Unit 4: Evaluating Economic Models and Policies · 1520U40-1
WJEC A-level Unit 4, June 2019
All 12 written questions from WJEC A-level Unit 4 (June 2019), Evaluating Economic Models and Policies. Each question shows its marks and topic, with an examiner insight on 12, and opens the question paper and mark scheme at the right page.
Section A
Q1(a)
Using a numerical example, explain how game theory can be used to illustrate price leadership in oligopolies.
Mark splitKnowledge 6Analysis 4
TopicMarket structures
Examiner insight
- What to cover
- Build a 2 by 2 payoff matrix with real numbers for two firms choosing to follow or not follow a price change. Work through the payoffs, identify the dominant strategies and the Nash equilibrium, then use it to explain why rivals follow a price leader.
- Diagram
- A labelled payoff matrix with both firms' payoffs in each cell, and the Nash equilibrium marked.
- Watch out
- Most candidates drew a matrix but then got confused interpreting their own numbers, and few actually addressed price leadership, whether prices are rising or falling. Analyse the matrix, do not just present it.
- How it went in the exam
- The mean was 6.1 out of 10. Knowledge of Nash equilibrium and interdependence was generally sound, so the marks were in the numerical analysis.
Q1(b)
"Oligopoly is the most desirable market structure." Discuss.
Mark splitKnowledge 6Analysis 6Evaluation 8
TopicMarket structures
Examiner insight
- What to cover
- Give the case for oligopoly: price rigidity aiding confidence and planning, non price competition and choice, abnormal profits funding research and dynamic efficiency, economies of scale in the large firms.
- Diagram
- Kinked demand curve drawn correctly with the discontinuous MR, or a cost and revenue diagram showing scale economies.
- Evaluation
- The word is most desirable, so compare with other structures: perfect competition on allocative efficiency, monopolistic competition on choice, monopoly on scale. A verdict on oligopoly alone cannot reach the top marks.
- Watch out
- Do not assume every firm in an oligopoly is large. Oligopolies often contain many small firms alongside the dominant ones.
- How it went in the exam
- The mean was 10 out of 20. Most candidates did not make the comparison with other market structures, which is what the top band needed.
Q2(a)
Explain, using diagrams, why firms in perfect competition are regarded as efficient.
Mark splitKnowledge 6Analysis 4
TopicMarket structures
Examiner insight
- What to cover
- Take each efficiency in turn and explain the mechanism, not just the label. Productive efficiency because free entry drives price to minimum AC, allocative efficiency because P equals MC when AR equals MR equals price, X efficiency because normal profit leaves no room for slack.
- Diagram
- Long run perfect competition diagram with the firm at the bottom of AC, earning normal profit, price equal to MC.
- Watch out
- Most candidates stated that the firm is productively, allocatively and X efficient but never explained precisely why, and lost the higher marks for it.
- How it went in the exam
- The mean was 6.3 out of 10. Diagrams were usually accurate, so the explanation is the differentiator.
Q2(b)
Evaluate the view that competition authorities should ban firms from using price discrimination.
Mark splitKnowledge 6Analysis 6Evaluation 8
TopicMarket structures
Examiner insight
- What to cover
- The question is whether a ban is appropriate. Explain the conditions for price discrimination and its effects on consumer surplus, producer surplus and output, then argue about whether prohibition is the right response.
- Diagram
- Third degree price discrimination with separate elastic and inelastic submarkets. Only draw it if you use it in the argument.
- Evaluation
- Suggest where a ban would and would not be right: exploitative pricing of essentials against airline and rail pricing that fills capacity, cross subsidy that lets some consumers buy at all, and the practical difficulty of enforcing a ban.
- Watch out
- Long definitions and painstaking diagrams gained few marks unless they were used in the argument. Answers that weighed the pros and cons of price discrimination in general, rather than of banning it, could not reach the top marks.
- How it went in the exam
- The mean was 12.6 out of 20, the highest of the Section A essays, so the standard of the competition is high here.
Section B
Q3(a)
Explain, using a diagram, the shape of the short run aggregate supply (SRAS) function and the factors which may cause it to shift.
Mark splitKnowledge 6Analysis 4
TopicAggregate supply
Examiner insight
- What to cover
- Explain the upward slope, not only the shifts: in the short run some costs such as wages are fixed by contract, so a higher price level raises profit margins and firms expand output. Then give the shift factors, which are changes in the costs of factors of production: wages, oil, taxes, the exchange rate.
- Diagram
- SRAS with macro axes, price level and real GDP, with a shift in each direction shown.
- Watch out
- SRAS shifts when factor costs change, LRAS shifts when the quantity or quality of factors changes. Technology and productivity belong to LRAS unless you link them explicitly to lower factor costs. Do not use micro axes.
- How it went in the exam
- The mean was just 5.1 out of 10. Very few candidates explained the upward slope, which was the main reason for lost marks.
Q3(b)
"Recession can sometimes generate benefits for an economy." Discuss the extent to which governments should pursue contractionary fiscal policies.
Mark splitKnowledge 6Analysis 6Evaluation 8
TopicEconomic growth and the economic cycle
Examiner insight
- What to cover
- Keep contractionary fiscal policy at the centre. Analyse what higher tax and lower spending do to AD, the deficit, inflation and confidence, and discuss the possible benefits of the resulting slowdown, such as lower inflation, a smaller current account deficit and the shake out of inefficient firms.
- Diagram
- Use both Keynesian and neo classical AD and AS diagrams, since the effect on output and prices differs between them.
- Evaluation
- Distinguish between kinds of contraction: income tax against corporation tax, cuts to capital spending against current spending. Consider economies at different stages of development and different positions in the cycle.
- Watch out
- A good proportion wrote about the benefits of a recession without linking to contractionary fiscal policy, and others quietly switched to expansionary policy. Answer the question set.
- How it went in the exam
- The mean was 10.5 out of 20. The best answers distinguished between types of contractionary policy rather than treating it as one thing.
Q4(a)
Explain, using an AD/AS diagram, how quantitative easing should lead to an increase in both economic growth and inflation rates.
Mark splitKnowledge 6Analysis 4
TopicMeasuring economic performanceEconomic growth and the economic cycleMacroeconomic objectives and policy
Examiner insight
- What to cover
- Get the mechanism exactly right. The central bank, not the government, buys government and corporate bonds from financial institutions. That injects liquidity, raises bond prices and so lowers yields and interest rates, lifts asset prices and wealth, and encourages lending and spending, so AD rises.
- Diagram
- AD and AS with AD shifting right, giving higher real output and a higher price level.
- Watch out
- Weak answers said the government buys the bonds, or jumped from more money supply straight to higher AD. QE works in the domestic money market: it does not automatically put more currency on the foreign exchange market, so do not claim an automatic depreciation. Any depreciation comes indirectly through lower rates and weaker capital inflows.
- How it went in the exam
- The mean was 6 out of 10, but examiners saw whole centres score close to full marks, so the full mechanism is learnable and worth learning.
Q4(b)
Evaluate the view that deflation is always undesirable for an economy.
Mark splitKnowledge 6Analysis 6Evaluation 8
TopicMeasuring economic performance
Examiner insight
- What to cover
- Three strong lines: deflation makes households and firms delay spending, which creates a downward spiral in growth and prices; deflation raises the real value of debt; and falling prices can make exports more competitive.
- Diagram
- AD and AS with AD shifting left and the price level falling, and if used a debt deflation chain written out.
- Evaluation
- Attack always. Distinguish benign supply side deflation from demand driven deflation, and judge how much depends on the stance of the monetary authorities and on which economy is involved.
- Watch out
- Deflation is a falling price level, not a recession. Candidates who confused the two scored very few marks. The difference between a mid and a top answer was the depth of each point and the terminology, not the number of points.
- How it went in the exam
- The mean was 11 out of 20 and many candidates scored between 10 and 14, so this was a well practised question. Depth is what lifts it above the pack.
Section C
Q5(a)
Explain possible causes of a current account deficit.
Mark splitKnowledge 6Analysis 4
TopicInternational trade and exchange ratesMeasuring economic performance
Examiner insight
- What to cover
- Cover the whole current account, not just the trade balance: trade in goods and services, primary income (profits, interest and dividends flowing abroad) and secondary income (transfers). Then explain causes: an overvalued exchange rate, weak competitiveness and productivity, strong domestic demand, structural decline in exporting industries, commodity prices.
- Diagram
- Exchange rate diagram showing appreciation, or AD and AS with strong domestic demand pulling in imports.
- Watch out
- A shopping list of causes earns some AO1 but no AO3. Develop two or three causes properly. Candidates who brought in primary and secondary income were generously rewarded, and very few did.
- How it went in the exam
- The mean was 6 out of 10. Most candidates treated the current account as if it were only the trade balance.
Q5(b)
Evaluate the extent to which increasing integration of the world economy is beneficial to the UK.
Mark splitKnowledge 6Analysis 6Evaluation 8
Examiner insight
- What to cover
- Ground the whole answer in the UK. Take integration through trade, capital flows, migration and technology, and link each to UK specifics: the UK's comparative advantage in services, regional disparities, the productivity problem and the relationship with the EU.
- Evaluation
- Weigh gains in choice, prices and inward investment against structural unemployment in declining regions, exposure to global shocks and the loss of policy autonomy. Judge the extent.
- Watch out
- A general advantages and disadvantages of globalisation essay with token UK references scored high Band 2 at best. Band 3 needed genuine UK context throughout.
- How it went in the exam
- The mean was 13.1 out of 20, the highest mean essay on the paper, so the marks are there for an answer that stays on the UK.
Q6(a)
Explain how international aid and debt relief can help to raise the level of development in an economy.
Mark splitKnowledge 6Analysis 4
Examiner insight
- What to cover
- Distinguish types: humanitarian, project, tied and multilateral aid, and full debt cancellation against restructuring. For each, link explicitly to the development outcome: savings gap filled, infrastructure and human capital built, debt service freed for health and education.
- Diagram
- Harrod Domar savings gap, or AD and LRAS both shifting right.
- Watch out
- Generic treatment of aid and debt relief, without an explicit link to living standards and development, was worth about half marks.
- How it went in the exam
- The mean was 6.2 out of 10. Examiners congratulated centres on the grounding in development policy, so the differentiator is the link, not the content.
Q6(b)
Discuss the extent to which governments in LEDCs should use protectionist policies to increase living standards.
Mark splitKnowledge 6Analysis 6Evaluation 8
TopicMeasuring economic performance
Examiner insight
- What to cover
- Use several protectionist tools, not just tariffs: quotas, exchange rate manipulation, subsidies and non tariff barriers such as bureaucracy. Apply each to LEDC conditions, including infant industries, primary product dependency and the need for imported food and medicine.
- Diagram
- Tariff diagram, but only as one part of a wider answer.
- Evaluation
- Weigh protection against the cost of dearer imports of necessities, retaliation, weak administrative capacity and lost efficiency. Recognise that all LEDCs are different and have different needs.
- Watch out
- Answers that only analysed a tariff diagram, with little connection to living standards, scored under 10 out of 20. Do not assert that LEDC governments are corrupt: examiners found the claim unjustified and irrelevant, and weaker institutions are not the same as deliberate corruption.
- How it went in the exam
- The mean was 11.4 out of 20. Question 6 was the more popular Section C choice, taken by 61.8 per cent of candidates.
Question text is quoted from the question papers, © WJEC CBAC Ltd, for students’ private study. Open the official papers and mark schemes from the links on each question. Examiner insights are written with AI assistance and moderated by Finn.