Unit 2: Economics in Action · 2520U20-1
WJEC AS Unit 2, June 2017
All 10 written questions from WJEC AS Unit 2 (June 2017), Economics in Action. Case studies: All that is gold does not glitter and Education, Education, Education or Inflation, Inflation…. Each question shows its marks and topic, with an examiner insight on 6, and opens the question paper and mark scheme at the right page.
Case study
ALL THAT IS GOLD DOES NOT GLITTER
In the extracts: Gold, Country Tonnes China, Troy Ounce in US, Papua New Guinea, India and China, Bingham Canyon, Ghana and Peru, GOLD DOES NOT, United States, Pacific Ocean
Q1(a)
(i) Using the year 2000 as a base year, calculate the gold price index at its peak. (ii) Using Figure 2, calculate both the mean and median gold supply per year during the 5 year period 2010-2014. (iii) Using diagrams, evaluate the extent to which an increase in the demand for a product always leads to a corresponding increase in price and quantity.
TopicMeasuring economic performanceDemand, supply and elasticity
Examiner insight
- What to cover
- Parts (i) and (ii) are calculations: an index with 2000 as base, and the mean and median of five values. Show the workings. Part (iii) needs diagrams of a demand increase and then the cases where price or quantity does not rise with it.
- Diagram
- Demand shifting right on a normal supply curve, then the special cases: perfectly elastic supply (price unchanged) and perfectly inelastic supply (quantity unchanged).
- Evaluation
- The AO4 marks are only for a scenario in which demand rises but price or quantity does not move. Use perfectly elastic or perfectly inelastic supply, a price ceiling, or excess capacity.
- Watch out
- Evaluation using merely elastic or inelastic PES was not credited. It must be the perfectly elastic or perfectly inelastic case. Many candidates could not calculate a median from five values.
- How it went in the exam
- Part (a)(i) had the lowest facility factor of any question across Units 1 and 2 at 35.0. Part (iii) scored 56, which examiners put down to strong AO1 and AO3 but weak AO4.
Q1(b)
Using the data, discuss the extent to which gold and US dollars can be considered to be substitutes.
Mark splitKnowledge 2Application 2Evaluation 2
Q1(c)
Using an appropriate diagram, explain how gold-mining can lead to market failure.
TopicMarket failure
Examiner insight
- What to cover
- No evaluation marks here, so it is pure technical explanation. Define external and social costs, use the gold mining hooks in the data (pollution, mercury, deforestation, health), and show output above the social optimum.
- Diagram
- Negative externality in production: MSC above MPC, free market output beyond the socially optimal output, and the welfare loss triangle shaded.
- Watch out
- Full marks needed accurate technical language and a robust diagram, plus AO2 marks for keeping the answer about gold rather than pollution in general. Do not spend time evaluating, there are no marks for it.
- How it went in the exam
- Examiners noted the data gave plenty of hooks. Marks went to technical accuracy on external costs, social costs and the socially optimum allocation.
Q1(d)
(i) Using Figures 2 and 3, calculate the % of the 2014 total gold supply that was mined in Peru and in Ghana. (ii) With the aid of a diagram, discuss whether the introduction of a guaranteed minimum price for gold will be beneficial for workers in gold mines in poor countries like Peru and Ghana.
TopicGrowth and developmentGovernment intervention in markets
Examiner insight
- What to cover
- Part (i) is a percentage calculation from Figures 2 and 3. Part (ii) must be about workers in Peru and Ghana: a guaranteed minimum price raises and stabilises producer incomes, which can feed into wages and employment in the mines.
- Diagram
- Minimum price above equilibrium in the gold market, showing the surplus, with the government committed to buying it up.
- Evaluation
- Weigh higher and more stable pay for miners against the risk that the gain goes to mine owners not workers, the cost to the government of buying the surplus, and the pull of more workers into dangerous informal mining.
- Watch out
- Two errors were common: answering as though the scheme were a minimum wage, and arguing that demand for gold would fall, which misses the point that the government buys the surplus.
- How it went in the exam
- This question had the highest standard deviation on the paper, so it is where marks were won and lost. It carries the full set of AO1, AO2, AO3 and AO4 marks.
Case study
Education, Education, Education or Inflation, Inflation, Inflation
In the extracts: Inflation, Education, Alacrity Foundation, Bank Rate, Wales, Office for National Statistics, Global Competitiveness Report, Professor Dylan Jones-Evans, George Osborne Chancellor, Monetary Policy Committee
Q2(a)
Using an exchange rate diagram, describe one reason why the 2008 financial crisis may have led to a depreciation of sterling.
Mark splitKnowledge 2Application 2
TopicInternational trade and exchange ratesThe financial sector
Q2(b)
Using an AD/AS diagram, outline how a sharp depreciation of sterling can cause inflation despite weak aggregate demand.
Mark splitKnowledge 2Application 2
TopicInternational trade and exchange ratesAggregate demandMeasuring economic performance
Q2(c)
To what extent do you agree with the MPC's assessment in early 2015 that "it can simultaneously return inflation to its target level and support economic growth without any fear of conflict between the policy objectives"? (Extract A)
Mark splitKnowledge 2Analysis 2Evaluation 4
TopicEconomic growth and the economic cycleMarket failureMeasuring economic performance
Examiner insight
- What to cover
- Use Extract A, the Bank of England letter. Explain the standard conflict between low inflation and growth, then explain why it did not apply in early 2015: AD was still weak and the low inflation was cost push, driven by falling oil and food prices, not demand.
- Diagram
- AD and AS with SRAS shifting right, giving a lower price level and higher output at the same time, so the two objectives move together.
- Evaluation
- Judge how long that holds. If the cost push effect unwinds or AD recovers, the conflict returns. Consider the risk of deflationary expectations and the limits of rates at their floor.
- Watch out
- Most candidates linked low interest rates to inflation but never returned to Extract A. Without the cost push point the nuance of the Bank's decision is missed.
- How it went in the exam
- The mean was 3.3 out of 8 and the facility factor 40.7. Examiners called it the most challenging question on the paper.
Q2(d)
What is meant by productivity?
Mark splitKnowledge 2
TopicMacroeconomic objectives and policyMeasuring economic performanceMarket failure
Q2(e)
With reference to Extract B and economic theory, discuss the extent to which high quality education and training programmes can improve the trade balance and reduce unemployment levels in the UK.
Mark splitApplication 2Analysis 4Evaluation 4
TopicInternational trade and exchange ratesMeasuring economic performance
Examiner insight
- What to cover
- Answer both halves. Education and training raise productivity and skills, which cuts structural unemployment and improves international competitiveness, so export volumes rise and the trade balance improves. Use the Alacrity Foundation and the Global Competitiveness report hooks.
- Diagram
- Long run AS shifting right, or a labour market diagram showing the fall in structural unemployment.
- Evaluation
- Long time lags before trained workers reach the labour market, the risk of skills not matching vacancies, the cost against other policies, and the fact that the trade balance also depends on the exchange rate and world demand.
- Watch out
- Marks were lost by answering only one half of the question, by drifting onto other supply side policies, and by leaving out the UK context. Answers that used none of the data hooks got no AO2 marks.
- How it went in the exam
- Examiners said many candidates gained good marks here. The best answers tied education and training to both unemployment and the trade balance.
Q2(f)
To what extent do you agree with the statement: "the supply side policies of cutting direct taxes and improving infrastructure are more effective strategies for reducing inflation than a rise in interest rates"?
Mark splitKnowledge 2Analysis 4Evaluation 6
TopicMacroeconomic objectives and policyMeasuring economic performance
Examiner insight
- What to cover
- Compare two things: cutting direct taxes and improving infrastructure as supply side policies, against a rise in interest rates. Show the supply side route working through lower costs and a rightward shift in LRAS, and the monetary route working through lower AD.
- Diagram
- AD and AS with LRAS shifting right for the supply side case, and AD shifting left for the interest rate rise.
- Evaluation
- Weigh effectiveness: supply side policies are slow but non inflationary in the long run, while a rate rise is quick but costs output and jobs. Note that tax cuts also raise AD in the short run, which is the two sided point.
- Watch out
- A significant number did not see the deflationary side of a direct tax cut and treated it only as an AD boost, which made the answer one sided. Address every aspect of the question.
- How it went in the exam
- The facility factor was 45.4, pulled down partly by a low completion rate as time ran out. No context was required, but both policies had to be discussed.
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.