Examiners’ Report

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June 2019

Pearson Edexcel Advanced Subsidiary in

Economics (8EC0)
Paper 1: Introduction to Markets and
Market Failure
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June 2019
Publications Code 8EC0_01_1906_ER
All the material in this publication is copyright
© Pearson Education Ltd 2019
Introduction

This was the fourth sitting of this paper (8EC0 01) from the new specification
launched in September 2015. 8EC0 paper 01 tested candidates on their knowledge
and understanding of topics covered in Theme 1 of the specification content.

The structure of the paper comprised of two sections. Section A included five short
questions, broken down into smaller parts, based on a spread of specification
elements in Theme 1 (totalling 20 marks), candidates were advised to spend 25
minutes on this section. Section B focussed primarily on health provision, a highly
topical issue, with a wide range of data provided from which candidates could
draw to gain application marks (totalling 60 marks). Candidates were advised to
spend 1 hour and 5 minutes on this section. Extract C related to issues
surrounding public goods. Section B comprised of one data response question
broken down into a number of parts, including a choice of extended open-
response questions; candidates select one essay from a choice of two. The total
time available for this paper was one and a half hours and there was little evidence
of candidates running out of time. Overall, the paper appeared accessible to the
vast majority of candidates and differentiated effectively.

In Section A each short question was broken down into non-supported multiple
choice questions, using option boxes which were dealt with well, plus a short
answer question worth one, two or three marks. Three-mark responses were often
impressive with good subject knowledge (K) often starting with a definition,
analysis (An) and application (Ap) where required, although candidates would
benefit from ensuring they attempt to apply their answers given the data/context
provided.

In Section B there was a clear recognition that good economics is rewarded rather
than over worrying about a set structure to respond. This was highlighted with the
ten mark response where one substantial point regarding the characteristics of
public goods would have been sufficient, assuming it demonstrated an
understanding of the concept in context, was fully integrated and answered the
broad element of the question. This, followed by one substantial applied evaluative
point, which answered the broad elements of the questions through a coherent
chain of reasoning, was sufficient to obtain full marks on one page. Candidates
who made two substantial points each evaluated in depth typically required
additional paper and may have limited their time available to answer other
questions. Of course, where a ten mark question requires candidates to assess two
reasons or the effects then there is a requirement to move beyond substantially
evaluating one major point. It is pleasing that candidates grasp the need to provide
logical chains of reasoning with their analysis and applying theory and data to
questions. Most candidates grasped the need in the fifteen mark and twenty mark
responses that a limited number of points (typically two substantial points)
evaluated in depth would be sufficient to access the top levels.

There was still some evidence of candidates struggling with evaluation with it
either missing or at Level 1 evaluation which is often generic or thin. For top level
evaluation ensuring it was well explained and in context was required. Centres
may wish to practice more on getting candidates to evaluate what they have
already written as their substantial point and to critically evaluate the knowledge,
chains of reasoning and data as a means of developing their evaluation. This will
also help them to access top level essay evaluation (L3) in the essays where
‘sustained judgement’ is required. Candidates would benefit from attempting to
weigh up theory and the sufficiency of the data as they write, to offer clear and
sustained judgement. With the essays a small number of candidates still did not
indicate clearly which essay 6(f) or 6(g) they were answering by marking a cross in
the box available, although their written responses did make it clear.

It is important to practise full papers using the Sample Assessment Materials, and
growing body of live papers under timed conditions to strengthen exam skills. In
addition across the paper diagrams drawn would benefit, in some cases, with
more precision in accurately and fully labelling as well as a careful explanation of
them. The performance on individual questions is considered in the next section of
the report and there are two examples of candidate work for each one. These
examples act as a guide as to why a question was well answered and also how to
improve further.

Section A:
Multiple-choice and short-answer questions
A significant number of candidates were very well prepared and demonstrated an
excellent understanding of the specification and the techniques involved in
answering the questions. The multiple choice questions format provided an
accessible format for candidates to select their chosen option. Candidates are
mostly confident in using definitions, annotating or drawing diagrams and
calculations. An area to work on would be completing tables and ensuring a careful
reading of the question set and data/context provided.

Section B:
Data response questions
The new format for data questions met with a positive response on the whole.
Responses to 6(a) on revenue provided confident diagrams carefully illustrating
and labelling the fall in revenue. The quantitative skill four-mark calculate question
6(d) was straightforward, with the overwhelming majority of candidates showing
their working and obtained full marks. Evidence of candidates mastering the
breadth and depth of the specification were clear in response to 6(c) on assessing
the extent to which public parks are public goods. There was a substantial
weighting for evaluation marks (sixteen out of forty-five marks) in the level-based
responses. A ten mark question comprises four evaluation marks, a fifteen mark
question comprises six evaluation marks and a twenty mark question comprises
six evaluation marks. Consequently, it is vital that candidates make in-depth
applied evaluative comments when required by the question, as well as offering
judgement using positive economics throughout, in order to avoid
disappointment.

Candidates have grasped the need to avoid generic evaluation comments and
provided
significant depth of explanation and application in their evaluation. To achieve the
higher level, the maximum evaluative marks, there needed to be evidence of
substantiated judgement, this was often missing or left to a conclusion which
summarised the points covered and made a generic judgement call. Both essay
questions were accessible to candidates though question 6(g) (methods of
government intervention) proved to be significantly more popular than question
6(f) (disadvantages of a free market approach); this appeared to be related to new
specification content although where 6(f) was answered responses were confident
and applied well indicating candidates are becoming more eloquent with this
concept.

Question 1 (b)

Candidates typically performed well on this question, with most able to identify
what the division of labour is and go on to analyse the benefits of it for car
manufacturers. Only a minority of candidates were able to give specific examples
from the car industry which were necessary to gain the application mark.

Question 2 (a)

The majority of candidates were able to recognise that the demand curve shifted
to the left but were less secure in their ability to show a change in consumer
surplus. Typical mistakes were to indicate either a left shift in supply, suggesting a
contraction in demand, and to confuse consumer and producer surplus.

Question 2 (c)

Though many candidates were able to achieve the mark available here, lack of
precision in defining demand was an obvious issue for many. Typically, we were
looking for some notion of effective demand and definitions discussing needs or
simply wants without any sense of ability to buy were too vague to be rewarded.
Question 3 (b)

This question was a challenge for some. Many candidates were able to do the
maths but not link the numbers to the requirements of the question, which was
asking about total revenue. There was an acknowledgement that a correct
percentage change calculation could access the application mark even if the
answer was incorrect.

Question 4 (b)

Most candidates were able to demonstrate a left shift of the supply curve in
response to the rise in VAT on the market for energy use but the vast majority
were unable to show a non-parallel or pivoted shift, tending to show only the
impact of a specific rather than ad valorem tax.
Question 4 (c)

This question required a definition of an indirect tax and the vast majority of
candidates were able to perform this correctly, though over ten percent of the
responses were either incorrect or too vague.

Question 5 (b)

Candidates were able to recognise the impact of a change in income on the

demand for Freddos in most cases but many struggled to identify Freddos as an
inferior good and few were able to then move on to effectively suggest how the
producers of Freddos could respond to this information.

Question 6 (a)

This question required candidates to consider how the health care market
illustrates the economic problem and responses were generally good. Most
candidates were able to recognise the nature of the economic problem and use
the data to illustrate it. Most were unable to then analyse effectively enough to link
back to the issues facing decision makers in health care to achieve the second
analysis mark. Good responses could clearly draw the conclusion that health care
priorities illustrated the economic problem.

Question 6 (b)

Candidates performed less well on this question, primarily because they focussed
excessively on problems for insurers rather for consumers as well. This concept
seemed insecure in many responses. Better candidates were able to clearly
identify how asymmetric information causes failure in the health care market and
went on to give clear examples using the extract. They could then analyse the
impact of this on the market overall.

Question 6 (c)

This was the first of the levels-based questions and was the only data response
question not related to health provision. Extract C contained plenty of information
candidates could use to consider the extent to which parks were public goods and
once the key concepts of non-excludability and non-rivalry were applied to the
situation the majority of responses were able to build a case successfully. Overall
responses were good and top level evaluation marks tended to be awarded for the
recognition that public parks are quasi-public goods depending on variables such
as the time of day, the day of the week and, indeed, the size of the park.

Question 6 (d)

This question was a four-mark calculation based on the idea of charging patients
when they visit a GP. A large majority of candidates were able to complete this
successfully, which is a pleasing indicator of the improving numeracy of the cohort
each year.

Question 6 (e)

This fifteen-mark question was a strong test of a candidate’s ability to link textbook
knowledge of supply and demand factors to a sector of the economy where
market forces are unusual. The failure of the NHS to treat patients effectively is
thoroughly discussed in the data and candidates used both supply and demand-
side factors to score quite highly on the KAA element of the question. There was
no requirement to cover both supply and demand-side factors but better
candidates tended to do this and used the data intelligently to substantiate careful
analysis and sophisticated use of a diagram. The best candidates were then able to
evaluate effectively and this often included consideration of the elasticity of the
supply or demand curves drawn, the extent to which the factors considered
impacted on the market, and the time scale over which the forces considered were
likely to play out in practice. Weaker candidates tended to make little attempt to
evaluate and this explains why the performance overall was less than expected
and, equally, where improvements could have been made most easily.

Question 6 (f)

The first of the essay questions, this question was the most popular by a significant
margin. Candidates also performed marginally better on this response than they
did on 6(g). The question allows candidates to demonstrate their understanding of
a range of possible ways the government could intervene to reduce excess
demand. These ways are in the extract, and strong candidates made a good
attempt to substantiate points diagrammatically and in context. There was usually
a clear recognition that some methods will be more effective than others and this
could involve clear evaluation using concepts developed during the teaching of the
course, such as subsidies to the private sector which reduce demand on the NHS;
the introduction of charges for visits to GPs which could reduce unnecessary
appointments; and an increase in frontline funding involving greater levels of
public spending. Top level KAA marks required at least two ways and the better
responses would draw accurate supply and demand diagrams, whereas weaker
candidates would reproduce textbook versions with little though to the elasticity of
supply and demand in health care provision. Evaluation marks could be achieved
equally well by considering the disadvantages of each method per se, or in more
sophisticated cases, in relation to the other methods proposed. The best
responses would work by proposing realistic solutions to the problem of excess
demand and then evaluating the most effective in the context of the real-world
situation.

Question 6 (g)

This was a highly accessible question considering the disadvantages of the free
market approach to health provision. Nonetheless, perhaps because of its slightly
more theoretical premises, it proved to be much less popular than 6(f). There are
numerous failures alluded to in the extracts, particularly asymmetric information.
This essay requires a clear exercise of critical analysis and good candidates would
be expected to have a developed notion of the positive externalities generated by
health care and how they may be under-provided in a free market. Good
candidates used a positive externalities diagram and used it to intelligently assess
why free markets would lead to a sub-optimal allocation of resources in the health
care sector. This would require government intervention of some kind to correct
this market failure. Another argument that was developed in relation to the
question was the inequality of access to health care developing from the unequal
distribution of income in free market economies. Sophisticated responses
recognised that government intervention would be required to mitigate the worst
excesses of this in the health care sector. There was usually at least one other
argument linking in to ideas of asymmetric information alluded to in the extracts.
Comparisons may be made between countries such as the UK and the USA. There
could be knowledge of Obamacare. To access evaluation marks candidates could
use the prompts in the extracts which discuss the advantages of competition such
as the potential to drive up standards of provision and the opportunity for
consumer choice. Many candidates discussed how the NHS is a state monopoly
and how it could be the best case for the expansion of the free market approach to
more areas of health provision.
Paper summary

Based on their performance on this paper, candidates are offered the following
advice:

Section A: short-answer questions and multiple choice

• Define accurately the key economic term(s) used in each question.

• Candidates should not spend too much time defining only.

• Be prepared to annotate diagrams when relevant to the question and make sure
these are properly labelled and explained in the text. Question 2(a), for example
should be used to indicate consumer surplus before and after the change in
demand.

• Always refer to the information provided explicitly, it is better to refer to specific

numbers, for example the cross-price elasticity data in 3(a) could be used to
calculate application marks in 3(b).

• Know the difference between consumer and producer surplus.

• Ensure candidates practice calculating price elasticity of demand, supply etc.

• It is important to emphasise that ad valorem and specific taxes have different

effects on the supply curve.

Section B: data response

• Focus on developing economic analysis in the high mark questions. A number of

candidates moved from definitions and a brief explanation of an economic issue
straight into evaluation. This was evident in fifteen and twenty mark questions.
Economic analysis typically involves explaining the sequence of events leading up
to a particular outcome. The weighting on a twenty mark question is 14KAA and 6
Eval. If the KAA is not sufficiently well developed there is little chance of accessing
L4.

• Where diagrams are requested these should be drawn as they will be well
rewarded. It is essential, however, that they are drawn accurately. Elasticity in
particular is a crucial concept and in 6(f) allowed access to both KAA and Eval
marks.

• Where diagrams are not requested but it helps with your analysis then they
should be encouraged. Diagrams that add detail such as referring to welfare loss,
incidence, revenue or producer/consumer surpluses were able to access the
higher levels. Diagrams did best when integrated into analysis when the points on
the diagram are explicitly referred to.

• Having identified externalities from extracts it is important to explain which

parties are specifically affected and how they affect the third party. It is important
to be clear what the externality means for the affected parties e.g. in health care it
is the employer who benefits from a healthier workforce because they take less
time off work and may be more productive when they are working.

• When drawing subsidy diagrams it is important to show not just the right shift of
the supply curve but the overall cost of the subsidy and how it is shared between
producers and consumers.

• Asymmetric information is crucial concept in health care provision and affects

both producers and consumers. Try to go beyond the extracts with your own
examples too.

• Public services such as the NHS were often confused with public goods such that
are non-rival and non-excludable. Health care has positive externalities in
consumption and is under-provided in a free market. It is often called a ‘merit
good’, a term not used on the specification but which teachers often use. Public
goods may not be provided at all in a free market.

• Understanding the disadvantages of free markets but also their advantages, as

asked about in 6(g) should be well grounded. Knowing about asymmetric
information and a range of externalities is crucial.
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