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NCEA Level 3 Economics (90630) 2012 — page 1 of 10 Assessment Schedule – 2012 Economics: Describe an economic problem, allocative efficiency, and market responses to change (90630) Evidence Statement The following Economics-specific marking conventions are used in this assessment schedule: (I) means identify (E) means explain (Q) means refer to the question Question Evidence ONE (a) Any TWO of: The frontier illustrates scarcity of resources. The frontier shows the maximum combination of both goods that can be produced with limited resources, and cannot produce beyond the frontier OR the opportunity cost argument in terms of wine / wool foregone when making a choice. (b) Land will be allocated away from wool production into relatively more profitable industries like wine. (c) See Appendix One. TWO (a) Achievement There will be an increase in labour required for building, which will result in a reallocation of labour away from other industries. In (a), scarcity concept described with reference to PPF, OR that due to limited resources, cannot produce beyond the frontier In (b), idea of land being reallocated from wool into wine production In (c), decrease in production of wool and increase in production of wine with labels and both arrows In Question Two (a), idea of reallocation of labour away from other industries into the production of building materials. Achievement with Merit Achievement with Excellence Code A1 NCEA Level 3 Economics (90630) 2012 — page 2 of 10 Question Evidence TWO (b) The market for building materials is allocatively efficient at point E, because it is where total consumer surplus plus producer surplus is maximised OR there is no DWL OR no one can be made better off without someone being worse off OR all resources are fully used and society’s demand is met. (c) After an increase in demand, there is excess demand (shortage). Consumers will bid up the price, QD will decrease and QS will increase until QD=QS, and the market clears at the new equilibrium E1 (or P1, Q1). (d) Before increase in demand total surpluses was area AEB, after increase in demand total surpluses is area AE1C, which is an increase of area BEE1C. Achievement Achievement with Merit Achievement with Excellence Code Any TWO of: Any ONE OF: A2 In (b), any one of acceptable definitions of allocative efficiency In (c), the idea of excess demand plus effect on QD and QS after price rises until new equilibrium OR In (c), idea of excess demand (shortage) resulting in new equilibrium In (d), idea explained that there is an increase in total surpluses. In (d), an increase in total surpluses, either through new total area OR increase in total areas given from graph. M2 NCEA Level 3 Economics (90630) 2012 — page 3 of 10 Question Evidence Achievement Achievement with Merit THREE Any FIVE of: Any FOUR of: Part A PED described a suitable explanation of a reason in (b) for the calculation and interpretation made. (I and E) (Calculation must be correct and the interpretation must match) PED calculation correct (a) (i) The responsiveness of quantity demanded to a change in price. (ii) 0.58 (2 dp). (iii) Inelastic. (b) Examples could include: I milk is a necessity E consumers will purchase the good even though price has risen because it is essential, meaning the response will be inelastic, OR the drop in QD is proportionally less than the rise in price OR I non-durable E won’t keep so little or none stocked up and still needs to be purchased regardless of price increase, or won’t keep so consumers won’t stock up and increase in QD will be proportionally less than the fall in price OR I small price relative to income E so a price rise is not such a great impact on QD, or the drop in QD is proportionally less than the rise in price OR I lack of close substitutes E no close substitutes so will still purchase when price rises as nothing they are willing to switch to, or the drop in QD is proportionally less than the rise in price. PED interpretation correct. (Note: Allow follow-through from candidate’s answer in ii) A suitable description of a reason in (b) I or E. (Note: Allow followthrough from candidate’s answer in ii) XED coefficient described I or E OR substitutes defined Impact on producer of subsidy described I or E Impact on consumer of soya milk of subsidy described I or E Impact on consumer of 2L milk of subsidy described, now buy more soya milk or less cow’s milk How elasticity affects the incidence of the subsidy described. XED coefficient explained I and E impact on producer of subsidy explained I and E Impact on consumer of soya milk of subsidy explained I and E Impact on consumer of 2 L milk of subsidy explained How elasticity affects the incidence of the subsidy explained. Achievement with Excellence The effect of the subsidy on the participants in the market fully explained by: TWO of: impact on producer of subsidy explained I and E (must include correct figures) impact on consumer of soya milk of subsidy explained I and E (must include correct figures) Impact on consumer of 2L milk of subsidy explained I and E with some reference to XED How elasticity affects the incidence of the subsidy fully explained. Code A3 OR M3 OR E3 NCEA Level 3 Economics (90630) 2012 — page 4 of 10 (c) I The relationship between substitute goods is that when one good such as milk increases in price, consumers will purchase more of the substitute, eg soya milk. E The positive coefficient implies that there is a positive / direct relationship between milk and soya milk in that when the price of milk increases demand for soya milk increases too OR this is because soya milk is relatively cheaper so more is demanded. OR I Milk and soya milk are substitutes, which means that one can be used in place of the other. E The positive 0.3 means that when the price of one increases, the demand for the other also increases (but the 0.3 suggests that milk and soya milk are not strong substitutes). NCEA Level 3 Economics (90630) 2012 — page 5 of 10 (d) I Producers sell more soya milk 200 000 L instead of 100 000 L and receive a higher price of $3 per litre with the subsidy. E this will mean their revenue will increase (from $250 000 to $600 000) OR Producer surplus increases (by $75 000). I Price consumers pay for soya milk decreases from $2.50 down to $1.50 and the quantity consumed increases from 100 000 L to 200 000 L. E Total spending on soya milk increases (from $250 000 to $300 000) OR Consumer surplus increases (by $150 000). I Some consumers of 2 L bottles of milk will switch to buying soya milk. E because milk and soya milk are substitutes, but not many because the cross elasticity coefficient 0.3 indicates they are not strong substitutes. Consumers benefit more from greater fall in price from $2.50 to $1.50 compared to producers’ benefit of price increase from $2.50 to $3, so incidence falls greater on consumers, therefore inelastic demand. THREE 1/3 of areas correctly shaded in Q3 PART B (e) Part B (e) See Appendix Two. Deadweight loss and one other area correctly shaded in Q3 PART B (e) A2 OR M2 NCEA Level 3 Economics (90630) 2012 — page 6 of 10 Question Evidence FOUR (a) (b) (c) (d) Real wages are the purchasing power of wages (or wages adjusted for inflation). The real wages have increased (by 0.2%). See Appendix Three. I At a higher minimum wage, employment will fall from Q0 to QDL. E This is because at a higher minimum wage the quantity of labour demanded by firms decreases. Q meaning that 5 000 job losses could occur. I There is involuntary unemployment, which is the excess supply of (surplus) labour, where QSL is greater than QDL at W(min). E A movement upwards to W(min) causes an increase in QSL and a decrease in QDL, which increases the excess supply of labour which is an increase in involuntary unemployment. I An increased minimum wage will increase the cost of production for restaurant meals. E causing a decrease in supply. This will result in an increase in price of restaurant meals OR decrease in quantity demanded OR any acceptable flow-on effect, eg employ fewer waiters, restaurant downsize, profits decrease. Example of another market affected could include: Market for fresh vegetables: as fewer restaurant meals produced, fewer fresh vegetables would be demanded as Achievement Achievement with Merit Any THREE OF: Any TWO OF: in (a), real wages defined the effect on employment for a correct graph explained, I and E but may contain minor errors/omissions in (b), increase in (c), QSL OR QDL correctly identified in (d): - effect on employment described I or E - concept of involuntary unemployment described with reference to graph in (c) I OR E (carry through for graph error) - effect of the higher minimum wage on the supply of restaurant meals described I or E - effect on another market described with suitable example. involuntary unemployment explained with reference to correct graph in (c) I AND E, but may contain minor errors / omissions effect of the higher minimum wage on the supply of restaurant meals explained, I and E but may contain minor errors/ omissions effect on another market explained with suitable example (includes derived demand OR idea). Achievement with Excellence Effect of the higher minimum wage is fully explained on markets: THREE of: the effect on employment for a correct graph explained, I and E and Q involuntary unemployment explained with reference to correct graph in (c), I and E effect of the higher minimum wage on the supply of restaurant meals explained, I and E effect on another market explained using the derived demand concept with suitable example and flow-on effect. Code A3 OR M3 OR E3 NCEA Level 3 Economics (90630) 2012 — page 7 of 10 the demand for vegetables is derived from the demand for restaurant meals (derived demand or idea) Market for capital goods (ovens, utensils etc): as fewer restaurant meals produced, fewer ovens would be demanded Market for services (electricity, marketing, financial etc): as fewer restaurant meals produced, less electricity would be demanded AND So, producers of the related market may have decreased profits OR hire fewer workers (OR any acceptable flow-on effect). NCEA Level 3 Economics (90630) 2012 — page 8 of 10 Appendix One – Question One (c) Appendix Two – Question Three (e) NCEA Level 3 Economics (90630) 2012 — page 9 of 10 Appendix Three – Question Four (c) NCEA Level 3 Economics (90630) 2012 — page 10 of 10 Judgement Statement Achievement Achievement with Merit Achievement with Excellence Minimum of: Minimum of: Minimum of: 1 A1 1 A1 1 A1 1 A2 1 M2 1 M2 1 A3 1 M3 1 E3 90630 Codes A1 refers to the first criterion. A2 and M2 refer to the second criterion. A3, M3, and E3 refer to the third criterion. I means identify. E means explain. Q means refer to the question.