader must be consulted. - Crossed out work should be marked UNLESS the candidate has replaced it with an alternative response.

#Section A

Question Quantitative skills assessed Answer Mark 1 The only correct answer is A B is incorrect constant returns to scale should not stop entry into the market C is incorrect because low advertising costs should make it easier for firms to compete in the market D is incorrect because high supernormal profits should encourage new firms to enter (1) 2 QS4: Construct and interpret a range of standard graphical forms QS6: Calculate cost, revenue and profit (marginal, average, totals) QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is C A is incorrect because the firm is not producing at the productively efficient level B is incorrect because price is equal to MC D is incorrect because firms make normal profit in the long-run (1) 3 The only correct answer is A B is incorrect as this would cause more available labour to enter the country B is incorrect as incentives to work would increase D is incorrect as this would not affect the supply of labour (1) 4 QS6: Calculate cost, revenue and profit (marginal, average, totals) QS9: Interpret, apply and analyse information in written, The only correct answer is C (1)

graphical, tabular and numerical forms. A is incorrect because this is the difference in the wage rates B is incorrect because this is the additional $20 paid for 41 workers D is incorrect because this is the total cost of wages 5 QS4: Construct and interpret a range of standard graphical forms QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is D A is incorrect because the firm would be making supernormal profits B is incorrect because this is the long-run shut-down position C is incorrect because the firm will continue to operate in the short-run (1) 6 QS4: Construct and interpret a range of standard graphical forms QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is B A is incorrect because this occurs where MR=0 C is incorrect because this occurs where MC=MR D is incorrect because this occurs between profit maximisation and sales volume maximisation (1)

#Section B

Question With reference to Figure 1, calculate the percentage point change in the four-firm concentration ratio between 2020 and 2021. Answer Mark

#Question 7(a)

Application 2

Quantitative skills assessed: QS2: Calculate, use and understand percentages, percentage changes and percentage point changes QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. 1 mark for calculation in 2020: 26+11+20+15 = 72% OR 1 mark for calculation in 2021: 21+17+16+13 = 67% 1 mark for the change in CR: 67% - 72% = -5

NB: Award full marks for correct answer (-5) regardless of

working.

NB: Accept 5 without minus sign (2)

Question With reference to Extract A, analyse two reasons why India has become the world’s second largest smartphone market. Answer Mark

#Question 7(b)

Knowledge 2 Application 2 Analysis 2

Quantitative skills assessed: QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge and analysis Up to 2 marks for identifying two reasons and 1 mark for each linked expansion e.g. - Large population (1K) means high potential sales in India (1An) - Increasing per capita real incomes/disposable incomes (1K) mean smartphones are more affordable for consumers (1An) - Large smartphone ownership (1K) shows potential for upgrading to the latest models (1An) Application Up to 2 marks for identifying two relevant applications from extract A e.g. (1+1) - per capita income rose from US$1000 to US$1301 (1) - over half the population owns a mobile phone/it is expected that the market will grow from US$ 25.1 billion in 2018-2019 to US$ 80 billion in 2025-26 (1) in 2021 India’s population was 1.38 billion/India has the second largest population after China (1) (6)

Question With reference to Extract B, explain what is meant by ‘economies of scale ’. Answer Mark

#Question 7(c)

Knowledge 2 Application 2

Quantitative skills assessed: QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge: Up to 2 marks for the definition of economies of scale: When long-run average costs fall (1) as output increases (1) Diagram showing LRAC (1) with correct annotation to show LRAC falling as output increases (1) Application: Up to 2 marks for application to the context e.g.: - Samsung has set up in India to benefit from economies of scale (1) for example, technical/purchasing/marketing (1) - Samsung opened the world’s largest mobile phone factory (1) - Foxconn has set up in India to reduce long-run average costs (1) (4)

Question With reference to Figure 2 and Extract B, examine the likely impact on the profits of Samsung of opening a smartphone factory in India. Use an appropriate diagram in your answer. Answer Mark

#Question 7(d)

Knowledge 2 Application 2 Analysis 2 Evaluation 2

Quantitative skills assessed: QS4: Construct and interpret a range of standard graphical forms QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge Up to 2 marks for drawing a diagram that shows knowledge of: - Original MC, AC, MR, AR, with profit maximising equilibrium (1) - Fall in costs showing downward shift in AC to AC1 / Or - a downward shift in both AC to AC1 and MC to MC1 (1) Analysis Up to 2 marks for impact on supernormal profits e.g.: - Original supernormal profits A,B,AC,P (1) - New supernormal profit area C,E,AC1,P1 (1) Application - Labour costs in India are 50% lower than in China (1) - Skilled labour costs up to 15% less than in China - The Make in India programme offers tax relief to firms producing in India (1) - Transportation costs are reduced (1) Evaluation Up to 2 marks for evaluative comments (2+0 or 1+1), e.g.: - Imported components are expensive and taxed at 12.5% increasing costs if not purchasing lower priced components in the expanding Indian market (1)

Insufficient supply of domestic smartphone components forcing firms to purchase expensive imports (1) - Labour costs would be even lower if firms manufactured in Indonesia or Vietnam (1) - The power supply is unreliable so reducing output (1) increasing costs and lowering profit (1) - Transport costs may rise (1) as it is slow and costly reducing profits (1) (8)

Question With reference to Extract C, Figure 2 and your own knowledge, discuss the benefits of non-price competition for consumers and businesses in the Indian smartphone industry. Indicative content

7(e) Indicative content guidance

Knowledge, Application, Analysis (8 marks) – indicative content

Non-price competition occurs when firms use such factors as packaging, delivery, or customer service rather than price to increase demand for their products. - The Indian mobile phone industry is an oligopoly with the combined market share of the top 4 at 67% in 2021. Therefore they are unlikely to compete on price Benefits to consumers: - Better quality goods: Businesses are competing through innovation and design. This enables consumers to benefit from more choice/better quality goods, improving consumer welfare - Increased awareness through advertising. This enables consumers to make informed/rational decisions/maximising utility - Branding: this enables consumers to recognise the smartphones produced by each manufacturer - After-sales service: this enables consumers to resolve problems when using smartphones - New products may be developed through non-price competition allowing consumers to benefit from a greater range of smartphones with better technology Benefits for businesses: - Higher profits: non-price competition makes demand more price inelastic because of the better quality products. Businesses can charge higher prices and increase their profits - Avoids costly price wars - Better branding/customer loyalty as businesses are able to differentiate themselves from other smartphone producers. This can help businesses increase their sales and market share - Product differentiation through non-price competition helps these businesses to set their own prices NB Level 3 response requires benefits to both business and consumers

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 3 (7–8 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using relevant examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (6 marks) – indicative content

Consumers: - Non-price competition may lead to higher prices for consumers as businesses will need to cover their innovation costs, reducing consumer surplus - Consumers would most likely benefit from lower prices in a price war/price competition - Non-price competition increases the complexity of the purchase - Non-price competition acts as a barrier to entry reducing choice Businesses: - Non-price competition can be expensive. Businesses investing in new technology and innovation will increase their costs of production which may cause profits to fall - Investing in innovation and technology can be risky and takes a long time. If unsuccessful, businesses may face increased costs and be unable to recover them with higher sales - Smaller firms may not be able to operate in this market as non-price competition acts as a barrier to entry for them - Non-price competition could contribute to allocative inefficiency as prices rise Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–2 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (3–4 marks): Evidence of evaluation of alternative approaches Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (5–6 marks): Evaluation recognises different viewpoints and/or is critical of the evidence. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

#Section C

Question Evaluate the possible benefits of a demerger. Illustrate your answer with an appropriate diagram(s). Indicative content

8 Indicative content guidance

Increase in profits (or a reduction in losses) as a result of lower MC and AC as communication/management improves. Changing the equilibrium position from Q to Q1 increasing supernormal profits from A,B,AC,P to C,E,AC1,P1 - The business has sold off parts which were higher risk – for example Vertex may not have been profitable, or in a high-risk market - The firm may avoid intervention from competition authorities as it was becoming too dominant in the minerals market - Shareholders may benefit if the company becomes more profitable in the future - Workers may benefit from higher wages if the business has reduced its costs - Consumers may benefit from lower prices

NB if no diagram candidate can achieve a maximum of level 3

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

The business may regret decision e.g. if the demerged firm performs badly under new ownership and/or was undervalued at time of sale - The business may experience a rise in LRAC and a reduction in economies of scale if the size of business is now below MES - The breaking up of the vertical integration may result in higher costs because of greater competition for resources - The cost of the demerger may outweigh the potential benefits e.g. legal fees, disputes between parties when breaking up, possible redundancy costs, new IT systems required etc. - If the demerged business is unprofitable then workers may lose their jobs - If the demerged business is unprofitable then consumers may face higher prices - If the demerged business is unprofitable then shareholders may face a fall in value of their shares and lower dividends - Consumers have to deal with more separate firms rather than one offering everything, causing more time and complexity in decision making Level Mark Descriptor
Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

Question Evaluate the possible benefits of price discrimination to both the business and consumers. Illustrate your answer with an appropriate diagram(s). Indicative content

9 Indicative content guidance

monopoly power
PEDs must be different in each sub-market
it must be possible for the business to be able to keep the sub-markets separate, so that there is no switching between sub-markets Output 0Q and high price 0P where demand is price inelastic Output 0Q1 and lower price of 0P1 where demand is price elastic Higher total profit when compared with combined market Possible benefits to the business - Charging higher prices to those consumers whose demand is relatively inelastic and lower prices to those consumers whose demand is relatively elastic . Increases revenue for the business
Extraction of consumer surplus to increase producer surplus benefits the business as profits rise - Selling to a larger market increases revenue for the business - The business may be able to use resources more efficiently, such as increasing use of space during off-peak times (e.g. hotels, train companies and restaurants) - The business may be able to use resources more efficiently, such as increasing use of space during off-peak times (e.g. hotels, train companies and restaurants) Possible benefits to consumers - Consumers in the sub-market in which demand is price elastic will benefit from lower prices and higher consumer surplus e.g. low-income groups - This may result in more options e.g. staying in different cities or resorts - Higher profits may encourage further investment by firms which can improve quality and possibly lower prices due to effects of dynamic efficiency - Without price discrimination, the business may make losses and exit the industry reducing consumer choice Cross-subsidisation of different business activities to avoid losses means some consumers are able to purchase the good/service - Improved quality of service for price-inelastic consumers (less crowding on peak services)

NB if no diagram candidate can achieve a maximum of level 3

NB Level 4 response requires benefits to both business and consumers

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

The business: - Higher revenue/profits depend on the extent to which the firm can maintain the conditions necessary for price discrimination - May only apply in the short-run. If a new business enters the market because of the supernormal profit being made, price discrimination may not be possible - If costs of separating the sub-markets are high then the extra revenue gained may be limited - If the impacts are judged to be anticompetitive, there are regulatory bodies in place, then the business may be fined - Damage to reputation of business Consumers: - Consumers with inelastic demand will be paying higher prices resulting in a loss of consumer surplus - A significant number of different prices can be confusing and potentially costly for consumers - Price discrimination may make it more difficult for consumers to make rational choices Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

Question Evaluate the likely microeconomic effects of an increase in the national minimum wage on an industry of your choice. Illustrate your answer with an appropriate diagram(s). Indicative content

10 Indicative content guidance

Profits may fall for restaurants from A,B,P,AC to C,E,P1,AC1, as labour costs have risen causing AC to rise to AC1 and MC to rise to MC1, - Businesses may make a loss as restaurants may be labour intensive - Businesses may face a significant increase in costs and may have to reduce other costs e.g. costs of materials, reducing quality - Businesses may need to increase prices reducing consumer surplus - An increase in the informal sector, as businesses try to avoid paying higher wages to workers

NB if no diagram candidate can achieve a maximum of level 3

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

Higher wages may improve productivity, reducing production costs and increasing profits - Many workers are paid above the NMW, therefore the rise will not have an impact on them - Higher wages would increase standards of living - If the proportion of costs allocated to wages is low, businesses may absorb the extra cost and unemployment may not rise - It depends on how labour-intensive the industry is. For more labourintensive industries, the impact will be more significant - If the labour is derived demand the national minimum wage may not significantly impact the demand for labour - It will depend on the PED of labour as to the size of the impact Level Mark Descriptor 0 No evaluative comments.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

Pearson Education Limited. Registered company number 872828 with its registered office at 80 Strand, London, WC2R 0RL, United Kingdom

#WEC13 Mark Scheme — January 2023 {#january-2023}

Pearson Edexcel International Advanced Level in Economics (WEC13)

Unit 3: Business Behaviour — Paper 01

#General Marking Guidance

All candidates must receive the same treatment. Examiners must mark the first candidate in exactly the same way as they mark the last. - Mark schemes should be applied positively. Candidates must be rewarded for what they have shown they can do rather than penalised for omissions. - Examiners should mark according to the mark scheme not according to their perception of where the grade boundaries may lie. - There is no ceiling on achievement. All marks on the mark scheme should be used appropriately. - All the marks on the mark scheme are designed to be awarded. Examiners should always award full marks if deserved, i.e. if the answer matches the mark scheme. Examiners should also be prepared to award zero marks if the candidate’s response is not worthy of credit according to the mark scheme. - Where some judgement is required, mark schemes will provide the principles by which marks will be awarded and exemplification may be limited. - When examiners are in doubt regarding the application of the mark scheme to a candidate’s response, the team leader must be consulted. - Crossed out work should be marked UNLESS the candidate has replaced it with an alternative response.

#Section A

Question Quantitative skills assessed Answer Mark 1 QS4: Construct and interpret a range of standard graphical forms QS6: Calculate cost, revenue and profit (marginal, average, totals) QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is C A is incorrect because decreasing returns to scale would relate to the long-run average cost curve B is incorrect because fixed costs would not be included in marginal costs D is incorrect because diseconomies of scale would relate to the longrun average cost curve (1) 2 QS6: Calculate cost, revenue and profit (marginal, average, totals) The only correct answer is A B is incorrect because this is the average fixed cost C is incorrect because this is the average total cost D is incorrect because this is the average revenue (1) 3 QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is C A is incorrect because this is likely to increase unemployment B is incorrect as this affects the geographical mobility of labour D is incorrect because this is likely to increase unemployment (1) 4 QS4: Construct and interpret a range of standard graphical forms QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is B A is incorrect because the equilibrium output is not at the lowest point of the AC curve (1)

C is incorrect because the revenue curves would be perfectly elastic D is incorrect because the firm is making normal profit 5 QS4: Construct and interpret a range of standard graphical forms QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is D A is incorrect because the firm is likely to increase employment B is incorrect because the price would be lower than at the profit maximising output C is incorrect because total fixed costs would not fall when output increases (1) 6 QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is A B is incorrect because high wage rates would affect the price elasticity of supply of labour C is incorrect because if the demand for labour is elastic then the demand for the product will be elastic D is incorrect because this would discourage firms from employing workers (1)

#Section B

Question With reference to Figure 1, calculate the percentage change in the wholesale price of gas from 1 April 2021 to 1 April 2022. You are advised to show your working. Answer Mark

#Question 7(a)

Application 2

NB: Award full marks for correct answer (495.7447%,

495.745%, 495.7%, 496%) regardless of working Award full marks if % missing (2)

Question With reference to Figure 2 and Extract A, explain what is meant by the term ‘concentration ratio’. Answer Mark 7(b) Knowledge 2 Application 2 Quantitative skills assessed: QS2: Calculate, use and understand percentages, percentage changes and percentage point changes QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge: Up to 2 marks for the definition of the concentration ratio: - Concentration ratio is the market share of the largest firms (1+1) - The n firm concentration ratio would show the market share of the top “n” firms (1+1) Application: Up to 2 marks for application to Figure 2 and/or Extract A e.g. - The six largest suppliers had a 82.3% of the market by the end of 2021 (1) - The six largest suppliers had a 74.4% of the market in Q4 2020 (1) - The four firm concentration ratio was 64.8% in Q4 2021 (1) - The concentration ratio of the larger gas suppliers increased (1) - The concentration ratio of the top six increased from 74.4% to 82.3% (1+1) - The six firm concentration ratio has increased (1) by 7.9 Percentage points (1) (4)

Question With reference to Figure 2 and Extract A, analyse two barriers to entry that might prevent a new firm from entering the UK energy market. Answer Mark

#Question 7(c)

Knowledge 2 Application 2 Analysis 2

Quantitative skills assessed: QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge and analysis Up to 2 knowledge marks for identifying two reasons and 1 analysis mark for each linked expansion e.g. - Few dominant firms (1K) make it harder for a new firm to compete because of brand loyalty (1AN) - Significant increase in the wholesale price of natural gas (1K) causing an increase in cost of production for new entrants (1AN) - Economies of scale (1K) allows incumbent firms to achieve lower average costs enabling them to lower prices if new firms enter (1AN) - Increased regulation (1K) increases costs to a new firm wanting to enter the market to meet new production standards (1AN) - Price cap (1K) may deter new firms from entering the market if it is unlikely they may be able to make a profit (1AN) Application Up to 2 marks for application to Extract A and/or Figure 2 e.g. - 31 small suppliers have left the market (1) - Six large companies account for 74.4% of the market in Q4 2020/ 82.3% Q4 2021 (1) - Market share of small-sized gas suppliers decreased from 7.2% in Q4 2020 to 3.2% in Q4 2021 (1) - Reference to wholesale price of gas increasing using data from Figure 2 (1) - Price cap was £1 277 in 2021/£1 971 in 2022 (1) NB if more than two barriers considered, credit the best two (6)

Question With reference to Figure 1 and Extract A, examine the impact of the increase in the wholesale price of natural gas on the cost of production for UK gas suppliers. Mark

#Question 7(d)

Knowledge 2 Application 2 Analysis 2 Evaluation 2

Quantitative skills assessed: QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge Up to 2 marks for knowledge of the impact on suppliers’ costs.: - Identification of natural gas as variable costs (1) - Variable costs are a cost that varies with the level of output (1) - Total costs are variable costs plus fixed costs (1) - Increase in costs/total costs (1) Analysis Up to 2 marks for expansion of impact on suppliers’ costs: - An increase in variable causes an increases in marginal cost (1) - Increase in marginal costs increases in average total cost (1) - Credit for relevant diagram (1+1) Application Up to 2 marks for relevant application from Figure 1 and extract 1 e.g.: - Purchasing natural gas accounts for approximately 35% of the total costs for large gas suppliers (1) - This increase in the wholesale price made it impossible for 31 smaller suppliers to cover their costs (1) - Wholesale price increased e.g. from 47p to 280p per therm / 495.74% (1) - Companies have to purchase gas at world market prices (1) Evaluation Up to 2 marks for evaluative comments (1+1) or (2+0), e.g.: - Significance of the rise in wholesale price – 496% (1)

Purchasing natural gas accounts for a significant proportion of the total costs for large suppliers (1) even more significant for small suppliers as 31 left the market (1) - Suppliers may have offset the rise in the wholesale price by decreasing other costs of production (1) - In the long-run, the impact of the rise in cost may not be as significant (1) as prices fell during March 2022 (1) - Depends on the timing of the impact on costs of production (1) (8) Question With reference to Extract A and Extract B, discuss the likely effects of the increase in the energy price cap on both energy suppliers and consumers. Illustrate your answer with an appropriate cost and revenue diagram. Indicative content

7(e) Indicative content guidance

Knowledge, Application, Analysis (8 marks) – indicative content

The price cap for energy has increased by 54%, increasing the price to consumers from price cap 1 to price cap 2 Negative effects on consumers: - Maximum price for energy rises from £1277 to £1971 per year - Consumer surplus will reduce as energy bills have risen - Standards of living will fall as consumers have to switch from consuming other products to cover the additional cost of higher energy prices - Quantity of energy consumed is likely to decrease - Consumers may increase spending on energy saving electricity measures such as green technology, solar panels and insulation Positive Effects on suppliers: - Higher profits: as prices have increased, revenues will increase allowing firms to cover their costs and make higher profits - Firms are more likely to survive in the long-run as they are able to increase their prices - Producer surplus will rise as prices will increase - Increased competition/ lower barriers to entry NB Maximum level 2 if only one economic agent is discussed NB Maximum level 2 if no appropriate cost/revenue diagram is included showing increase in price cap

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 3 (7–8 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using relevant examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (6 marks) – indicative content

Negative impacts on consumers: - The effect on the consumer will depend on their household income. Low-income households may be affected more than high-income households - The UK Government announced help for approximately 28 million households by providing a discount on energy bills worth £200 in 2022. This will reduce the effects of the price cap on consumer surplus

The negative effect on standards of living will be reduced as there would also be a £150 cash payment to some households that will not need to be repaid - If consumers can reduce their energy usage the increase in the cap may not increase their energy bill as much - If consumers use energy saving devices/install solar panels, this may reduce the effects of the price cap Positive impacts on suppliers: - The increase in the price cap may not be sufficient to cover the increase in the wholesale price of gas and some suppliers may make losses - Consumers may continue to reduce their energy usage reducing revenues for the suppliers - If wholesale price rise again, price caps may not be sufficient for suppliers to survive Level Mark Descriptor
Level 0 (0 marks): No rewardable material.
Level 1 (1–2 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (3–4 marks): Evidence of evaluation of alternative approaches Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (5–6 marks): Evaluation recognises different viewpoints and/or is critical of the evidence. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

#Section C

Question Evaluate the view that the objectives of state-owned enterprises and private sector organisations always differ. Illustrate your answer with an appropriate diagram(s). Indicative content

8 Indicative content guidance

they may have either a revenue maximisation objective (MR=0) or a sales maximisation objective (AR=AC) - If there is a divorce between ownership and control private sector organisations may have a satisficing objective State-owned enterprises - State-owned enterprises may be run in order to provide public goods and services and not always to generate a Therefore, these organisations may have other objectives rather than profit - State-owned enterprises may have social objectives to improve standards of living and quality of life. For example health care and education - State-owned enterprises will have an objective to provide a service to the citizens of its country - The social objectives of state-owned enterprises may include greater equality, environmental considerations and social mobility - State-owned firms may have an objective to achieve allocatively efficient pricing, or pricing to avoid a loss

NB if no diagram candidate can achieve a maximum of level 3

If only one economic agent discussed candidate can achieve a maximum of level 3 Accept reverse argument

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

Many privately owned firms may have social objectives as consumers are more socially driven and this can increase demand
Pressure groups and regulators have increased consumers’ awareness of the negative impacts of private firms encouraging them to have more social objectives - Nationalised firms often are regulated to cross-subsidise non-profitable parts of their business - Charitable organisations are privately run but do not make a profit and run to provide a service for society - State-owned enterprises may shut down if they are run at a loss - Some state-owned enterprises do aim to make a profit e.g. to create additional revenue for the government. For example governments investing in private partnerships or profit making businesses Level Mark Descriptor
Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

Question Evaluate the likely impacts of monopsony power on employees and suppliers. Refer to a firm with monopsony power in your answer. Indicative content

9 Indicative content guidance

Answers must be credited by using the level descriptors (below) in line with the general marking guidance. The indicative content below exemplifies some of the points that candidates may make, but this does not imply that any of these must be included. Other relevant points must also be credited. Quantitative skills assessed: QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. - The definition of monopsony - a monopsony is where there is a single buyer in the market - The definition of monopsony power – where a firm has significant buying power over its suppliers Impact on suppliers - Lower prices for their goods because there is no-one else to sell their product to - Decreasing revenue for the suppliers - This causes a fall in supernormal profits for the suppliers and potentially puts them out of business if prices fall too low - Lower producer surplus for suppliers that may prevent them from investing as much, reducing dynamic efficiency - Less negotiating ability over contracts, which may prevent suppliers from being able to sell their agricultural products to other supermarkets - Lack of bargaining power may allow monopsonists to pass costs onto suppliers, reducing profit margins - Increased dependence on one main customer, making them more vulnerable if that customer were to go out of business Impact on employees - The monopsony employer has buying power over its potential employees. This gives it wage-setting power in the industry’s labour market - Employment might be lower in the industry as there are less opportunities for workers - Monopsonies may pay lower wages and provide poorer working conditions compared to a competitive labour market NB Maximum level 3 if no reference to a firm with monopsony power

Maximum of level 3 if only one economic agent is discussed

Accept reverse argument Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

Suppliers: - Monopsony may offer more stable contracts guaranteeing demand for the suppliers, this may encourage more investment and dynamic efficiency from the suppliers - If the monopsony is socially responsible, suppliers may be paid a fair amount for their products - If monopsony power is weak/not significant, prices might not be that different to a competitive market - There is often government intervention in monopsony markets that prevents the monopsony from abusing its dominance - Farmers may organise into cooperatives to increase their bargaining power against the monopsony - Businesses will attempt to find other alternative routes to market eg, farmers market or farm shop Employees: - Job security is likely to be higher than in more competitive markets - Walmart/the firm may not be the only employer of workers therefore they may pay higher wages than a pure monopsony - If a trade union exists, wages may be higher depending on the relative bargaining power of the union/monopsony - Many monopsony employers are governments that do not profit-maximise and may seek to prioritise other objectives such as well-being Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning. Question Evaluate the benefits of growth by takeover for a business in an industry of your choice. Illustrate your answer with an appropriate diagram(s). Indicative content

10 Indicative content guidance

The firm may be able to reduce duplication e.g. where they both have a marketing department and so will be able to reduce costs - The firm may benefit from sharing expertise/research and development skills - A takeover may result in cost savings if the integration occurs with a supplier (backward vertical integration, fast food chain purchasing a farm) – - Takeover may create greater control over suppliers if backward integration which could increase barriers to entry in the industry - A takeover may enable a firm to spread its risk if moving into new markets/diversifying products (conglomerate integration) - If taking over a firm at a later stage of production (forward vertical integration, car manufacturer integrating with car show rooms), the firm may be able to increase revenue by selling directly to the consumer - Horizontal takeover would allow the firm to increase market share - A takeover enables a firm to expand quickly into new markets - A takeover may increase market power enabling the new firm to increase price/restrict output/ or allow an established firm to expand quickly

NB if no diagram candidate can achieve a maximum of level 3

If no reference to an industry maximum level 3 Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer.

Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.

Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

Takeovers can be expensive, increasing costs and decreasing profits - Culture clashes may occur between the firms if they were run differently, causing diseconomies of scale - The larger firm may cause communication problems - The takeover may cause concern for competition authorities and lead to government intervention - The firm may enter into new markets where they have little or no expertise - The firm may grow too fast raising costs and lowering profits - Many takeovers may end up being unsuccessful, resulting in demergers Level Mark Descriptor 0 No evaluative comments.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

Pearson Education Limited. Registered company number 872828 with its registered office at 80 Strand, London, WC2R 0RL, United Kingdom

#WEC13 Mark Scheme — June 2023 {#june-2023}

Pearson Edexcel International Advanced Level in Economics (WEC13)

Unit 3: Business Behaviour — Paper 01

#General Marking Guidance

All candidates must receive the same treatment. Examiners must mark the first candidate in exactly the same way as they mark the last. - Mark schemes should be applied positively. Candidates must be rewarded for what they have shown they can do rather than penalised for omissions. - Examiners should mark according to the mark scheme not according to their perception of where the grade boundaries may lie. - There is no ceiling on achievement. All marks on the mark scheme should be used appropriately. - All the marks on the mark scheme are designed to be awarded. Examiners should always award full marks if deserved, i.e. if the answer matches the mark scheme. Examiners should also be prepared to award zero marks if the candidate’s response is not worthy of credit according to the mark scheme. - Where some judgement is required, mark schemes will provide the principles by which marks will be awarded and exemplification may be limited. - When examiners are in doubt regarding the application of the mark scheme to a candidate’s response, the team leader must be consulted. - Crossed out work should be marked UNLESS the candidate has replaced it with an alternative response.

#Section A

Question Quantitative skills assessed Answer Mark 1 QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is C A is incorrect because the firms are at the same stage of production B is incorrect because the firms are at the same stage of production D is incorrect because the firms are in the same industry (1) 2 QS4: Construct and interpret a range of standard graphical forms QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is D A is incorrect because marginal costs are rising B is incorrect because there are diseconomies of scale C is incorrect because marginal costs are rising (1) 3 QS6: Calculate cost, revenue and profit (marginal, average, totals) QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is B A is incorrect because this is the increase in the wage for the original 50 workers C is incorrect because this is the total cost of employing 50 workers D is incorrect because this is the total cost of employing 51 workers (1) 4 QS4: Construct and interpret a range of standard graphical forms QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is D A is incorrect because the number of firms would fall B is incorrect because the firm is making a loss C is incorrect because the firm is making a loss and the number of firms would fall (1) 5 QS4: Construct and interpret a range of standard graphical forms QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is D A is incorrect because at this level of output profits would be maximised B is incorrect because at this level of output total revenue will not be maximised C is incorrect because at this level of output average revenue will be greater than zero (1) 6 QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is B A is incorrect because this indicates that barriers to entry are low C is incorrect because this would encourage entry into the industry (1)

D is incorrect because this suggests that it is relatively easy for firms to enter the industry

#Section B

Question With reference to Figure 1, calculate the percentage change in Deliveroo’s total revenue between 2017 and 2021. Answer Mark

#Question 7(a)

Application 2

NB: Award full marks for correct answer (558.48, 558.5,

558, 559) regardless of working. Award full marks if % is omitted. (2) Question With reference to Figure 2, explain the market structure of the UK food delivery market in 2021. Answer Mark 7(b) Knowledge 2 Application 2 Quantitative skills assessed: QS1: Calculate, use and understand ratios and fractions QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge: 1 mark for the identification of the market structure: - Identification of oligopoly (1) 1 mark for identification of a characteristic of this market structure - A small number of firms dominate the market/interdependence/imperfect information/ differentiated goods/high barriers to entry/ high concentration ratio (1) Application: Up to 2 marks for application to context of the food delivery market (1+1) e.g.: - The 3-firm concentration ratio was 94%(2) (4)

The 4-firm concentration ratio was 97% (2) - Deliveroo and Uber Eats combined market share was 54% in 2021 (1) - Just Eat had the largest market share (40%) (1) Question With reference to Extract B, analyse two factors that influence the demand for online food delivery. Answer Mark

#Question 7(c)

Knowledge 2 Application 2 Analysis 2

Quantitative skills assessed: QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge and analysis Up to 2 marks for identifying two factors influencing the demand for online food delivery and 1 analysis mark for each linked expansion: - Change in consumer preferences (1K) less demand for luxury items as people focus on buying essential items (1AN) - Change in real incomes (1K) e.g. real wages fell by 5.1% in June 2022 in the EU causing a fall in demand for online food deliveries (1AN) - Change in the number of people living in cities (1K) when more people move to cities there will be greater demand for online food deliveries (1AN) - Change in advertising/marketing expenditure (1K) e.g. increase in marketing expenditure is likely to raise consumer awareness and lead to an increase in demand (1AN) - Change in technology (1K) improvements in internet connectivity and smart phone usage have made online ordering more popular (1AN) - Increasing access to technology (1K) making online ordering easier and available to a wider range of consumers (1AN) Application Up to 2 marks for use of the context e.g. - The average value of an order for a takeaway meal fell (1) - From 2015 to 2025, there is expected to be a 7.6% increase in the population living in cities in the UK (1) - In the European Union in June 2022 the annual growth in wages was 4.5% (1) but the annual inflation rate was 9.6% (1) - Just Eat’s marketing expenditure in the first half of 2021 totalled £252 million (1) - Online ordering and food delivery is growing at an annual rate of between 15% (1) and 20% in the UK (1) (6)

Question With reference to Figure 1 and the first paragraph of Extract B, examine two reasons why Deliveroo is making a loss. Illustrate your answer with an appropriate diagram(s). Answer Mark

#Question 7(d)

Knowledge 2 Application 2 Analysis 2 Evaluation 2

Quantitative skills assessed: QS4: Construct and interpret a range of standard graphical forms QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge A diagram that shows knowledge of: - Downward sloping AR and MR (1) - MC=MR and loss-minimising equilibrium (1) Analysis A diagram that shows knowledge of: - Area of loss identified (1) - AC above AR (1) Application - Loss of £298m (1) - Revenue was increasing but at a slower rate than the costs of production (1) - loss rose by £99m/ Loss rose from £199m (1) to £298m (1)/ Loss rose by 49.7% (1+1) (8)

Increase costs of production (1) - Fuel costs have increased (1) - In 2021 Deliveroo made a loss of £298 million (1) - Marketing costs and fixed costs increased from £358.5 million in 2020 to £628.7 million in 2021 (1) - High rates of inflation across Europe (1) - For calculation of total costs in 2020 (£1386m) and 2021 (£2122m) (1+1) Evaluation Up to 2 marks for evaluative comments (1+1 or 2 + 0), e.g.: - The cost increase may only be in the short-run and profits may increase in the long-run (1) once the market has matured (1)/ marketing expenditure begins to fall (1) - Revenue is still increasing and may increase further if real wages have risen (1) - Deliveroo may reduce their costs by shutting down less profitable parts of their business (1) This would reduce costs and may increase profits (1) - Price of fuel /rates of inflation may fall in the future (1) - Significance of cost increase (1)

Question Indicative content With reference to the information provided, discuss the strategies used by food delivery businesses to increase their market shares. Refer to game theory analysis in your answer.

7(e) Indicative content guidance

Knowledge, Application, Analysis (8 marks) – indicative content

Understanding of non-price competition e.g. - Increase in advertising: aim is to increase demand and to make demand less price elastic - Offering more services to consumers e.g. differentiation through deliveries of grocery shopping along with takeaway orders - Use of app. Making it quicker and easier for customers to order takeaways Understanding of price competition - Deliveroo aims to increase market share - reference to sales volume/revenue maximisation through lowering prices - Reference to predatory pricing as an example of price war ‘to force other competitors to leave the market’ - Limit pricing to increase barriers to entry/forcing others to leave the market to increase market share - ‘A price war’ : suggests that there was no collusion between the businesses. Reference to game theory, with or without the diagram, to explain effect of no collusion between firms:

The diagram above demonstrates that a price war would result in both businesses making a loss – reference to data in Figure 1 NB response must make reference to game theory in answer to achieve level 3 Level Mark Descriptor
Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 3 (7–8 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using relevant examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (6 marks) – indicative content

Price competition likely to result in losses (use of game theory) - In long-run one or more businesses might exit the industry - Advertising likely to be very expensive – costs incurred might be less than the extra revenue gained - Non-price competition might be ineffective in increasing market share - Game theory suggests that there will be an incentive for businesses to collude to maximise profits
Collusion and predatory pricing are illegal in most countries and businesses could be fined Level Mark Descriptor
Level 0 (0 marks): No rewardable material.
Level 1 (1–2 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (3–4 marks): Evidence of evaluation of alternative approaches Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (5–6 marks): Evaluation recognises different viewpoints and/or is critical of the evidence. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

#Section C

Question Evaluate the impact of imposing a maximum wage. Illustrate your answer with an appropriate diagram(s). Indicative content

8 Indicative content guidance

Contraction of supply of labour QL- QL2 - Extension of demand for labour QL-QL1 that cannot be fulfilled - Shortage or excess demand for labour - 200 executives resigned from banking sector - The pay would not reflect the responsibilities - Likely to move to other countries/ occupations without a maximum wage - Loss of highly skilled and experienced banking executives - Efficiencies are reduced - May impact government finances, less tax revenue - Profits could fall as a result of loss of highly skilled workers - 200 banking executives leaving might be a significant loss to the Egyptian banking sector

NB if no diagram candidate can achieve a maximum of level 3

Negative impacts of national minimum wage may be regarded as KAA and positive impacts as evaluation or vice versa Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

Impact on supernormal profits/reducing wage costs/reducing average costs and leading to higher profits - Labour may be immobile between countries/occupations - Other policies might be more effective- e.g. progressive taxes - Service charges to consumers are reduced as costs fall for banks - Impact on shareholders – dividends would rise if profits increased - Reduction in the difference between those earning the minimum wage and the highest earners - Improvements in equality in the country - Impact depends on gap between the competitive wage and the maximum wage - The Egyptian banks are likely to offer other incentives to retain workers e.g. bonus, company car - 200 banking executives leaving might be a significant loss to the Egyptian banking sector - Only impacts a small number of employees, therefore may not be significant - The government may not set the optimal level of the maximum wage Level Mark Descriptor
Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

Question Evaluate the impact of a profit maximising monopolist being nationalised. Illustrate your answer with an appropriate diagram(s). Indicative content

9 Indicative content guidance

The nationalised EDF is likely to be more regulated than a private energy business as it is run using tax revenues. This could lead to more productive and allocative efficiency - The energy produced might make more use of green technology as the government may have environmental objectives

NB if no diagram candidate can achieve a maximum of level 3

Positive impacts of nationalisation may be regarded as KAA and negative impacts as evaluation or vice versa Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

A nationalised business may be more inefficient than a profit maximising monopolist, as it lacks a profit motive. Therefore there may be a reduction in allocative/productive/dynamic efficiency - Lack of efficiency may increase costs of production for energy, these would be passed onto the consumer with higher energy prices - There is no guarantee that nationalisation would ensure stability of supplies - Marginal cost pricing could result in losses if EDF is a natural monopoly
There might be an increase in diseconomies of scale caused by poor management as the French Government are not expert in energy provision allowing costs to rise - X-inefficiency may cause costs to increase caused by complacency and lack of competition, actual AC above potential AC - The energy firms might be under-funded as a result of the government preferring to invest in other aspects of the economy - EDF may run at a loss/deficit, which may force the government to divert funds from key areas of the French economy to provide support - Nationalised firms are not able to access commercial loans, restricting their access to finance, hindering investment Level Mark Descriptor
Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning. Question Evaluate why the objectives of small and medium-sized enterprises may differ from those of large enterprises. Illustrate your answer with an appropriate diagram(s). Indicative content 10

Indicative content guidance

QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Small/medium-sized enterprises - Small businesses have less than 50 employees and a annual turnover under £10 million/ Medium sized business have less than 250 employees and an annual turnover under £50 million - Smaller businesses in Malaysia are more likely to remain small and not have growth as an objective because they may lack the finances available to invest in new technologies to expand. This prevents them from increasing output and growth - The high level of competition in the market for small and mediumsized enterprises making the business have survival as its objective survival - Smaller/medium-sized enterprises may have survival as an objective as they lack the market power to influence the price or their profit levels - They may remain small as the owners has the objective of retaining control of the business Large enterprises - Large enterprises are more likely to profit maximise because they have the market power to influence the price and quantity where MC=MR

Large enterprises could also maximise revenues where MR=0 because they want to increase market share and/or to deter the entry of new firms and/or to force other competitors out of the market - Large enterprises might have an objective to achieve economies of scale to reduce costs and increase supernormal profit. They will expand to reach their MES at Q1 - Large enterprises are more likely to profit satisfice as they are more likely to experience divorce of ownership from control

NB if no diagram candidate can achieve a maximum of level 3

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples.

Descriptive approach which has no chains of reasoning.

Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

It depends on the nature of the good. Some enterprises firms in niche markets may have the objective of profit maximisation especially if demand for the product is inelastic - The objective depends on the level of competition, the more competitive the market the more likely sales volume maximisation is the objective even if the enterprise is large - Government support for small and medium-sized enterprises would help them to expand and overcome obstacles such as lack of finance - If the large enterprise is a charity or a government-owned enterprise, profits might not be the objective of the business/ large firms may have environmental and social objectives - Small/medium-sized enterprises may have sales volume maximisation as an objective as the level of competition would make the demand for their products more elastic. Therefore they are likely to set a price and quantity where AC=AR resulting in normal profits

Mark Descriptor 0 No evaluative comments.

Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

#WEC13 Mark Scheme — October 2023 {#october-2023}

Pearson Edexcel International Advanced Level in Economics (WEC13)

Unit 3: Business Behaviour — Paper 01

#General Marking Guidance

All candidates must receive the same treatment. Examiners must mark the first candidate in exactly the same way as they mark the last. - Mark schemes should be applied positively. Candidates must be rewarded for what they have shown they can do rather than penalised for omissions. - Examiners should mark according to the mark scheme not according to their perception of where the grade boundaries may lie. - There is no ceiling on achievement. All marks on the mark scheme should be used appropriately. - All the marks on the mark scheme are designed to be awarded. Examiners should always award full marks if deserved, i.e. if the answer matches the mark scheme. Examiners should also be prepared to award zero marks if the candidate’s response is not worthy of credit according to the mark scheme. - Where some judgement is required, mark schemes will provide the principles by which marks will be awarded and exemplification may be limited. - When examiners are in doubt regarding the application of the mark scheme to a candidate’s response, the team leader must be consulted. - Crossed out work should be marked UNLESS the candidate has replaced it with an alternative response.

#Section A

5 QS4: Construct and interpret a range of standard graphical forms QS6: Calculate cost revenue and profit (marginal, average, totals) QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is C A is incorrect because this is the AFC at 20 000 shirts B is incorrect because this is the AFC at 15 000 shirts D is incorrect because this is the AFC at 5 000 shirts (1) 6 QS8: Make calculations of elasticity and interpret the result QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is B A is incorrect because the demand is more price elastic in the daytime than the evening. C is incorrect because the supply of seats in a cinema would be perfectly inelastic D is incorrect because the elasticity of supply will not vary between the daytime and evening (1)

#Section B

Question With reference to Figure 2, calculate the percentage change in the price of the Model 3 Rear Wheel Drive vehicle between January and October 2022. Answer Mark

#Question 7(a)

Application 2

NB: Award full marks for correct answer (5% or 5) regardless of

working

NB: Award full marks if negative sign is missing

(2)

Question Reference to Extract A, analyse two reasons why sales of electric vehicles in China increased. Illustrate your answer with a supply and demand diagram. Answer Mark

#Question 7 (b)

Knowledge 2, Application 2, Analysis 2

Quantitative skills assessed: QS4: Construct and interpret a range of standard graphical forms QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge Up to 2 marks for the diagram showing: - Original supply, demand and equilibrium price and quantity (1) - New equilibrium price and quantity having correctly shifted demand (1) Analysis Up to two marks for reasons from Extract A, e.g.: - Measures to reduce CO2 emissions in order to meet its climate change goals by 2030 (1) - Increasing the number of charging points (1) - Raising the tax on non-electric vehicles (1) - The global increase in the price of fuel has also led to an increase in demand for electric vehicles (1) Application 1 mark for correct shift of demand on diagram: - Shift demand to the right (1) 1 mark for reference to change in sales: - Between 2021 and 2022 the sales of electric vehicles in China increased by 83% to 5.92 million (1)

(6)

Question With reference to Figure 1 and Extract B, explain the market structure that best describes the electric vehicle market in China. Answer Mark 7(c) Knowledge 2 Application 2 Quantitative skills assessed: QS2: Calculate, use and understand percentages, percentage changes and percentage point changes QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge: 1 mark for identification of oligopoly (1) 1 mark for identification of a characteristic of oligopoly e.g. - a few dominant firms/ - a high concentration ratio/ - interdependence/ - high barriers to entry/ - imperfect information/ - differentiated goods/ - non-price competition (1) Application up to 2 marks for application to Figure 1 or Extract B (1+1): Figure 1 - The three-firm concentration ratio is 53%/ The four-firm concentration ratio is 59%/ The five-firm concentration ratio is 64%/ The six-firm concentration ratio is 68% (1+1) Extract B: - The lower prices of Tesla’s electric vehicles had a significant impact on its competitors/ Domestic and other international manufacturers responded by reducing their prices for electric vehicles as they competed for market share (1) (4)

Question With reference to the first two paragraphs of Extract B, examine the impact of Tesla producing its electric vehicles in China on its costs and profits. Illustrate your answer with a costs and revenues diagram. Answer Mark

#Question 7(d)

Knowledge 2 Application 2 Analysis 2 Evaluation 2

Quantitative skills assessed: QS4: Construct and interpret a range of standard graphical forms QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Decreasing costs Knowledge Up to 2 marks for drawing a diagram that shows knowledge of: - Original AR, MR, AC1, MC1 and profit-maximising equilibrium (1) - Original supernormal profit area P1FGC1 (1) Analysis Up to 2 marks for linked explanation of impact on Tesla’s profits e.g.: - Decrease in AC causes a downward shift in MC and AC curves to MC2 and AC2 (1) - Area of new supernormal profit identified P2HJC2 (1) Application Up to two marks for reference to Extract B: - Tesla was able to take advantage of government subsidies aimed at promoting the domestic electric vehicle industry lowering their costs (1) Tesla benefited from low-cost labour (1) - China has become a key manufacturing centre for Tesla, with the Shanghai factory producing over 710 000 vehicles in 2022 (1) - Tesla improved its efficiency from producing in Shanghai (1)

Evaluation Up to 2 marks for evaluative comments, e.g.: - Costs may have risen (1) as production has been difficult in China/ Tesla faced supply chain disruptions due to the global health crisis/ Tesla’s costs of production have risen/Tesla had to pay taxes on imported components and finished vehicles (1) - When the subsidies end costs will rise again reducing profit (1+1) - As averages incomes in China rise the wages will rise reducing the costs advantages (1+1) Increasing costs Knowledge Up to 2 marks for drawing a diagram that shows knowledge of: - Original AR, MR, AC1, MC1 and profit-maximising equilibrium (1) - Original profit area P1FGC1 (1) Analysis Up to 2 marks for linked explanation of impact on Tesla’s profits e.g.: - Increase in MC and AC causes an upward shift in MC and AC curves to MC2 and AC2 (1) - Area of new supernormal profit P2HIC2 (1) Application Up to 2 marks for application to Extract B - Production has been difficult in China (1) - Tesla faced supply chain disruptions due to the global health crisis (1) - Tesla’s costs of production have risen (1) - Tesla had to pay taxes on imported components and finished vehicles (1) Evaluation - Costs may in fact have fallen (1) as Tesla was able to take advantage of government subsidies aimed at promoting the domestic electric vehicle industry lowering their costs /Tesla benefited from low-cost labour/ China has become a key manufacturing centre for Tesla, with the Shanghai factory producing over 710 000 vehicles in 2022/ Tesla improved its efficiency from producing in Shanghai (1) - Depends on the proportion of total costs labour makes up if it is capital intensive it will be less important (1+1) - In the long run the supply chain problems will reduce helping to lower costs and increasing profits (1+1) (8)

Question (e) With reference to the information provided and your own knowledge, discuss the impact of Tesla reducing its prices on the behaviour of other electric vehicle manufacturers. Indicative content

7(e) Indicative content guidance

Knowledge, Application, Analysis (8 marks) – indicative content

Tesla has engaged in price competition - Price competition is a type of competition where businesses compete against each other by offering lower prices for their goods or services - Tesla has tried to attract more customers and increase market share by offering a lower cost alternative to other electric car producers - Tesla’s current market share of 12% is below that of SAIC (25%) and BYD (16%) - Price leadership encouraged other electric car vehicle manufacturers to lower their prices - There might be a price war in the Chinese car market - Reward appropriate game theory matrix, supported with explanation - Some manufacturers may use non-price competition as means of increasing their market shares e.g. advertising, branding, product differentiation - Tesla may be using limit pricing- the reduced prices are in place to limit the profits- this may reduce the likelihood of competitors entering the market to seek profit - Predatory pricing is where the firm prices below its AVC in order to put pressure on the competition to leave the market as they will be loss making- this may result in loss of competitors/competitors exiting the market - Competitor may report Tesla to competition authorities for predatory pricing

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 3 (7–8 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using relevant examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (6 marks) – indicative content

If electric vehicle manufacturers are able to differentiate their vehicles from Tesla they may not need to compete over price - There may be little impact on other vehicle manufacturers if they have a strong reputation for reliability, safety and quality - Other vehicle manufacturers in China benefit from government subsidies and low wage costs. Therefore they can also lower prices and are not significantly impacted - If Tesla/other vehicle manufacturers experience increase in costs in the long-run they may have to increase their prices - Lower prices may decrease super-normal profits reducing the available capital to spend on non-price competition - Firms are interdependent and therefore they will all copy each other’s non-price competition strategy - Vehicle manufacturers do not benefit if a price war starts as they may all lose revenue, reducing the incentive to continue to reduce prices - SAIC is in a stronger position to withstand competition from Tesla given that its market share is more than double that of Tesla - Predatory pricing is illegal and Tesla may be fined/ lose consumer confidence

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–2 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (3–4 marks): Evidence of evaluation of alternative approaches Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (5–6 marks): Evaluation recognises different viewpoints and/or is critical of the evidence. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

#Section C

Question Evaluate policies that a government could use to control and regulate monopolies, such as PTCL. Illustrate your answer with an appropriate diagram(s). Indicative content

8 Indicative content guidance

Answers must be credited by using the level descriptors (below) in line with the general marking guidance. The indicative content below exemplifies some of the points that candidates may make, but this does not imply that any of these must be included. Other relevant points must also be credited. Quantitative skills assessed: QS4: Construct and interpret a range of standard graphical forms. QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. - Price regulation: prevents monopolies from charging a price much higher than the price set under competitive market conditions. The government will set a maximum price below the current price (Pm to Pc) to increase allocative efficiency and reduce supernormal profits - Limiting the amount of profit monopolies such as PTCL are allowed to make. A maximum level of profit can be set equal to what the regulator thinks a firm would earn in a competitive market. - Performance targets: would increase the quality of services e.g. internet services provided in Pakistan. The government would monitor the quality of the service, e.g. speed, reliability and coverage and set targets to improve, this increases the performance of the business and improves the experience for the consumer - Quality standards: the government could enforce standards e.g. to ensure that PTCL improves the quality of the internet by imposing fines on PTCL if it does not improve the quality of its service

Regulatory authorities can regulate against anti-competitive practices such as predatory pricing or price discrimination. These monopolies could be fined. This acts as a deterrent for monopolies and discourages them from acting in a way that is negative for consumers - Control mergers and takeovers to avoid the creation of monopolies. These monopolies could distort the market by reducing quality and/or increase prices. This would maintain the level of competition in the market maximising consumer welfare - Nationalisation: Government control of monopolies would change their objectives to work in the interest of the consumer as the business would not have a profit incentive - Measures to reduce barriers to entry e.g. subsidies to new entrants; reducing patent protection would increase competition in the market

NB if no diagram candidate can achieve a maximum of level 3

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

` Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

Evaluation (8 marks) – indicative content

Limiting profits can reduce dynamic efficiency. This might cause a lack of productive efficiency in the long-run the fine for not meeting the performance targets is too low, the monopoly would not have the incentive to change its production methods/services - A lack of regulatory power may stop the regulator from effectively controlling the operations of the monopoly - If price regulation is set too low, the monopoly may make a loss, reducing the opportunity for dynamic efficiency or causing the monopoly to close down - Regulatory capture means the regulator may act in the interests of the monopolists rather than consumers - Unintended consequences e.g. reduced quality of service to consumer - Information gaps mean the regulator does not have the required information to effectively control and regulate monopolists - Government failure may occur where government intervention results in a net welfare loss

Question Evaluate policies that a government could use to reduce the geographical immobility of labour and the occupational immobility of labour. Refer to industries of your choice in your answer. Indicative content

9 Indicative content guidance

Answers must be credited by using the level descriptors (below) in line with the general marking guidance. The indicative content below exemplifies some of the points that candidates may make, but this does not imply that any of these must be included. Other relevant points must also be credited. Quantitative skills assessed: QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Occupational immobility of labour refers to the difficulty that workers face in switching between different occupations Belgium has a skills shortage as unemployed people are unable to fill the vacancies available. Policies to improve the occupational immobility of labour are therefore needed Policies to overcome occupational immobility of labour: - Skills training programs: Governments may provide skills training programs to help workers acquire new skills and move to a different occupation - Apprenticeship programs: Governments may offer apprenticeship programs e.g. in engineering or robotics, to provide training to increase vocational skills and fill gaps in the market - Education and training subsidies: Governments may provide subsidies to support education and training programs for workers who are looking to move to a different occupation e.g. subsidies for workers training for medical professions - Labour market information/support with job searches: Governments may provide up-to-date labour market information to help workers make informed decisions about their careers and the skills they need - Support for small businesses: Governments may offer support to small businesses to create new job opportunities and reduce occupational immobility - Tax incentives for employing workers: The government may offer tax incentives to employers who hire individuals who are facing difficulty finding work, such as those with disabilities Geographical immobility of labour is the difficulty of workers moving from one location to another Policies to overcome geographical immobility of labour:

Relocation assistance: e.g. The Government provides financial support to low-income workers/the unemployed who need to move for work, helping them with the cost of moving - Housing subsidies: providing housing subsidies to low-income workers/the unemployed to help them afford to move to areas with better job opportunities with high living costs - Transportation infrastructure: Improving transportation infrastructure, such as roads, train links and public transport, can make it quicker/easier for workers to move to areas with job opportunities - Labour market information: better provision of information about job opportunities in different regions, to help workers make informed decisions about moving - Job creation in local areas: encourage job creation in areas with high unemployment by providing tax incentives and other subsidies to businesses that locate in these areas - Regional/industrial policy e.g. freeports or joining a trading bloc/ common market to reduce national barriers to the mobility of labour

NB: award a maximum of level 3 for a response that does not refer to

industries

NB: award a maximum of level 3 for a response that does not consider both

types of immobility of labour

Level Mark Descriptor 0 No rewardable material. Level11–3 Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning. Level24–6 Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence. Level37–9 Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted. Level4 10–12 Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

Occupational immobility policies: - There may be a lack of funding for policies to address immobility of labour. If there is a lack of government funding or political will to support these policies, they may not be implemented - There could be structural barriers: factors such as discrimination or lack of access to education and training could be causing the immobility. Therefore, short-term policies are not likely to be effective - Workers might be resistant to changes in their occupations - The market conditions could change, and policies aimed at overcoming occupational immobility may not keep pace with these changes, or may not be flexible enough to respond to shifting labour market demands - Workers may not have the skill level to retrain to fill gaps in the market Geographical immobility policies: - Individuals may have strong personal and family ties that prevent them from moving, such as caring for elderly relatives or having children in school - Workers may resist moving, especially if they are familiar with their current community and have established social networks - Policies are costly and require significant investment in infrastructure. if there is a lack of government funding they may not be implemented or be underfunded - Time lags in building infrastructure may occur and the problem will not be resolved in the short-run - Workers may not have enough information about job opportunities and the conditions in different regions, making it difficult for them to make informed decisions about moving

Level Mark Descriptor 0 No rewardable material. Level11–3 Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence ofa logical chain of reasoning. Level24–6 Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported bya partially-developed chain of reasoning. Level37–8 Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported bya logical chain of reasoning.

Question Evaluate the impact that the size of a business has on its efficiency. Illustrate your answer with an appropriate diagram(s). Indicative content 10

Indicative content guidance

Answers must be credited by using the level descriptors (below) in line with the general marking guidance. The indicative content below exemplifies some of the points that candidates may make, but this does not imply that any of these must be included. Other relevant points must also be credited. Quantitative skills assessed: QS4: Construct and interpret a range of standard graphical forms. QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. - Larger businesses, such as Nestlé, might be more productively efficient than smaller businesses (producing at the MES) - Nestlé has access to more resources and economies of scale, which can lead to increased efficiency compared to smaller food-producing businesses - Large production runs in producing food and beverages will lower unit costs, and will enable fixed costs to be spread over a larger output. This may enable the business to produce at the productively efficient level of output - The large businesses produce at Q1 compared to Q and is able to produce at a lower cost C1 - Large businesses, such as Nestlé, have specialised division of labour or capital equipment e.g. specialist packaging machines. These might improve efficiency in production, lowering average cost when producing at a higher level of output - Large businesses might be more dynamically efficient - The large business likely to have more price setting ability in the market allowing them to set higher prices and make supernormal profits. The supernormal profits can be reinvested into improving production or better-quality capital, investing in research and development

Small businesses in perfect competition/monopolistic competition are unable to make supernormal profits in the long-run and are therefore unable to invest in improving dynamic efficiency - Large businesses that are cross-subsidising might be more allocatively efficient than smaller firms as they can reallocate profits to lower the prices of essential goods

NB: award a maximum of level 3 if no appropriate diagram is drawn

Accept reverse argument as KAA

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

A large business may suffer from diseconomies of scale making them less productively efficient - If suffering from x-inefficiency, the large firms’ average costs will rise increasing productive inefficiency - Small businesses may operate in a niche market where they are able to set high prices and make super normal profits that can be reinvested back into dynamic efficiency - Large businesses may have less incentive to innovate and find more efficient ways of doing things because of their dominant market position and economies of scale - A large business may suffer from inertia and be slow to respond to changes in the market or to new opportunities because of their size and investments in their existing operations - A small business can be more productively and dynamically efficient than large firms because they are often more flexible and responsive to market changes. They have lower overhead costs, less bureaucratic decision-making processes, and can quickly change their production processes to meet the needs of customers - A smaller business might be more allocatively efficient (P=MC). A business in perfect competition has to take the market price where P=MC=AC=AR=MR therefore are allocatively efficient because of their lack of price setting ability. A larger business has price setting ability and can set at a price above MC

Level Mark Descriptor 0 No evaluative comments.

Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

Pearson Education Limited. Registered company number 872828 with its registered office at 80 Strand, London, WC2R 0RL, United Kingdom

#WEC13 Mark Scheme — January 2024 {#january-2024}

Pearson Edexcel International Advanced Level in Economics (WEC13)

Unit 3: Business Behaviour — Paper 01

#Section A

Question Quantitative skills assessed Answer Mark 1 QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is C A is incorrect because the firms are in the same industry B is incorrect because the firms are at the same stage of production D is incorrect because the firms are at the same stage of production (1) 2 QS6: Calculate cost, revenue and profit (marginal, average, totals) QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is B A is incorrect because this is the MR at $12 C is incorrect because this is the average revenue at $12 D is incorrect because this is the average revenue at $14 (1) 3 QS4: Construct and interpret a range of standard graphical forms QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is A B is incorrect as the business will make normal profit C is incorrect because the business will reduce output D is incorrect because the price will fall (1) 4 QS4: Construct and interpret a range of standard graphical forms QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is D A is incorrect because average revenue would be greater than marginal cost B is incorrect because marginal revenue would be lower than average revenue C is incorrect because marginal revenue would be less than total cost (1) 5 QS8: Make calculations of elasticity and interpret the result. QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is A B is incorrect because this would result in an elastic demand for construction workers C is incorrect because this would result in an elastic demand for construction workers D is incorrect because this would influence the supply of construction workers (1) 6 QS4: Construct and interpret a range of standard graphical forms QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is B A is incorrect because price would be below average cost C is incorrect because price leadership occurs when businesses follow the price of (1)

a dominant business in the market D is incorrect because shortrun profit maximisation occurs where marginal cost is equal to marginal revenue

#Section B

Question With reference to Figure 1 and Extract A calculate the number of workers employed by SMEs in Bangladesh. You are advised to show your workings. Answer Mark

#Question 7(a)

Application 2

NB: Award full marks for correct answer (24.9 million,

24.86 million / 24.867 million/ 24.8 million/25 million)

NB: only award 1 mark if million omitted (2)

Question With reference to Figure 1 and Extract A, explain what is meant by the term ‘monopolistic competition’ Answer Mark 7(b) Knowledge 2 Application 2 Quantitative skills assessed: QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge: 1 mark for the reference to number of firms e.g.: - Monopolistic competition occurs when there are many small businesses in the same market (1) 1 mark for one appropriate characteristic e.g.: - Products that are similar/not homogenous/slightly differentiated/ - Freedom of entry and exit/ - Imperfect knowledge/information/ - Businesses face a downward sloping demand curve/highly elastic demand curve/ - Employ low skilled workers – therefore low entry barriers/ - Short-run supernormal profit/long-run normal profit/ - Businesses in monopolistic competition differentiate their products through non-price competition (1) Application: 1 mark for application to Figure 1 e.g.: - There are 6 103 medium-sized businesses/ 14.3% of total number of businesses - There are 33 050 small-sized businesses/ 77.2% of total number of businesses (1) - There are 39153 SMEs / 91.5% of total number of businesses (1) 1 mark for application to Extract A: - Many SMEs compete in the agriculture, garment and textile industries - Most businesses in these industries operate in monopolistically competitive markets (1) - Restricted differentiation of (agricultural, garment and textile) products between business in these markets (1) (4)

Question With reference to Extract B, examine the impact of rising energy costs on the profits of a garment manufacturer in Bangladesh. Illustrate your answer with an appropriate diagram. Mark

#Question 7(c)

Knowledge 2 Application 2 Analysis 2 Evaluation 2

Quantitative skills assessed: QS4: Construct and interpret a range of standard graphical forms QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge Up to 2 marks for drawing a diagram that shows knowledge of: -Original equilibrium price and output: Q1P1(1) -Increase in costs showing upward shift from MC1 to MC2 and AC1 to AC2 (1) Analysis Up to 2 marks for illustrating or explaining the impact of the increase in costs on the profits of a garment manufacturer on diagram e.g.: - Fall in supernormal profits (1) from HIC1P1 to FGC2P2 (1) Application Up to 2 marks for reference to Extract B - 50% increase in energy costs (1) - Garment manufacturers are having to claim subsidies from the government Bangladesh(1) - Energy costs are a variable cost for garment manufacturers (1) (8)

Evaluation Up to 2 marks for evaluative comments (1+1 or 2+0) e.g.: - The Government of Bangladesh is providing subsidies to SMEs (1) which may limit the negative impact on profit (1) - Rising energy prices may not continue in the long-run (1) helping profits to recover in the long-run (1) - The 50% rise in energy costs is very significant (1) causing a substantial reduction in profit (1) - Significance of energy as a proportion of total costs (1) will determine the size of the shift in MC and AC (1) - Government subsidies may reduce costs (1) so there would be less impact on the profit of a garment manufacturing business (1) - Recent high rates of inflation may allow garment firms to also raise their prices (1), so the increased energy costs may not have such an impact on profits(1) - Some firms will leave the market so others will survive in the long run (1) Question With reference to extract B, analyse two likely effects on the labour market for garment workers of the possible increase in the minimum wage to 22000 taka. Answer Mark

#Question 7(d)

Knowledge 2 Application 2 Analysis 2

Quantitative skills assessed: QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge and analysis 1 mark for identifying each effect and 1 mark for each linked expansion (2k+2An) - Increasing minimum wages causes workers to lose their jobs (1k) SMEs cannot afford to employ as many individuals at the higher wage rate causing individuals to lose their jobs (1An) - An increased supply of labour/extension in labour supply (Kn) because the higher wage rate acts as an incentive for more people to join the labour force (An) - An increase in minimum wage may increase motivation (Kn) increasing output/productivity (An) - If used, correct diagram showing the increase in the NMW causing a contraction of demand N2 to N4 and an extension of supply N1 to N3 (1+1) (6)

Unemployment rises from N1-N2 to N3 to N4 N.B Minimum wage diagram must show an increase in the minimum wage, not the introduction Application Up to 2 marks for application to Extract B - The minimum wage for garment workers was 8 000 taka per month (1) - The Government has been under pressure from trade unions to increase this rate to 22 000 taka per month (1) - The minimum wage for garment workers has not increased since 2018 (1) - Garment manufacturers argue that they do not have the funds to pay a higher minimum wage (1) Question With reference to Extract A and your own knowledge, discuss the likely effects of Government policies on the productive efficiency of SMEs Indicative content

7(e) Indicative content guidance

QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Answers must be credited by using the level descriptors (below) in line with the general marking guidance. The indicative content below exemplifies some of the points that candidates may make but this does not imply that any of these must be included. Other relevant points must also be credited.

Knowledge, Application, Analysis (8 marks) – indicative content

Productive efficiency occurs when the business is operating at its MES/lowest point on its AC curve - Training would improve the quality of management, enabling better decision-making and improving productive efficiency. Training the workforce would increase output and productivity, reducing production costs and increasing productive efficiency
The SME foundation’s funding for R&D may create process innovations that could help to reduce the average cost of production - Creation of industrial parks creates external economies of scale for businesses that can allow them to lower their LRATC and move towards their MES - Investing in the quality of infrastructure within industrial parks will make running SMEs easier due to better broadband connections and power supplies lowering average costs for SMEs - Establishing loan schemes to support SMEs could result in more SMEs in being created/started increasing competition resulting in lower prices/higher productivity/more choice - Providing subsidies to SMEs lowers their average cost Level Mark Descriptor
Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 3 (7–8 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using relevant examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence

Evaluation (6 marks) – indicative content

Many of these policies would only have an impact in the long-run because of time lags involved in training - The quality of labour is low and may not have sufficient skills to produce the newly innovated products/ if training is inefficient the quality of labour may not improve sufficiently - Research and development may help identify new areas of product development. However, if there are insufficient skills/capital the new products may not be developed - Subsidies are not available for all markets limiting the improvements in efficiency to all markets - Lower production costs may not be passed on to the consumer in the form of lower prices - The impact of the industrial parks will depend on the number of businesses willing/able to locate in these areas - Funds would be more effective if allocated to large enterprises that are more likely to experience economies of scale Level Mark Descriptor
Level 0 (0 marks): No rewardable material.
Level 1 (1–2 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (3–4 marks): Evidence of evaluation of alternative approaches Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (5–6 marks): Evaluation recognises different viewpoints and/or is critical of the evidence. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

#Section C

Question Evaluate the view that a business will always shut down if it is not able to make a normal profit. Illustrate your answer with an appropriate diagram(s). Indicative content

8 Indicative content guidance

Knowledge, Application, Analysis (12 marks) – indicative content

Indicative content Short-run shut down point - In the short-run Toys “R” Us would continue to operate even if it is making a loss as long as it is covering its average variable costs. At any point below this the business must shut down because it is not able to cover its variable costs of production.

Long-run shut-down point - In the long-run a business such as Toys “R” Us will keep producing at point A, as it is able to cover its average total costs. This includes its opportunity cost. The business would shut down at a price and output below this because it cannot cover its total costs of production. For example, in 2018 as Toys “R” Us couldn’t cover its costs and so it was forced to close down. - Resources employed in the output of toys could be better invested in the production of other goods and services - In the short-run the market mechanism allows average revenues to increase if less efficient firms leave the market so the incumbent firms can achieve normal profit in the long run

NB if no diagram candidate can achieve a maximum of level 3

NB also accept imperfectly competitive market Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

Objectives of businesses: if a business is establishing itself/trying to survive it may continue to operate even if it is making a loss, for example, during the global health crisis - If it is a state-owned business/charity, the business can run at a loss - Financial obligations that the business cannot meet if it shuts down, such as paying off debts or fulfilling contracts - Hope of recovery from the business’s current situation and return to profitability - Loss of reputation - Legal Requirements. For example, if the business is in the middle of a project that it is contractually obligated to complete, it may need to stay open until the project is finished - The business might survive if it acquired by another business - The business might survive if the government provides a subsidy - A business might survive if it is part of a large conglomerate and there is cross subsidisation Level Mark Descriptor
Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement.

Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning. Question With reference to an industry of your choice, evaluate the likely disadvantages for a business operating in an oligopolistic market structure Illustrate your answer with a payoff matrix diagram. Indicative content

9 Indicative content guidance

Knowledge, Application, Analysis (12 marks) – indicative content

An oligopoly is a market structure in which a small number of businesses dominate the market and compete with each other, such as the commercial aircraft industry - Each business has significant market power, meaning it can influence the market price and affect the behaviour of its competitors - Oligopolists sell similar goods, and there are substitutes available making consumers’ demand more price elastic - Businesses in oligopolistic markets are interdependent. If there is no collusion they would reach the low price, low price quadrant. This would limit their ability to make supernormal profits - New businesses may find it difficult to enter/survive the market because established businesses may engage in anti-competitive practices such

as predatory pricing/limit pricing or exclusive dealing agreements to prevent competition - Increased pressure to compete using non-price competition such as quality, innovation, and marketing strategies to remain competitive and maintain market share. This might lead to increasing costs/sunk costs reducing profits - Regulatory scrutiny as anti-competitive behaviour can harm consumers and the overall economy. This can lead to costly legal battles and fines for businesses found to be engaging in anticompetitive behaviour - Small firms would be at a disadvantage compared to larger rivals because they are less able to exploit economies of scale and so have higher long-run average costs

NB if no industry explained candidate can achieve a maximum of level 3

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

Interdependence between firms, may encourage collusion. If this occurs (high price, high price quadrant) then supernormal profit may be increased - If goods are differentiated, price may be sticky allowing for some price-setting ability in the market
Businesses in oligopolistic markets might make high supernormal profit because these markets are dominated by a few large businesses and competition is limited - High barriers to entry if established businesses engage in non-price competition and anti-competitive practices to prevent new businesses from entering the market. This can help established firms maintain their market share and profits - Stability can be higher in oligopolistic markets as there are fewer businesses competing for market share. This greater certainty makes budgeting and planning easier for businesses. Also, this stability might encourage businesses to increase investment Level Mark Descriptor
Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

Question Evaluate the likely impact of the divorce of ownership from control on business objectives. Illustrate your answer with an appropriate diagram(s). Indicative content

10 Indicative content guidance

Knowledge, Application and Analysis (12 marks) – indicative content

The divorce of ownership from control occurs when there is a separation of ownership and control in a company such as the UK’s Royal Mail. - Shareholders such as Daniel Kretinsky, own the company, like Royal Mail, and elect a board of directors to oversee management and make important decisions on their behalf. - The day-to-day running of the Royal Mail is carried out by professional managers who may or may not have significant ownership in the company - This separation of ownership from control may create potential conflicts of interest between shareholders and management. For example, management may be more focused on maximising their own bonuses or job security, rather than acting in the best interests of the shareholders. Similarly, shareholders may prioritise short-term profits over the longterm success of the company - Managers often want to meet sales maximising objectives and shareholders often aim to profit maximise profits. This causes satisficing behaviour - Sales maximisation at AR=ATC
Revenue maximisation (output at which MR=0) may be pursued because of the principle- agent problem - At point A the business is achieving supernormal profits, not as high as if the business was profit maximising. It is also reaching a higher level of output. However the sales are not as high as they would be under sales maximisation. Both managers and shareholders are satisficed - Businesses in the private sector are likely to have shareholders who need dividends to be incentivised to invest because they are not employed by the business - Allow profit maximisation if they connect to Jeff Baoes as a share holder

NB if no diagram candidate can achieve a maximum of level 3

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

Divorce of ownership from control may not occur if managers are also shareholders such as Amazon. Many private sector firms offer shares to their managers - The type of business might be more important in determining the objective e.g. niche firms/specialist businesses are unlikely to have sales maximisation as an objective - Other objectives might be more important such as business survival if it is a small or new firm in the industry - Some shareholders may be investing for the long-run and would be willing to accept growth as a priority - Business objectives are influenced by other factors e.g. private vs public sector, not for profit - In most countries, directors have a legal responsibility to act in the best interests of shareholders so should be trying to fulfil their objectives rather than their own personal ones Level Mark Descriptor 0 No evaluative comments.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

#WEC13 Mark Scheme — June 2024 {#june-2024}

Pearson Edexcel International Advanced Level in Economics (WEC13)

Unit 3: Business Behaviour — Paper 01

#General Marking Guidance

All candidates must receive the same treatment. Examiners must mark the first candidate in exactly the same way as they mark the last. - Mark schemes should be applied positively. Candidates must be rewarded for what they have shown they can do rather than penalised for omissions. - Examiners should mark according to the mark scheme not according to their perception of where the grade boundaries may lie. - There is no ceiling on achievement. All marks on the mark scheme should be used appropriately. - All the marks on the mark scheme are designed to be awarded. Examiners should always award full marks if deserved, i.e. if the answer matches the mark scheme. Examiners should also be prepared to award zero marks if the candidate’s response is not worthy of credit according to the mark scheme. - Where some judgement is required, mark schemes will provide the principles by which marks will be awarded and exemplification may be limited. - When examiners are in doubt regarding the application of the mark scheme to a candidate’s response, the team leader must be consulted. - Crossed out work should be marked UNLESS the candidate has replaced it with an alternative response.

#Section A

Question Quantitative skills assessed Answer Mark 1 QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is D A is incorrect because this would not be affected by technical economies of scale B is incorrect because this would not be affected by technical economies of scale C is incorrect because economies of scale affect long-run average costs (1) 2 QS6: Calculate cost, revenue and profit (marginal, average, totals) QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is B A is incorrect because this is the marginal cost of increasing the number of haircuts from 3 to 4 C is incorrect because this is the average variable cost of 3 haircuts D is incorrect because this is the average fixed cost of 4 haircuts (1) 3 QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is D A is incorrect because the demerger would have no effect on external economies of scale B is incorrect because the demerger would result in GSK becoming more specialised C is incorrect because GSK would be unlikely to want its long-run average costs to increase (1) 4 QS4: Construct and interpret a range of standard graphical forms QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is A B is incorrect because supernormal profit will encourage market entry C is incorrect because normal profit will be made in the long-run D is incorrect because normal profit will be made in the long-run (1) 5 QS4: Construct and interpret a range of standard graphical forms QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is C A is incorrect because supernormal profit and price will change (1)

B is incorrect because supernormal profit and price will decrease D is incorrect because the business supernormal profit and price will decrease 6 QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is C A is incorrect because this would increase the occupational mobility of labour B is incorrect because this would increase the geographical mobility of labour D is incorrect because this would increase the geographical mobility of labour (1)

#Section B

Question With reference to Figure 1, calculate the change in Uniqlo’s total costs between 2021 and 2022. Answer Mark

#Question 7(a)

Application 2

Quantitative skills assessed: QS6: Calculate cost, revenue and profit (marginal, average, totals) QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Up to 2 marks for calculation:

#Question 2021

total costs: (2132 - 1073) = ¥1 059 bn

#Question 2022

total costs: (2301 - 1206) = ¥1 095 bn

1 095 – 1 059 (1) Change in total costs = ¥36 bn (1) Percentage change (36/1059) x 100 (1) = 3.4% (1)

NB: Award full marks for correct answer (36 bn/ 3.4%)

regardless of working Award only 1 mark if billion/% is not included in final answer (2) Question With reference to the first paragraph of Extract A, explain what is meant by the term ‘organic growth’. Answer Mark 7(b) Knowledge 2 Application 2 Quantitative skills assessed: QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge: Up to marks for correct definition and development of the term ‘organic growth’ (1+1) e.g.: - Organic growth refers to the expansion of a company's operations (1) Internally/ e.g. Marketing/opening more stores/ hiring more workers / without relying on mergers/acquisitions/integration (1) Application: Up to 2 marks for application to context of Uniqlo’s organic growth (1+1) e.g.: (4)

Uniqlo started to sell in other countries such the USA /China/UK/ Australia/South Korea (1) - Uniqlo expanded through a process of organic growth (1) - The company opened stores in large cities within each country (1) Question With reference to the second paragraph of Extract A, analyse two reasons why Uniqlo has been very successful in establishing itself in international markets. Answer Mark

#Question 7(c)

Knowledge 2 Application 2 Analysis 2

Quantitative skills assessed: QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge and analysis Up to 2 knowledge marks for identifying two reasons why Uniqlo has been very successful in establishing itself in international markets and 1 analysis mark for each linked expansion of each reason: - Price competition/Low prices (1K) consumers are more able to afford to purchase Uniqlo’s clothes (1AN) - Non price competition (1K) differentiates the product improving competitiveness - More innovative products/improving quality (1K) better meeting consumer needs and increasing consumer welfare (1AN) - Increased brand awareness/Advertising/Celebrity endorsements (1K) better marketing increases brand awareness and increases demand for Uniqlo’s products.(1AN) Application Up to 2 application marks for reference to the second paragraph of Extract A: - Uniqlo competes with other brands such as Zara and H&M (1) - Uniqlo uses ultra-lightweight and heat-generating fabrics (HeatTech) (1) - Uniqlo works with well-known designers and celebrities/Alexander Wang (1) - Uniqlo has also invested heavily in advertising (1) - Uniqlo was the first business in this market to use fast-moving digital images in its stores (1) (6)

Question With reference to Extract B, examine the likely impact of a reduction in Uniqlo’s costs of production on its total profits. Illustrate your answer with an appropriate diagram. Answer Mark

#Question 7(d)

Knowledge 2 Application 2 Analysis 2 Evaluation 2

Quantitative skills assessed: QS4: Construct and interpret a range of standard graphical forms QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge Up to 2 marks for drawing a diagram that shows knowledge of: - Original AR, MR, AC1, MC1 and profit maximisation equilibrium (1) - Original supernormal profit area FBAC1P1 (1) Analysis A diagram that shows knowledge of: - Decrease in variable cost would cause downward shift in MC and AC curves to MC2 and AC2 (1) - New higher quantity, lower price and increased supernormal profit identified GEAC2P2 (1) Application Up to 2 marks for application to Extract B: - Uniqlo hopes to negotiate favourable deals with suppliers of cotton and dyes (1) - Uniqlo will invest in technology and automation to replace workers (1) (8)

Evaluation Up to 2 marks for evaluative comments (1+1 or 2 + 0), e.g.: - To attract highly skilled labour Uniqlo has had to increase wages by 40% (1) This will increase MC and AC reducing profits (1) - It is costly to invest in technology and automation (1) - Global raw material costs are rising (1) - Significance of cost increase (1) - It takes time to implement new technology (1) Question Indicative content With reference to Extract C, Figure 2 and your own knowledge, discuss the likely barriers to entry for a business wishing to enter the global fashion retail market.

7(e) Indicative content guidance

Knowledge, Application, Analysis (8 marks) – indicative content

Barriers to entry are any obstacle that makes it difficult for new firms to enter and compete in the fashion retail market - Barriers to entry can limit the entry of new competitors, reducing market competition and potentially enabling existing firms to maintain higher prices or market shares - Large firms are well-established, making them hard to compete with. Zara is the largest global retailer followed by Uniqlo. These brands have a high degree of brand loyalty - Uniqlo, H&M and Zara all offer low prices making it harder for new firms to compete and make a profit - The businesses have significant bargaining power over their suppliers enabling them to achieve economies of scale and reduce their average costs - The profits made in the fashion retail industry can be invested into market research and innovative design enabling these businesses to offer higher quality goods hence increasing the costs for new businesses entering the market - Businesses such as Zara and Uniqlo have a high market value. They are able to access funds for large amounts of investment - The businesses compete in stores that are costly to open and run
To operate in the fashion retail industry, businesses need to engage in advertising campaigns to establish themselves and compete. These can be very costly and not always effective - There is strong brand loyalty in the industry as companies such as H&M and Zara are well-established brands - New businesses may face supply chain challenges - Uniqlo, H&M and Zara invest heavily in advertising, this can be considered a sunk cost if ineffective Level Mark Descriptor
Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 3 (7–8 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using relevant examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (6 marks) – indicative content

The fashion industry in countries such as China, has a large number of firms in it, reducing brand loyalty. Uniqlo only has a 1.4% market share - There are limited capital requirements compared to industries that require substantial investment in manufacturing facilities or technology - There is easy market access because there are many online shopping and social media platforms on which clothes can be sold - Rapidly changing trends reduce brand loyalty to any one firm providing opportunities for new entrants to introduce fresh and innovative designs - There are many niche market opportunities that can be targeted by new entrants that do not compete with the larger businesses such as Uniqlo and Zara - Limited intellectual property rights reduce legal barriers to entry Level Mark Descriptor
Level 0 (0 marks): No rewardable material.
Level 1 (1–2 marks): Identification of generic evaluative comments.

No supporting evidence/reference to context. No evidence of a logical chain of reasoning.

Level 2 (3–4 marks): Evidence of evaluation of alternative approaches Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (5–6 marks): Evaluation recognises different viewpoints and/or is critical of the evidence. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

#Section C

Question Evaluate policies a government could adopt to control monopolies. Illustrate your answer with an appropriate diagram(s). Indicative content

8 Indicative content guidance

Price is capped to Pc, reducing the price from Pm. This would reduce supernormal profit and increase consumer surplus - Performance targets: set specific objectives that the monopoly must meet, ensuring that it operates efficiently and provides quality services - Quality standards can be used to control a monopoly by establishing specific criteria and requirements that the monopoly must meet to ensure the provision of high-quality goods or services - Fines: competition authorities may impose fines for not meeting performance targets or quality standards - Legislation to control mergers and takeovers: laws can block any integration that may result in an increase in monopoly power - Nationalisation will transfer the business to the state sector where the objectives of the business may change e.g. reducing profit incentives, leading to lower prices - Tax on profits encourages firms to invest more to reduce supernormal profits, increasing dynamic efficiency - Tax incentives/Subsidies for new firms to enter the market increases competition and reduces monopoly power - Government policies to promote competition and contestability e.g. deregulation

NB: If diagram does not show the impact of a policy then candidate

can achieve a maximum of level 3

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

Regulatory capture may occur if the regulator becomes influenced or controlled by the monopoly that it is supposed to regulate, resulting in the regulator allowing the monopoly to abuse its dominant position - Government failure e.g. asymmetric information may lead to the government making inaccurate decisions on the level of a price cap or the level of profit control. This could cause the monopoly to shut down if it cannot cover costs/or allow the consumers to pay a high price for the goods - Government failure may lead to a misallocation of resources or unintended consequences, such as businesses shutting down - Inadequate resources may stop the government from being able to control and challenge the behaviour of a monopoly - Limited regulatory power may make it impossible to control the business. The regulator may not be able to impose a fine high enough to deter monopolies from abusing their power - Increased performance and quality targets may lead to an increase in the costs of production for the monopoly. These increases could be passed onto consumers - Price controls may cause the monopoly to cut costs which can lead to a reduction in quality for the consumer Level Mark Descriptor
Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

Question Evaluate the possible reasons for wage differentials in an occupation of your choice. Illustrate your answer with an appropriate diagram(s). Indicative content

9 Indicative content guidance

Answers must be credited by using the level descriptors (below) in line with the general marking guidance. The indicative content below exemplifies some of the points that candidates may make, but this does not imply that any of these must be included. Other relevant points must also be credited. Quantitative skills assessed: QS4: Construct and interpret a range of standard graphical forms. QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. - Level of skill and education, as lawyers with specialised skills, experience or higher levels of education receive higher wages because of scarcity of labour or higher productivity of the workers - If demand for a particular skill set is high relative to the supply, then the wage rate is likely to be higher than if demand is low relative to supply - Elasticity of demand for labour, the more elastic and substitutable labour is, the lower the wage rate. If labour cannot be replaced by capital, then demand for labour is more inelastic and wage rate is likely to be higher - If the supply of labour is inelastic e.g. if high qualifications or extensive experience is required then the wage rate is likely to be higher than if supply of labour is elastic - Job characteristics and working conditions - if the job requires high levels of physical demands/high-risk level/ poor working conditions, the business may need to pay higher wages to encourage individuals to work in the occupation. Higher-paid lawyers may be required to work longer hours or be under more stress than lower paid lawyers - Labour market discrimination could be based on biases in accessing higher-paying jobs or receiving equal pay e.g. gender, race, age

Higher living costs in certain areas such as Geneva may lead to higher wages to attract workers, while lower living costs in other areas of Switzerland may result in lower wages - Legislation e.g. different minimum wage rates for workers of different ages - Contractual status/Trade union membership may influence the wage paid to different groups for identical work - Greater degree of monopsony power may allow firms to reduce pay rates in certain geographical areas compared to more competitive labour markets - Public vs private sector wages

NB: If no diagram candidate can achieve a maximum of level 3

Maximum of level 3 if no reference to an industry

Accept other labour market diagrams if they illustrate differences in wage rates Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

Prioritisation of reasons for wage differentials - Anti-discrimination laws might limit the size of wage differentials in an occupation - Paternity leave would cause men to also have gaps in their work, making the pay more equal between men and women - Government Policies: Government regulations, such as minimum/maximum wage laws, can influence wage differentials by setting a floor/ceiling on wages or affecting the take-home pay of workers - Trade unions may bargain for higher wages for lower-paid employees reducing the wage differential - Significance of reasons changes over time - Combination of reasons contribute to wage differentials Level Mark Descriptor
Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning. Question Evaluate the likely effects of collusion on businesses and consumers in an industry of your choice. Illustrate your answer with reference to game theory. Indicative content 10

Indicative content guidance

Collusion occurs when businesses agree to cooperate in their pricing and output policies - This occurs when the market is an oligopoly and enables the businesses to act as a single business to fix prices and limit output, such as JD Sport and Leicester City Football Club Effects on businesses - Game theory suggests that the businesses can benefit from collusion by maximising joint profit e.g. in the following diagram the firms can make a joint profit of £20m as shown in the diagram - The collusion may create barriers to entry to the market that enable the firms to restrict competition, such as limiting the supply of Leicester City sportswear - Collusion reduces unpredictability and uncertainty in the market as prices and output are guaranteed. This may lead to increased investment as the level of risk is reduced Effects on consumers - Economic inefficiency causing higher prices: as prices are set above competitive levels this would lead to a deadweight loss in the economy - Price fixing leads to a fall in allocative efficiency and economic welfare and to a fall in consumer surplus - Reduced competition resulting from collusion may limit product choices for consumers Effects on other businesses in the industry - Collusion is likely to limit the ability of non-colluding firms to compete on price, quality, or innovation - Higher barriers to entry for new firms trying to enter the market
Pressure exerted on suppliers to maintain high input prices or engage in collusive behaviour themselves

NB: If no reference to game theory candidate can achieve a maximum of

level 3 Candidates must include effects on both businesses and consumers to achieve a level 4 Accept advantages as KAA and disadvantages as evaluation or vice versa Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

Evaluation - Benefits are more likely to apply to businesses that collude rather than consumers because the producer surplus is rising at the expense of the consumer surplus - Benefits to businesses may occur in the short-run only, if one or more colluding businesses break away from the agreement

Collusion may be illegal. If caught the business may have to pay a fine and face damage to its reputation e.g. Leicester City FC having to pay £880 000 - The increase in supernormal profits of the colluding businesses may allow for greater dynamic efficiency as they have an increased ability to invest in quality and choice for consumers - Price stability will enable consumers to plan future expenditure - Effect on consumers depends on the value of PED. For example, if substitutes are available the impact will be reduced - The entry of new firms into the industry may break existing collusive agreements - Unstable market dynamics because the collusion agreement can break down at any time. When this happens, it can lead to sudden price wars - Some forms of collusion may be beneficial to both producer and consumer e.g. R&D cost savings and efficiencies or developing improved industry standards Mark Descriptor 0 No evaluative comments.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

Pearson Education Limited. Registered company number 872828 with its registered office at 80 Strand, London, WC2R 0RL, United Kingdom

#WEC13 Mark Scheme — October 2024 {#october-2024}

Pearson Edexcel International Advanced Level in Economics (WEC13)

Unit 3: Business Behaviour — Paper 01

#General Marking Guidance

All candidates must receive the same treatment. Examiners must mark the first candidate in exactly the same way as they mark the last. - Mark schemes should be applied positively. Candidates must be rewarded for what they have shown they can do rather than penalised for omissions. - Examiners should mark according to the mark scheme not according to their perception of where the grade boundaries may lie. - There is no ceiling on achievement. All marks on the mark scheme should be used appropriately. - All the marks on the mark scheme are designed to be awarded. Examiners should always award full marks if deserved, i.e. if the answer matches the mark scheme. Examiners should also be prepared to award zero marks if the candidate’s response is not worthy of credit according to the mark scheme. - Where some judgement is required, mark schemes will provide the principles by which marks will be awarded and exemplification may be limited. - When examiners are in doubt regarding the application of the mark scheme to a candidate’s response, the team leader must be consulted. - Crossed out work should be marked UNLESS the candidate has replaced it with an alternative response.

#Section A

Question Quantitative skills assessed Answer Mark 1 QS4: Construct and interpret a range of standard graphical forms QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is B A is incorrect because supernormal profit will be eliminated C is incorrect because the producer will make normal profit and therefore remain in the market D is incorrect because market concentration will fall as new firms enter the market (1) 2 QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is C A is incorrect because a marginal cost pricing strategy is where MC=AR B is incorrect because a limit pricing strategy is where all consumers would pay the same price D is incorrect because a predatory pricing strategy sets the price below the average variable cost for all consumers (1) 3 QS4: Construct and interpret a range of standard graphical forms QS6: Calculate cost, revenue and profit (marginal, average, totals) QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is D A is incorrect because the producer surplus will decrease B is incorrect because fixed costs will not change C is incorrect because this is likely to cause a decrease in dynamic efficiency (1) 4 QS4: Construct and interpret a range of standard graphical forms QS6: Calculate cost, revenue and profit (marginal, average, totals) QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is A B is incorrect because this is average variable cost C is incorrect because this is average fixed cost at an output of 10 000 D is incorrect because this is the average total cost at an output of 20 000 (1) 5 QS8: Make calculations of elasticity and interpret the result QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is A B is incorrect because this affects the price elasticity of supply of labour C is incorrect because this affects the price elasticity of supply of labour D is incorrect because this affects the supply of labour (1)

6 QS4: Construct and interpret a range of standard graphical forms QS6: Calculate cost, revenue and profit (marginal, average, totals) QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is D A is incorrect as the demand curve is downward sloping so Apple’s average revenue curve will not be perfectly elastic B is incorrect as Apple’s total revenue will fall once the average revenue curve becomes price inelastic C is incorrect because this illustrates an AR curve for Apple (1)

#Section B

Question With reference to Figure 2, calculate the change in AstraZeneca’s total costs between 2021 and 2022. You are advised to show your workings. Answer Mark

#Question 7(a)

Application 2

Quantitative skills assessed: QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. 1 mark for calculation of total costs in 2021 or 2022: $36 541m - $1 056m = $35 485m / $42 998m - $3 757m = $39 241m (1) 1 mark for calculation of the actual change or percentage change of total costs $39 241m - $35 485m = $3 756m/ $3 756m ÷ $35 485m x 100 = 10.58% (1)

NB: Award full marks for correct answer ($3 756m

/10.58%) regardless of working Accept reasonable rounding of percentage change (10.58%, 10.6%, 11%) N.B. Award 1 mark for $3 756 or 3 756 where m is omitted or 10.58 where % sign is omitted (2)

Question With reference to Extract B line 14 explain the term ‘dynamic efficiency’. Answer Mark 7(b) Knowledge 2 Application 2 Quantitative skills assessed: QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge: 1 mark for any of the following related to dynamic efficiency: - When firms develop new or better products / Where firms develop/find better/or cheaper methods of producing goods and services / Achieving productive efficiency / Where firms invest/innovate in new technology (1) 1 mark for any of the following related to dynamic efficiency: - Resulting in improved productivity / Where the long-run average costs/average total costs falls (may be shown diagrammatically)/ Over time/ in the long-run (1) Application: Up to 2 marks for application to Extract B (1+1) e.g.: - AstraZeneca has a good reputation for R&D (1) - $400 million into building a new factory in Dublin (1) - In 2022 AstraZeneca invested $9.8 billion in R&D (1) - The business developed three new medicines (1) - AstraZeneca continues research on medical advancements (1) - ‘investment was necessary’ (1) NB do not reward allocative efficiency over time (4)

Question With reference to Extract A, analyse two ways that pharmaceutical companies may benefit from external economies of scale. Answer

#Question 7(c)

Knowledge 2 Application 2 Analysis 2

Quantitative skills assessed: QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge and analysis Up to 2 knowledge marks for identifying two ways and up to 2 analysis marks for linked explanations: - Skilled workforce (1K) with specialised knowledge relevant to that industry/ reducing recruitment/training costs (1AN) - Improved infrastructure/ investment in road and railways (1K) reducing transportation time/ costs/ improves labour mobility (1AN) - Research partnerships (1K) locating close to other firms makes resource sharing easier/ reducing R&D costs (1AN) - Low rate of corporation tax (1K) provides a cost advantage of operating in Ireland/ meaning more profits are kept by pharmaceutical businesses in Ireland (1AN) Application Up to 2 marks for use of the context e.g. - Over 85 pharmaceutical companies operate in Ireland (1) - Approximately 30 000 highly skilled workers (1) - Invested heavily/ €35 billion investment into the country’s transport system / in improving roads and railways (1) - Businesses and universities share research and development (R&D) costs (1) - Students leave university with the skills required to work in the pharmaceutical industry (1) - Corporation tax rate of 12.5% (1)

Question With reference to the last paragraph of Extract B, examine the impact of the increase in fixed costs on AstraZeneca‘s profit. Illustrate your answer with an appropriate diagram(s). Answer Mark

#Question 7(d)

Knowledge 2 Application 2 Analysis 2 Evaluation 2

The fixed costs associated with complying with these regulations have increased significantly (1) - The regulatory environment is complex (1) - All pharmaceuticals must undergo clinical trials before medicines can be approved (1) Evaluation Up to 2 marks for evaluative comments (1+1 or 2 + 0), e.g.: - These costs could be offset (1) by the other cost saving through external economies of scale (1) - If revenues increase through higher sales (1) profits may not decrease (1) - It depends on how much the regulation costs are as a proportion of total costs (1) - Efficiency improvements may decrease costs of production (1) - The fixed costs increase may be short-run but in the long-run the company may adapt to lower these costs (1+1) (8)

Question With reference to the information provided and your own knowledge, discuss the likely barriers that might prevent a new company from entering the pharmaceutical industry. Indicative content

7(e) Indicative content guidance

Knowledge, Application, Analysis (8 marks) – indicative content

Barriers to entry are factors that make it difficult or expensive for new companies to enter an industry to compete profitably with existing companies. - High R&D costs: Developing new medicines involves extensive research and clinical trials, might spend up to 25% of their revenue. In 2022 Johnson & Johnson spent $14.6 bn, Roche spent $14.8 bn and AstraZeneca spent $9.8 bn - Strong competition: a number of very large firms dominating the pharmaceutical industry in Ireland, including Pfizer with global revenue of $100.3 bn - Regulatory approval processes: The pharmaceutical industry is highly regulated, and the Regulatory Authority will need to approve products, making it more difficult for new firms to enter - Intellectual property protection: Patents provide up to 20 years legal protection in the EU, giving the established firms monopoly power over their products - Economies of scale: Established pharmaceutical companies benefit from economies of scale, allowing them to produce medicines at lower costs per unit. New entrants may struggle to achieve similar efficiency - Distribution networks: Established companies have well-developed channels for distributing and marketing their products, while new entrants may face challenges in establishing such networks - Complexity of medicine development: This involves large amounts of industry knowledge and may deter new entrants that lack experience and expertise - Pricing strategies e.g. limit pricing or predatory pricing may deter new entrants - High number of mergers, acquisitions and collaborations between incumbent firms - High sunk costs, e.g. advertising and promotion, that are irrecoverable when leaving the pharmaceutical industry may discourage new entrants

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 3 (7–8 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using relevant examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (6 marks) – indicative content

A new entrant might be able to collaborate with existing pharmaceutical companies - In Ireland over 85 companies exist in the market indicating a high level of contestability - There is limited brand loyalty in the market making it easier for new companies to compete - The significance of barriers to entry change over time - An existing multinational company might diversify into the pharmaceutical industry Level Mark Descriptor
Level 0 (0 marks): No rewardable material.
Level 1 (1–2 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (3–4 marks): Evidence of evaluation of alternative approaches Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (5–6 marks): Evaluation recognises different viewpoints and/or is critical of the evidence. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

#Section C

Question Evaluate the benefits of organic growth to a business such as Lidl. Illustrate your answer with an appropriate diagram(s) Indicative content

8 Indicative content guidance

Stable: For Lidl, this growth could be more stable than growth through acquisitions as the business is building on existing strengths in the supermarket industry - Cost Efficiency: Organic growth for Lidl allows them to grow their operations without the immediate large financial costs associated with mergers or acquisitions - Risk Management: Organic growth typically involves a lower level of risk compared to external growth strategies as there are likely to be fewer disagreements between managers - Innovation and adaptability: to expand organically, a business frequently need to develop new products, services, or processes. This can improve the quality or range of products increasing sales and possibly profits - Enhanced market competitiveness: Organic growth enables a business to gradually strengthen their position in the market. By focusing on improving efficiency, quality, and customer satisfaction, a business can become more competitive and better positioned to capture a larger market share. - Increased market share- increased market power- price setting abilityincreasing price and profit- allowing further investment - Less likely to attract attention of competition authorities which would investigate mergers where market share is above certain level - Employee development- the business growing creates more opportunities for staff to move to management positions

NB: A candidate can achieve a maximum of level 3 if no diagram

NB: A candidate can achieve a maximum of level 3 if no context is

provided

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

Diseconomies of scale through growing too large- too many new stores creating communication problems/operational complexity - reference to diagram - Limited access to finance if relying on internal funds. A business growing organically may face constraints on growth and capital investment if it relies solely on internal funds. This could limit the speed and scale of expansion or hinder the ability to invest in largescale projects or initiatives - Slow growth rate: Organic growth tends to be a gradual process. Lidl will take two years to build another 50 stores. A business may experience a slower growth rate compared to one that pursues expansion through mergers or acquisitions - Limited expertise/networks: may stop a business from expanding more quickly as it takes time to build supply chains and conduct market research. The business may not have the expertise to move into a new location/or new market - If the business is struggling it may not be able to access finance or expertise to move into a new market - Organic growth through building new stores may be much more expensive than acquiring stores by merging with an established business

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

Question Evaluate the economic benefits of government intervention in labour markets. Illustrate your answer with an appropriate diagram(s). Indicative content

9 Indicative content guidance

Maximum Wage Controls: Maximum wage controls reduce income inequality and prevent excessive wages earned by higher income groups. By capping the maximum earnings an individual can receive below the market equilibrium (W to Wmax), the economy can achieve a fairer distribution of income and reduce the gap between high and low-income earners - Direct Taxes e.g.: National insurance contributions may fund unemployment benefits and pensions. It may also fund spending on infrastructure, education and healthcare that can enhance the overall quality of the labour market - Measures to reduce geographical and occupational immobility of Labour: These can include investing in transportation infrastructure, improving education and training programs, and creating policies that facilitate the transfer of workers between industries and regions, ensuring a more efficient and flexible labour market

NB: A candidate can achieve a maximum of level 3 if no relevant diagram

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

Minimum wage controls: setting a minimum wage too high could lead to job losses in Mexico, especially for small businesses, as they may struggle to afford increased labour costs - Maximum wage controls: may discourage the most skilled from pursuing the most senior jobs or it may hinder motivation impacting productivity (fall in quantity of labour). The most skilled may be encouraged to move to another country to work seeking a higher salary - Direct taxes (e.g., National Insurance contributions): High rates may discourage investment and job creation, potentially leading to reduced employment opportunities - Measures to reduce geographical and occupational immobility of labour may be ineffective because of resistance to change, lack of resources for retraining, or failing to match gaps in the market with the skills of the workforce - Measures to reduce discrimination and exploitation: Enforcement of anti-discrimination measures can be challenging for a government (government failure) - Government intervention may impose excessive costs on businesses Level Mark Descriptor
Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

Question Evaluate the benefits of collusion in a market of your choice. Illustrate your answer with a simple game theory model. Indicative content

10 Indicative content guidance

Answers must be credited by using the level descriptors (below) in line with the general marking guidance. The indicative content below exemplifies some of the points that candidates may make, but this does not imply that any of these must be included. Other relevant points must also be credited. Quantitative skills assessed: QS4: Construct and interpret a range of standard graphical forms. QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. - Collusion occurs when there is an agreement or cooperation between companies in an industry to restrict competition - Collusion often leads to companies fixing prices Benefits: - Pay-off matrix explaining why the companies would benefit from moving away from the low price/low price to the high price/high price outcome - Increased profits for companies: Colluding companies can set higher prices collectively removing the competition between them. This leads to higher revenue and profits for each company involved. The reduction in the competition between shipping companies ensured their prices remained high, increasing profits - Stability and predictability: companies may agree on production levels and pricing strategies. This stability can benefit both companies and consumers by reducing uncertainty making it easier to budget and plan - Cost savings: Colluding companies may cooperate to save costs such as joint production facilities, shared research or shared distribution networks. This can lead to lower production costs and potentially lower prices for consumers - Innovation incentives: higher profits earned from collusion can provide the companies with the resources to invest in research and development, leading to increased innovation resulting in dynamic efficiency/technical economies of scale - Market entry barriers: Collusion can create barriers to entry for new competitors, as existing companies may work together to maintain their

market dominance. This benefits the incumbent companies as it protects their market share and profits

NB: Award a maximum Level 3 to answers that do not include a game

theory model

NB: A candidate can achieve a maximum of level 3 if no reference to a

market Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

Regulatory and legal consequences: If the companies are caught engaging in collusive practices, they can face large fines e.g. $63 million which increase costs and can cause damage to the reputation of the companies - Allocative inefficiency: Higher prices for shipping increasing the allocative inefficiency in the market as consumer surplus is reduced leading to a misallocation of resources - Less incentive for efficiency: companies may have reduced incentives to cut costs and improve efficiency since they are not facing competitive pressure. This can lead to a reduction in productive efficiency/increase in x-inefficiency - Reduced innovation: Colluding companies may have less motivation to invest in research and development or adopt new technologies, as they may feel less pressure to compete with other companies
Reduced choice: Higher barriers to entry and lack of competition reduces the choice for the consumers - Potential for collusion breakdown: Companies have an incentive to cheat on the collusion agreement and undercut their competitors to gain a larger market share. This can lead to a breakdown in collusion, resulting in price wars and increased uncertainty in the market Mark Descriptor 0 No evaluative comments.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

Pearson Education Limited. Registered company number 872828 with its registered office at 80 Strand, London, WC2R 0RL, United Kingdom

#WEC13 Mark Scheme — January 2025 {#january-2025}

Pearson Edexcel International Advanced Level in Economics (WEC13)

Unit 3: Business Behaviour — Paper 01

#General Marking Guidance

All candidates must receive the same treatment. Examiners must mark the first candidate in exactly the same way as they mark the last. - Mark schemes should be applied positively. Candidates must be rewarded for what they have shown they can do rather than penalised for omissions. - Examiners should mark according to the mark scheme not according to their perception of where the grade boundaries may lie. - There is no ceiling on achievement. All marks on the mark scheme should be used appropriately. - All the marks on the mark scheme are designed to be awarded. Examiners should always award full marks if deserved, i.e. if the answer matches the mark scheme. Examiners should also be prepared to award zero marks if the candidate’s response is not worthy of credit according to the mark scheme. - Where some judgement is required, mark schemes will provide the principles by which marks will be awarded and exemplification may be limited. - When examiners are in doubt regarding the application of the mark scheme to a candidate’s response, the team leader must be consulted. - Crossed out work should be marked UNLESS the candidate has replaced it with an alternative response.

#Section A

Question Quantitative skills assessed Answer Mark 1 QS4: Construct and interpret a range of standard graphical forms QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is A B is incorrect because this is the lowest point on the AC curve C is incorrect because this is where change in TC is constant D is incorrect because this is the equilibrium for revenue maximisation (1) 2 QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is C A is incorrect because Sony and Honda are two different companies B is incorrect because they are privately owned companies D is incorrect because the two companies are at different stages of production in different markets (1) 3 QS8: Make calculations of elasticity and interpret the result QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is D A is incorrect because the demand for labour would be elastic B is incorrect because this impacts the elasticity of supply of labour C is incorrect because this impacts the elasticity of supply of labour (1) 4 QS4: Construct and interpret a range of standard graphical forms QS6: Calculate cost, revenue and profit (marginal, average, totals) QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is B A is incorrect because the firm would shut down in the short-run C is incorrect because the firm is covering ATC and therefore would not shut down in the long-run D is incorrect because the firm is covering ATC and therefore would not shut down in the long-run (1)

5 QS4: Construct and interpret a range of standard graphical forms QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer isC A is incorrect because MC pricing is not where price is set below average variable cost B is incorrect because limit pricing is not where price is set below average variable cost D is incorrect because price discrimination is not where price is set below average variable cost (1) 6 QS4: Construct and interpret a range of standard graphical forms QS6: Calculate cost, revenue and profit (marginal, average, totals) QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. The only correct answer is B A is incorrect because this is the average revenue curve C is incorrect because this is the total fixed cost curve or an AR curve for a perfectly competitive firm D is incorrect because this is a total revenue curve for a firm operating in an imperfectly competitive market (1)

#Section B

Question With reference to Figure 1, calculate the 4-firm concentration ratio of the global fast-food industry. You are advised to show your workings. Answer Mark

#Question 7(a)

Application 2

Quantitative skills assessed: QS2: Calculate, use and understand percentages, percentage changes and percentage point changes QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. 2 marks for calculation of concentration ratio: e.g. 21.4 + 7.5 + 2.8 + 2.8 = (1) 34.5% (1)

NB: Award full marks for correct answer (34.5%) regardless of

working

NB: If no percentage sign only award 1 mark

(2)

Question With reference to Extract C, explain what is meant by organic growth. Answer Mark 7(b) Knowledge 2 Application 2 Quantitative skills assessed: QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge: Up to 2 marks for correct definition: - Growing internally/ natural growth (1) - Expansion of a firm’s operations/entering new markets/increasing sales/opening new stores (1) - Growth without merger/takeover/acquisition/integration (1) Application: Up to 2 marks for application to Extract C (1+1) e.g.: - McDonald's opened a new café - CosMc's (1) - It plans to open CosMc's in 10 different locations/in Texas, USA, by December 2024 (1) - It plans to expand CosMc’s globally/open 10 000 new restaurants worldwide by 2027 (1) - McDonalds enter on the go market/beverage market (1) (4)

Question With reference to Extract A, analyse two reasons why the global fast-food market is expected to grow. Answer

#Question 7(c)

Knowledge 2 Application 2 Analysis 2

Quantitative skills assessed: QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge and analysis Up to 2 knowledge marks for identifying two reasons and up to 2 analysis marks for linked explanations: - A rise in the number of people living in cities (1K) means there are more potential customers to use fast food outlets/means there will be more demand for fast-food (1AN) - Change in lifestyles (1K) meaning the convenience of quick meals/fast-food is needed (1AN) - Affordability (1K) lower real incomes make people substitute expensive meals for fast food (1AN) - Marketing expenditures/branding (1K) increasing awareness/appeal of fast-food (1AN) - Greater use of mobile applications (1K) increases convenience for consumers when ordering fast food for home delivery (1AN) Application Up to 2 marks for use of Extract A e.g. - Between 2010 and 2021 the population living in cities increased from 3.59 billion to 4.59 billion (1AP) - Limited time for preparing meals (1AP) - Slow wage growth/ increased living costs (1AP) - In 2020 fast-food companies spent $4.5 billion on advertising (1AP) - In 2023 Zomato was downloaded 52 million times/Uber Eats 41 million times (1AP)

Question With reference to the last paragraph of Extract B, examine the likely impact on McDonald’s profits by switching ‘to suppliers that use more ethical and sustainable methods of production’. Illustrate your answer with an appropriate diagram. Answer Mark

#Question 7(d)

Knowledge 2 Application 2 Analysis 2 Evaluation 2

Quantitative skills assessed: QS4: Construct and interpret a range of standard graphical forms QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Knowledge Up to 2 marks for drawing a diagram that shows knowledge of: - AR, MR, AC, MC and profit maximisation equilibrium (1) - Area of initial supernormal profit identified ABCP (1) Analysis Up to 2 marks for showing: - Increase in MC and AC to MC1 AC1 (1) - New area of supernormal profit EFC1P1 (1) NB Accept new area of profit if AR/MR has also been increased with supporting explanation Application Up to 2 marks for reference to Extract B: - Deforestation-free supply chains for beef (1) - Sustainable fisheries for fish (1) - Sustainable palm oil production (1) - Make a positive impact on the planet (1)

Locally-sourced ingredients to reduce its carbon footprint (1) Evaluation Up to 2 marks for evaluative comments (1+1 or 2 + 0), e.g.: - It depends on the magnitude of the increase in costs (1) - If the cost increases can be offset by price increases it may not impact profits (1) - Improvement in sustainable farming may reduce these costs (1) - Consumers are becoming more aware of health risks and choosing healthier options (1) this may increase revenue, increasing profits (1) - There is a growing demand for fresh/organic food (1) - Consumers may be willing to pay more for ethically sourced food, which offsets the increase in costs (1+1) (8)

Question With reference to Figure 1, Extract C and your own knowledge, discuss the likely effects of McDonald's opening CosMc’s on its competitors. Indictive content

7(e) Indicative content guidance

Knowledge, Application, Analysis (8 marks) – indicative content

Competitors: - In 2023 McDonald’s had the largest market share at 21.4%, much larger than Starbucks at 7.5% - Fall in revenue/profits: McDonald's aims to compete with Starbucks in fast food restaurants. If consumers substitute CosMc’s drinks for Starbucks’ drinks, demand, revenue and profits would fall for Starbucks - Rising costs: competitors may face rising costs from increased advertising/differentiation. Or falling demand may reduce economies of scale - Change in pricing strategy: competitors selling coffee may choose to lower prices/or use limit pricing to compete with McDonald’s - Product differentiation: competitors might also offer a greater variety of coffees and teas to compete with McDonald’s directly - Increase in non-price competition: Competitors may increase their marketing and advertising to maintain brand loyalty. - Price competition- McDonalds benefits from substantial economies of scale allowing it to operate with lower average costs enabling it to charge lower prices- may push firms towards their shut down points. NB Negative effects may be taken as KAA and positive effects as evaluation, or vice versa

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 3 (7–8 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using relevant examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence

Evaluation (6 marks) – indicative content

McDonald’s market power suggests that the opening of CosMc’s will have a significant impact on competitors - With 61.5% of the market being ‘others’ it suggests that consumers may prefer to use small independent cafes - It depends on the brand loyalty of consumers to competitors such as Starbucks - If Starbucks and CosMc’s are not close substitutes the impact might be limited (reference to XED) - It is going to take a long time to have an impact, only 10 locations opened by December 2024 - There is likely to be a greater impact by 2027 when 10 000 new CosMc’s cafés may be open - If pricing strategies/differentiation are successful there would be limited impact in the long-run Level Mark Descriptor
Level 0 (0 marks): No rewardable material.
Level 1 (1–2 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (3–4 marks): Evidence of evaluation of alternative approaches Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (5–6 marks): Evaluation recognises different viewpoints and/or is critical of the evidence. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

#Section C

Question Evaluate the benefits of a monopsony to firms and consumers. Illustrate your answer with an appropriate diagram(s). Indicative content

8 Indicative content guidance

Answers must be credited by using the level descriptors (below) in line with the general marking guidance. The indicative content below exemplifies some of the points that candidates may make, but this does not imply that any of these must be included. Other relevant points must also be credited. Quantitative skills assessed: QS4: Construct and interpret a range of standard graphical forms. QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. A monopsony is a market condition in which there is only one buyer For Firms: - Lower costs: Monopsonies can negotiate lower input prices such as sugar, leading to cost savings, reducing MC1 to MC2 and AC1 to AC2 (shown on a diagram) for British Sugar - Lower costs due to lower costs of labour as a monopsony employer can pay lower wages - The monopsonist may be able to gain purchasing economies of scale by buying in bulk - Increased profits: Lower input costs contribute to higher profit margins for monopsonistic firms such as British Sugar (diagram showing a higher area of supernormal profit ABCP to EFC1P1) - Market power: Monopsonies such as British Sugar enjoy enhanced bargaining power with suppliers due to their dominant position. This can enable them to negotiate price, supply and quality - Guaranteed demand from monopsony: Farmers supplying sugar to British Sugar will benefit from more stable demand for their sugar, improving stability in the market and their ability to plan for future supply

For Consumers: - Potential lower prices/increased consumer surplus: Lower input costs may be passed on to consumers, resulting in potentially lower prices for goods and services and an increase in consumer surplus (GAP1 to GEP1) - Market stability: Monopsonies can provide stability by managing supply chains efficiently and avoiding price fluctuations. - Higher profits results in more investment and more dynamic efficiency resulting in better quality goods

NB: A candidate can achieve a maximum of level 3 if no diagram

NB: A candidate can achieve a maximum of level 3 if only one economic agent is

discussed

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

Firms - Reduced bargaining power: farmers selling their sugar beet to British Sugar have a lower ability to negotiate favourable terms and prices - Lower profits: Monopsonies such as British Sugar drive down the prices they are willing to pay, resulting in lower revenue for suppliers/ farmers and lower profits - Increased barriers to entry: Monopsonies can create significant barriers to entry for new firms, discouraging competition in the market for sugar - Dependence on a single buyer: Relying on British Sugar can expose farmers to increased risks, as any changes in British Sugar’s demand or preferences would greatly impact the farmer, potentially causing cost increases or shut-down - Firms/ farmers/ suppliers may form a collective agreement with other sellers and improve their negotiating position - Regulatory intervention- may intervene to ensure consumer benefit is maximised but this may have negative effect on the monopsony Consumers - Higher prices: British Sugar may not pass on the cost savings to its customers. If it is the only seller of sugar it might increase the price reducing consumer surplus - Quality reduction: Farmers selling to British Sugar may prioritise cost reduction over quality or innovation, potentially leading to lower-quality products or services for consumers - Limited choice: The monopsony determines the available variety and choices for consumers, limiting their options in the market - Limited availability results in shortages as suppliers paid lower price Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

Question Evaluate measures that a government could introduce to promote competition and contestability. Indicative content

9 Indicative content guidance

Answers must be credited by using the level descriptors (below) in line with the general marking guidance. The indicative content below exemplifies some of the points that candidates may make, but this does not imply that any of these must be included. Other relevant points must also be credited. Quantitative skills assessed: QS4: Construct and interpret a range of standard graphical forms. QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms. Market contestability refers to the ease with which new firms can enter and leave a market. Students may use a costs and revenue diagram to show reduced costs or increase supply in the market. - Subsidy: by offering subsidies it will lower production costs to encourage the entry of new firms into the market by reducing barriers to entry and increasing incentives - Reduced tax burdens: these would reduce costs of entry into the market and make it easier for small businesses to compete with larger, established businesses, increasing competition - Support for small businesses: Indonesia’s Government is offering low-cost loans to help small businesses to compete more easily with medium-sized and large businesses - Foreign Direct Investment (FDI): FDI allows foreign businesses to enter the market and compete. A government can offer tax incentives to encourage businesses to enter, as their costs will be reduced - Deregulation: eliminates unnecessary barriers and restrictions, making it easier for new businesses to enter the market - Privatisation: a government could transfer state-owned enterprises to private ownership, opening up industries to competition - Competitive tendering for public sector contracts: encourages private firms to bid for projects, promoting a competitive environment - Trade liberalisation: reduces barriers to international trade, allowing foreign businesses to enter domestic markets. This increases the number of firms in the market, promoting competition and contestability

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted. Level 4 10– 12 Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

Tax incentives may not be high enough to overcome the barriers to entry if there are significant start-up costs in the industry - The time scale of any measures could determine how effective they are in promoting competition and contestability - Effectiveness depends on the scope and scale of the government measures - Measures will result in opportunity costs for the government - Government failure: imperfect knowledge, administrative costs, unintended consequences - Large foreign businesses may force smaller domestic firms out of the industry reducing competition - If foreign businesses are very efficient, their entry may act as a barrier to other firms in the long-run - Privatisation may create a private monopoly thereby reducing contestability and competition - Cost of measures may outweigh benefits - Businesses may fail anyway even with govt help - Economic conditions - growth phase or recession may have a significant impact on determining success of measures

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

Question Evaluate the benefits of a takeover for businesses and consumers. Illustrate your answer with an appropriate diagram(s). Indicative content

10 Indicative content guidance

Risk bearing economies: enables the business to spread the risk by operating in different countries/markets - Creates a barrier to entry as the business grows, protecting the business against competition - Takeover may eliminate a competitor and therefore lead to an increase in market share/market power - A backward vertical integration may help to guarantee the quantity and quality of supplies/ help to minimise costs - A forward vertical integration will enable the business to have a guaranteed outlet for its products Benefits for Consumers: - Enhanced product quality and variety: takeovers often lead to improved dynamic efficiency through synergies and shared research and development, resulting in a better product quality and a wider product range - Lower prices: if productive efficiency improves, or rationalisation occurs, the business may pass this onto the consumers by setting lower prices

NB: A candidate can achieve a maximum of level 3 if only one

economic agent is discussed

NB: A candidate can achieve a maximum of level 3 if no diagram

is included

Level Mark Descriptor

Level 0 (0 marks): No rewardable material.
Level 1 (1–3 marks): Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models. Use of generic material or irrelevant information or inappropriate examples. Descriptive approach which has no chains of reasoning.
Level 2 (4–6 marks): Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models. Limited application of knowledge and understanding to economic problems in context. A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3 (7–9 marks): Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer. Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4 (10–12 marks): Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question. Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) – indicative content

Businesses - Lower than expected profit: The acquired business may turn out to be less profitable than initially anticipated/costs involved in the takeover/ transaction may be higher than expected - Diseconomies of scale: the business may experience inefficient operations and reduced profitability due to a larger scale of operations/fall in productivity caused by culture clashes - X-inefficiency: results from reduced competition in the market - The takeover might attract the attention of competition authorities Consumers - Higher prices: the company with increased market power may impose higher prices, reducing consumer surplus - Reduced product variety: the takeover may result in a reduction in the range of available products, limiting consumer choice - Disincentive to innovate: less competition may result in complacency and less urgency to develop new products

Level Mark Descriptor 0 No evaluative comments.

Level 1 (1–3 marks): Identification of generic evaluative comments. No supporting evidence/reference to context. No evidence of a logical chain of reasoning.
Level 2 (4–6 marks): Evidence of evaluation of alternative approaches. Some supporting evidence/reference to context. Evaluation is supported by a partially-developed chain of reasoning.
Level 3 (7–8 marks): Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement. Appropriate reference to evidence/context. Evaluation is supported by a logical chain of reasoning.

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