Economics - Paper - 3 - HL - Markscheme 2
Economics - Paper - 3 - HL - Markscheme 2
Markscheme
November 2015
Economics
Higher level
Paper 3
15 pages
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1. Whenever relevant, carry over marks must be awarded. If a candidate makes an error in
calculation, but then uses the incorrect figure appropriately and accurately in later question
parts, then the candidate may be fully rewarded. This is the “own-figure rule” and you should
put OFR on the script where you are rewarding this. To do this you will need to use the
on-page comment annotation tool ( ).
2. Alternative approaches may be taken in responses to the [4] questions that use A02 command
terms. If this is the case and the alternative approaches are valid, then full credit should be
given.
1. (a) (i) On the diagram, plot and label the supply curve for sunglasses in Picton. [2]
(ii) Using the diagram, identify the equilibrium price and quantity. [1]
(iii) State the price at which 50 pairs of sunglasses will be supplied. [1]
$5 [1]
(i) On the diagram, plot and label an appropriate curve to show the effect of the
subsidy. [2]
For a labelled supply curve which is parallel to the original curve and which lies $3
below it, award [2].
For a labelled supply curve which is parallel and below the original curve, but which is
not $3 below, award [1].
(ii) Calculate the excess demand or supply at the original equilibrium price. [2]
(c) With reference to the diagram on page 2, analyse how the subsidy results in a new market
equilibrium and therefore a reallocation of resources used for the supply of sunglasses. [4]
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
For [2] to be awarded reference must be made to the idea that more
resources will be used/allocated in the production of the good.
If a meaningful use of alternative figures [eg price falls from ($9 to $7) is
provided then the inclusion of “from 450 to 550” is not necessary.
Level Marks
0 The work does not reach a standard described by the descriptors
below. 0
1 Vague definition. 1
The idea that a firm earns more than it requires.
2 Accurate definition. 2
An explanation that it is the amount of actual earnings which a
producer makes over and above the amount the producer would be
prepared to accept for that output or the price received by a producer
in excess of the price at which the producer would be willing and able
to offer for sale.
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(ii) Calculate the level of government expenditure necessary to fund this subsidy. [2]
3 × 550 [1]
= $1650 [1]
(iii) Calculate the change in consumer surplus resulting from the subsidy. [2]
= $1000
(iv) Calculate the change in producer surplus resulting from the subsidy. [2]
(550+450)
For example: Change in PS × 1 (measuring the area of the
2
trapezium).
= $500
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(e) With reference to the diagram on page 2 and your answers to part (d), explain how the
subsidy will impact on allocative efficiency in the market for sunglasses in Picton. [4]
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
Thus a subsidy will move the market away from a position of allocative
efficiency.
2. (a) Identify whether this firm is in perfect competition. You must give a reason for your
choice. [2]
It is facing a negatively sloped demand curve (or, price is not equal/exceeds MR, or,
MR lies below AR) [1]
(b) Identify the profit maximizing level of output for this firm. You must give a reason for your
choice. [2]
N.B. A candidate cannot be awarded a mark for outlining the reason unless they
have identified the correct level of output.
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(c) Calculate the total revenues and the total costs and the profits or losses for this firm at the
profit maximizing level of output. [3]
If the dollar sign is not present in each of the three steps then a maximum of 2
marks may be awarded.
(d) Identify the level of output this firm would choose if instead of profit it aimed at
maximizing revenues. You must give a reason for your choice. [2]
20 000 [1]
At that level of output, MR = 0 [1]
(e) Explain the meaning of the term “allocative efficiency” and its implication for social
(community) surplus. [4]
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
(f) Referring to the diagram on page 6, identify the level of output that should be
produced for allocative efficiency to be achieved. You must give a reason for
your choice. [2]
At 26 000 [1]
At that level of output, P (or AR) = MC [1]
N.B. A candidate cannot be awarded a mark for outlining the reason unless they
have identified the correct level of output.
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 Vague definition. 1
For the idea that production takes place with low costs.
2 Accurate definition. 2
An explanation that it exists if production takes place at minimum AC or
where MC = AC.
(h) Calculate the price elasticity of demand when the price decreases from $18.00
per unit to $12.00 per unit. [2]
%∆Qd 30 %
=
PED = = 0.91or − 0.91 [1]
%∆P −33.33 %
A response of 0.9 or − 0.9 should also be rewarded (using unrounded figure from
GDC or using fractions).
An answer of 0.9 (or − 0.9) without any valid working is sufficient for [1] only.
Candidates may use the midpoint formula; they should be fully rewarded (0.65).
(i) With reference to the firm’s revenues, comment on the price elasticity of demand
at point F of the demand curve in the diagram on page 6. [2]
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 Vague answer. 1
For stating that at point F it is equal to unity (PED = 1).
2 Accurate answer. 2
For stating that at point F it is equal to unity as MR is equal to zero.
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(j) Explain why a profit maximizing firm with monopoly power will never choose to
operate on the inelastic portion of its average revenue curve. [4]
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
3. (a) (i) Calculate the cost of this basket in 2013 and 2014. Enter your answers in
Table 1. [2]
(ii) Using your results from part (a)(i), calculate a consumer price index (CPI)
with 2013 as the base year. [1]
1597.2
× 100 =
103.18 [1]
1548
OFR applies
Workings are not necessary.
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103.18 − 100
× 100 =3.18%
100
OR
1597.2 − 1548
× 100 =3.18% [1]
1548
OFR applies
Workings are not necessary.
(b) Outline the reason why, in addition to a consumer price index (CPI), a producer
price index may also be useful to economists. [2]
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
1 Vague response. 1
The idea that it is useful to predict future consumer price inflation.
2 Accurate response. 2
For outlining that it is useful to predict future consumer price inflation, since
if prices of producer goods increase then it is expected that consumer
prices will follow.
(c) (i) Calculate Boarland’s real GDP for 2008 and 2009 expressed in 2007
prices. Enter your answers in Table 2. [2]
21.9
× 100 =
21.41 [1]
102.3
22.6
× 100 =
21 [1]
107.6
(ii) State the reason why a country’s gross domestic product (GDP) may be
greater than its gross national income (GNI). [1]
21.41 − 20.7
Growth 2007–2008 = × 100 =3.43% [1]
20.7
21 − 21.41
Growth 2008–2009 = × 100 = −1.91% [1]
21.41
21.5 − 21
Growth 2009–2010 = × 100 = 2.38% [1]
21
NB OFR must apply if answers to (c)(i) are incorrect (eg if 21.4 was given
as the real GDP of 2008 then the growth rates are: 3.38%, -1.87% and
2.38%).
(iv) Using your answer to part (c)(iii), identify the year Boarland was in
recession. [1]
OFR applies.
Candidates are not required to outline a reason for their choice. The
correct year above is sufficient for [1].
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(v) Using the data in Table 2 and your answers to part (c), explain how real
GDP could decrease while nominal GDP is increasing. [4]
Level Marks
0 The work does not reach a standard described by the descriptors
below. 0
Responses must point out that between 2008 and 2009 nominal GDP
increases from $21.9 billion to $22.6 billion, while at the same time
the average price level increases at a greater rate (102.3 to 107.6).
As a result, real GDP fell from $21.41 billion to $21 billion.
Candidates who do not use their answers to part (c) may be awarded
a maximum of [3].
(d) (i) Calculate the unemployment rate for Boarland in 2013. [2]
456 400
=
Unemployment rate = × 100 14 % [1]
( 2 803 600 + 456 400 )
Any valid working is sufficient for [1].
Level Marks
0 The work does not reach a standard described by the descriptors below. 0
A response that refers to the quality of data collected should not be rewarded.
Level Marks
0 The work does not reach a standard described by the descriptors below. 0