Unit 2: Economics in Action · 2520U20-1
WJEC AS Unit 2, June 2022
All 11 written questions from WJEC AS Unit 2 (June 2022), Economics in Action. Case studies: Salmon farming in scotland and Interesting interest rates. Each question shows its marks and topic, with an examiner insight on 5, and opens the question paper and mark scheme at the right page.
The 2022 question paper carries WJEC's Z22 reference, from the adapted summer 2022 series. Its mark scheme is the summer 2022 one.
Case study
SALMON FARMING IN SCOTLAND
In the extracts: Scottish, Farmed, Salmon, Scottish Environment Protection, Water Consumption, Carbon Footprint, Global Salmon, Environmental, Initiative, Consumers
Q1(a)
Using an example from the data, describe what is meant by the term 'scarcity' (line 2).
Mark splitKnowledge 1Application 1
Q1(b)
Outline whether salmon is a normal or an inferior good.
Mark splitApplication 2
Q1(c)
With reference to lines 6–11, explain why salmon prices have risen. Use a supply and demand diagram in your answer.
Mark splitKnowledge 2Application 2Analysis 2
TopicDemand, supply and elasticityAggregate demandThe economic problem and resource allocation
Q1(d)
Consider whether the supply of farmed salmon is price inelastic or price elastic.
Mark splitKnowledge 2Application 1Analysis 1Evaluation 2
Q1(e)
To what extent does salmon farming in Scotland lead to market failure?
Mark splitKnowledge 2Application 2Analysis 4Evaluation 4
TopicMarket failure
Examiner insight
- What to cover
- Use market failure theory explicitly: negative externalities in production from salmon farming (pollution, disease, wild stock damage), absence of property rights and the tragedy of the commons in wild fisheries, and any information failure.
- Diagram
- External cost in production with MSC above MPC, overproduction at the free market quantity, welfare loss shaded. Explain what it shows.
- Evaluation
- The most fruitful line is that external benefits in consumption of salmon could offset the external costs in production, so the free market quantity may already be the social optimum. End with an overall judgement on the extent.
- Watch out
- Two traps. An answer that reads like a newspaper piece on the good and bad of salmon farming, with no market failure theory, is capped at Band 1 for analysis. And the 12,000 jobs in the industry are private benefits, not external ones. The external benefit argument must run through the multiplier and jobs outside the industry.
- How it went in the exam
- Band 3 for evaluation needed an overall reasoned judgement on to what extent, which most candidates did not give.
Q1(f)
Discuss the likely impacts on the Scottish economy of the closure of all salmon farms.
Mark splitKnowledge 2Application 2Analysis 4Evaluation 4
TopicDemand, supply and elasticityAggregate demandThe economic problem and resource allocation
Examiner insight
- What to cover
- Work through the impacts on Scotland: lost output and exports, unemployment in coastal communities, a negative multiplier effect on local spending, lost tax revenue, effects on the supply chain.
- Diagram
- AD and AS for Scotland with AD shifting left, or a labour market diagram for the affected regions.
- Evaluation
- Weigh the significance of each effect rather than adding more: the occupational and geographical mobility of the workforce, how large the industry is relative to Scotland, and any gains such as less environmental damage or less demand pull pressure when inflation is above target.
- Watch out
- Even strong candidates struggled to evaluate here. Deciding how much each negative effect matters is easier than finding benefits, and earns the same marks.
- How it went in the exam
- Examiners were pleased that some candidates brought in their own knowledge of current inflation. The data should still be your main source.
Case study
INTERESTING INTEREST RATES
In the extracts: Bank of England, UK Monetary Policy, Tracker Mortgage, Quarterly GDP, Daily Mirror, Calum Bennie, Unemployment, Committee, Borrowers, Inflation
Q2(a)
(i) Using the data, explain how "raising interest rates by 50%" and "increasing interest rates by 0.25 percentage points" are the same thing. (ii) "Someone with a £5 000 savings balance benefiting from a 0.25 percentage point rate increase will see their interest income rise by £1.04 per month." Show how this was calculated.
Q2(b)
(i) Other than inflation, state two factors that the Monetary Policy Committee is likely to take into account when setting the bank rate. (ii) In addition to setting the bank rate, the Bank of England has many other roles. State two other roles of the Bank of England.
TopicMacroeconomic objectives and policyMeasuring economic performance
Q2(c)
To what extent will increasing the bank rate affect the levels of consumption and investment in the UK?
Mark splitApplication 2Analysis 4Evaluation 4
TopicAggregate demandMacroeconomic objectives and policy
Examiner insight
- What to cover
- Go past the first step. A higher bank rate raises the cost of borrowing and the reward for saving, so consumption and investment fall. For Band 3 add a second link: lower house prices and the negative wealth effect, or weaker consumption cutting expected returns and business confidence, so investment falls further.
- Diagram
- AD and AS with AD shifting left, or an investment demand schedule against the interest rate.
- Evaluation
- Consider confidence, the share of households with mortgages, fixed rate deals delaying the effect, and how net savers spend their higher interest income. Finish with an overall judgement on the extent.
- Watch out
- The question says in the UK, so use the data on the extra mortgage cost or the extra return on saving. Purely theoretical answers lost the application marks. Hot money inflows are portfolio investment, not FDI. And do not turn this into whether bank rate is the most important factor, which was not asked.
- How it went in the exam
- Most candidates reached Band 2 for analysis easily. The second link in the chain is what lifted answers to Band 3.
Q2(d)
With reference to the data and with the use of an exchange rate diagram, discuss whether interest rates are the main factor affecting exchange rates.
TopicInternational trade and exchange ratesMacroeconomic objectives and policy
Examiner insight
- What to cover
- Show the interest rate channel on the exchange rate, then weigh other factors: the trade balance, speculation, relative inflation, confidence and long term capital flows.
- Diagram
- Exchange rate diagram with the y axis labelled exchange rate or price of the pound in dollars, not just P. For a rate rise show demand for the pound rising, or demand rising and supply falling. Refer to the diagram in the writing.
- Evaluation
- Compare the periods in the figures when the bank rate and the exchange rate move together and when they do not, then judge whether interest rates are the main factor.
- Watch out
- Application was poorly done. Quote values from both axes and the dates when citing a chart, rather than saying it rose or fell.
- How it went in the exam
- Examiners said the diagrammatic and written analysis was generally very well done here. Data use and the final judgement were the weak points.
Q2(e)
Using an AD/AS diagram, evaluate whether the use of demand-side policies always leads to a conflict of policy objectives.
TopicMacroeconomic objectives and policy
Examiner insight
- What to cover
- Three things are needed, and weaker candidates did only two. Name a demand side policy, show how it achieves one stated objective, then show how it moves a second stated objective away from target, which is the conflict.
- Diagram
- AD and AS, ideally with a Keynesian LRAS so the size of the negative output gap can be discussed. Refer to it in the writing.
- Evaluation
- Argue that the conflict is not always there: some policies achieve two objectives at once, such as lower unemployment with growth, and with a large negative output gap AD can rise with little inflationary effect.
- Watch out
- State the policy objectives explicitly rather than writing loosely about higher inflation or lower unemployment. Many candidates offered no evaluation at all.
- How it went in the exam
- This final question was the most poorly answered on the paper, which examiners put down to timing. Split the time evenly between Q1 and Q2.
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.