Saturday, January 22, 2011

Possible Questions in Section B Data Response Unit 3: Business Economics and Economics Efficiency

All right. Here comes Part B

(1) How to choose between the two?

As mentioned in earlier posts on Unit 2, have a look at the questions for both Q9 and Q10. I don’t encourage candidates to go through the extracts first. It would be a great waste of time going through everything and end up making a u-turn if the questions turned to be difficult. The aim of reading those questions is to get the ‘feel’ of how approachable they are. Normally I will pick those questions where I can roughly draft the answers in my head without making much reference to the extract. For instance, ‘Assess the price and non-price method that the brewery firms can adopt...” or perhaps something like “Discuss whether the industry is contestable...”. If both questions are equally student-friendly, then maybe it is time to quickly read through the extract. Pick the one where most answers are available in the texts. It will make your life much easier since you are likely to take lesser time crunching for points and all you have to do is elaborate

(2) How many questions to expect?
Under the new specification, there are only four questions (a) to (d). This is not a good news to me since that indicates each question especially the one with evaluations is likely to carry higher weight say 12/14/16 marks

(3) What is the breakdown?
First question is meant to help candidates and therefore is likely to be easy. It carries 4m. For subsequent questions they are normally evaluative types. Marks will be split equally. For example, a (12m) question will be (6m) for explanation and (6m) for evaluation. Within the (6m) itself, candidates can adopt (1+2+3) or even (2+2+2) or (3+3) and this is applicable for both explanation and evaluation. If the question were to be (16m) then the breakdown would be (8m) for explanation and (8m) for evaluation. The (8m) itself can be (4+4) or (2+2+2+2) or even (3+3+2). If there is keyword in the question, please don’t forget to provide definition and this may be awarded with (1m) or (2m). If explanation carries (6m) or (8m), this may act as a complementary or substitute. Total mark for explanation will always be (6m) or (8m) in this case

(4) Possible questions?

(a) Identification of market structure. This is most likely to appear as the first question. It carries (4m). Usually the answer will be oligopoly or monopoly (1m). Candidates are required to provide definition or explanation of its characteristics (1m) and finally making reference to extract or figures provided (2m)

(b) Definition related. This will also likely to appear as the first question. They may ask you to make reference from the extract and you will have to identify the concept from the statement given. For instance something to do with forward vertical integration (1m). Then candidates are required to define that (1m) and finally strengthen the explanation by making reference to certain lines from the extract. Other possible definitions are like EOS, sunk costs, price cap of RPI-X, RPI+K, concentration ratio etc. Remember, they must be monopoly or oligopoly related definitions since it is highly unlikely that the extract is something about perfect competition or monopolistic

(c) Contestability. Candidates will have to mention that the industry is not contestable due to reasons like high advertising expenditure, high research costs, patents etc. These points maybe available directly from the extract. In evaluation, candidates may contradict by providing evidence that the industry is contestable to certain extent. Again do make reference to the extract. Chances are, what you need is available either directly or indirectly from the extract

(4) Price and non price competition. The easiest of the lot. Provide answers like limit pricing, predatory pricing, sales maximisation, buy 2 free 1. As for non-price competition, mention about mergers to eliminate competitors, advertisement, improve quality of goods, research on production techniques, loyalty cards etc. Also candidates have to be street smart. Some points are universal while some are not. Consider loyalty card. It is more suitable for issues like consumer goods and not for utilities like electricity and water. The same goes for marketing and promotional campaign. It is more suitable for chocolate, cars and electrical goods rather than products with homogenous features like water and electricity. Expect the concept of Game Theory to be incorporated together with this

(5) Price discrimination. Candidates must be ready to provide the definition for this and assumptions behind the operation of price discrimination. Diagram is expected. As for evaluations, one can argue that lower price in the market with elastic demand may attract the attention of regulators if it set too low, the gap of prices between the one with inelastic demand and elastic demand should not be too large if the firm has considerable reputation, or else the good will be perceived as ‘cheap’ etc

(6) Role and power of OFT and Competition Commission. Mentioned that the role is to ensure healthy competition and protect consumers’ interest. It has power like confiscating documents, fine up to 10% of global sales revenue, imprisonment of directors etc

(7) Thinking skills. Some of the answer may be available in the extract
• Evidence that price fixing has taken place
• Benefits from horizontal merger
• Impact of high prices onto producers and consumers
• Evidence of high sunk costs
• Why Firm X is charging higher price in one market and lower in another?
• Is it inevitable that smaller firms in oligopoly market will exit in the industry in long run?

Well that’s all. My time is really tight in these two weeks. Hope I can still sneak some time in between tomorrow to upload another posting on the 6 most effective evaluation techniques , some standard evaluation for Unit 3 and common errors

2 comments:

kishan said...

Ah, if I'm answering the question "impact of high prices on consumer and producer" Is this a good answer?

high profit for producer, low consumer surplus, stable firm(job security) and threat of entry.

evaluation: profit can be reinvested, government intervention can occur, how contestable is the market.

kishan said...

Ah, if I'm answering the question "impact of high prices on consumer and producer" Is this a good answer?

high profit for producer, low consumer surplus, stable firm(job security) and threat of entry.

evaluation: profit can be reinvested, government intervention can occur, how contestable is the market.