Tuesday, January 22, 2013

Strategies for the Long Essays in Unit 2: Managing the Economy


Generally, there are three types of long essays (30m) for Unit 2: Managing the Economy:

a)      Many to one. Students will be tested on their ability to use macroeconomic policies to solve a specific economic problem. For instance the usage of demand side policies or/ and supply side policies to reduce unemployment etc

b)      One to many. Students will be required to know how does one specific policy (rise in government spending, lower income tax etc)/ macroeconomic problem (rising unemployment, weaker pound etc) may affect the UK’s macroeconomic objectives

c)       Many to many. Finally, students may be asked to use suitable economic macroeconomic policies to overcome the problems mentioned in last few paragraphs of the Extract or how does a set of macroeconomic policies can affect the UK’s macroeconomic objectives

Quick review:

June 2009 Q1 (the very first Unit 2 examination, after the new GCE specification in 2008)
(d) Evaluate the use of supply side policies to achieve economic growth (30m) (many to one)

June 2009 Q2
(d) To what extent do demand-side policies lead to conflicts between macroeconomic objectives? (30m) (many to many)

June 2010 Q1 (initially, Unit 2 was meant to be an annual paper offered only during the summer)
(d) Evaluate the likely effects of a recession (negative economic growth) on the UK economy (30m) (one to many)

June 2010 Q2
(d) Evaluate three ways in which economic policy can be used to ‘stimulate UK economic growth’ (Extract 1, lines 4 to 5) (30m) (many to one)

January 2011 Q1
(d) Assess the effectiveness of supply-side measures that the government could use to deal with the problems outlined in paragraphs 3, 4 and 5 of Extract 1 (30m) (many to many)

January 2011 Q2
Evaluate the likely effects on the UK’s current account of the balance of payments of changes in consumption, investment and the exchange rate of the pound sterling (£), as shown in Figures 1 and 2 (30m) (many to one)

June 2011 Q1
(d) Discuss the fiscal and supply side policies the UK Government could pursue to reduce the rate of unemployment. Refer to Extract 2 and Figure 3 in your answer (30m) (many to one)

June 2011 Q2 (this question is almost similar to June 2009 Q2, except that the transmission mechanisms do not start from macroeconomic policies)
(c) To what extent might rapid economic growth conflict with at least two other macroeconomic objectives? (30m) (one to many)

January 2012 Q1
(c) Assess the likely impact of UK government labour market policies on any three macroeconomic objectives. Refer to the information provided and to your own knowledge (30m) (many to many)

January 2012 Q2
(c) With reference to Extract 2, evaluate the likely impact of higher inflation on three macroeconomic objectives (30m) (one to many)

June 2012 Q1 (exactly the same question with June 2011, Q1)
(c) Evaluate macroeconomic policies which may be used to reduce the level of unemployment in UK (30m) (many to one)

June 2012 Q2
(c) Evaluate the benefits of economic growth for the UK (30m) (one to many BUT must be ‘good’ macroeconomic objectives)

Last minute tips/ preparations:

a)     There will only be 7 questions. The component marks are 4-8-12 for (a), 6-8-12 for (b) and 30m for (c)

b)    Short evaluation questions normally carry 12m, where 4m are meant for evaluation(s). Candidates may provide one evaluation as 4m or two evaluations that are less elaborated as 2m each

c)     The format for long essays will always be 6-12-12. The introduction carries 6m where 2m are meant for definition while 4m diagram. A correct shift of AD/ AS (1m), axes, line and equilibrium labeled (3m). Edexcel appears to be very generous with the definition for macroeconomic objectives. Any three macroeconomic objectives mentioned will earn you 6m, 2m each

d)    Don’t forget to provide reference. Each reference is 2m and there are four or five questions that may require you to provide reference. Easily, you could have scored 10m in hand. It may be data reference or an evidence quoted from the Extract

e)     Usually each set of question will have 8m allocated for diagram. The first 4m are meant for short AD/AS diagram-based question while the other 4m for the last long essay question

f)     Since January 2012 examinations, Edexcel provides 2m FOR EACH POINT IDENTIFIED (previously was 1m each). It is meant to help average students to lift their scores. Expect 12m from here

g)    Easily and effortlessly, each student can easily get 30m FOR FREE, provided if you remember to insert all reference (10m), correctly draw the AD/AS diagram with proper label (8m) and identification of points (12m). The challenge is, can you remember all the skills/ techniques taught under the exam stress and after ‘mental dehydration’?

h)     Please allocate 35-40 minutes for 30m essay. Nothing less than that

k) There are actually 7 macroeconomic objectives, not 6 as mentioned in most textbooks, The new 7th objective is to reduce budget deficit/ national debt

i)      When the question say ‘effects onto the UK economy’ under the 30m essay, don’t be panic, It is the same if the instruction is ‘effects onto any 3 macroeconomic objective’ 

l) There are new changes for the evaluations under 30m essay. Instead of (6m+6m) and (4m+4m+4m), now it has (2m+4m+6m)

j)      Please practice and perfect your transmission mechanism. I am very sure the MANY-1, 1-MANY and MANY-MANY long essay will appear in your examination

This few can be a good practice before your actual examinations tomorrow:
a) Evaluate the effects of falling pound onto the UK economy (30m) (1-many, think of macroeconomic objectives)

b) Evaluate the effects of falling house prices onto any three macroeconomic objectives (30m) (1-many)

c) Evaluate at least two macroeconomic policies to increase growth within the UK economy (30m) (many-1)

d) Evaluate the effects of expansionary monetary and fiscal policy onto any three macroeconomic objectives (30m) (many-many)

Best of luck!!! Cheers

Monday, January 14, 2013

The 10 Most Possible Questions for Data Response Unit 3: Business Economics and Economics Efficiency


Some important facts of Unit 3: Business Economics and Economics Efficiency:

a)     Used to be known as Unit 4: Industrial Economics. The previous specification received numerous complaints. There were 10 MCQs, each with 5 options and also a data response question which carries 40 marks. The problem is more questions but lesser time. Just 1 hour 15 minutes

b)      New specification/ syllabus started in 2008 but the very first assessment commenced from January 2010. Is now known as Unit 3: Business Economics and Economics Efficiency. MCQs are cut short to just 8, each with 5 options to choose from. Data response questions carry a grand total of 40 marks just like before. The difference is, they are presented in a much organised way. Only 4 questions, (a) to (d) and the marks are (4), (8), (12) and (16). Lesser questions but more time. 1h 30 minutes

c)       MCQs under the new specification are increasingly challenging. Very application based these days. It is no longer predictable like in the past (HOWEVER there are few popular ones)

d)      A total of 10 marks can be expected, just from definition alone. Diagram whether by annotation or self-drawn can attract up to 12 marks. Assuming that all 8 options are correct, candidates can easily secure 30/32 marks. Bear in mind that this is yet to include written explanation as well as elimination of incorrect answers. The point is that, if candidates master certain skills attaining at least 27 marks is not a daunting task

e)      Be careful of several topics. They appeared with the highest frequencies e.g. shut down point for a perfect market/ imperfect market firm, role of Competition Commission, Game Theory to illustrate the outcome of collusive behavior and also price war, Private Finance Initiative/ Public Private Partnership, theory of cost and revenue as well as productive and allocative efficient

f)       Perfect market and monopolistic competition WILL NEVER be tested in Section B of data response. There is nothing to ask from these two overly simplified business models. Besides, it is quite difficult to find articles that support very small scale businesses

g)      Evaluation starts from question (b) onwards and they carry the same weight as KAA. A total of 18 marks are expected just for evaluations

h)      Candidates are advised to spend only about 55 minutes in this section. Ideally 60 minutes.

Some of the most popular data response questions:

11. Briefly explain the form of integration described in lines 25-26 (4m). Identify e.g. vertical integration (1m), define vertical integration (1m), identify whether is backward or forward vertical by referring to Extract (2m)

22. What does the information provided suggest is the market structure of the industry? (4m) Explain your answer (4m). Identify oligopoly (1m), explain any one characteristic/ define (1m), evidence e.g. calculation of concentration ratio (2m). IN CASE, if you say monopoly (1m), define (1m), provide evidence from Extract (2m)

33. With reference to Extract 1, explain what is meant by patents/ anti-competitive behavior/ ECONOMIC TERMS/ KEYWORDS (4m). Define/ explain with your own words (2m), evidence from extract (2m)

44. Examine the likely reasons why Tesco made a loss. Use an appropriate cost and revenue diagram to support your answer (8m). Diagram (2m) where correct shift (1m) and area of profits/ loss clearly identified (1m). Reason but must relate to AC and MC/ AR and MR (2m). Evaluations can be (4+0), (2+2) and(3+1)

55. Assess why Thorntons is likely to sell its chocolates at a higher price in its retail shops than through its website (8m). Explanations can be (4+0), (2+2), (3+1). Evaluations can be (4+0), (2+2), (3+1). Some standard answers will be, higher cost in one while lower cost in the other and price discrimination


66. Assess the effectiveness of Competition Commission in regulating industries such as the banking industry (8m). Define Competition Commission (1m), leaving KAA with only (3m). If not, we adopt (4+0), (2+2), (3+1). The same goes for evaluations. Standard approach will be, AGREE under the KAA. Bad publicity acts as deterrent, loss of valuable human capital due to imprisonment, fine up to 10% of total revenue is a reminded to other firms and able to force firms to sell assets even if there is no merger. Standard evaluation e.g. asymmetric information, takes up to 3 years to investigate and disrupt operations, decisions can be challenged in High Court and rules are superseded by European Commission

77. Discuss the benefits of horizontal merger/ vertical/ conglomerate merger (12m). Define horizontal merger (1m) which means remaining KAA (5m). If not, adopt (3+3), (2+2+2) and (1+2+3). Standard answers are to reap greater EOS, more budget to do research, leveraging on each other’s strength, lesser competition and so less wastages on adverts etc. Standard evaluations are DEOS, clash of corporate culture, lack of competition and do not do research etc

88. Assess the case for increased competition within an industry (12m). Explain the meaning of increased competition (1m) leaving KAA only (5m). If not can also use (3+3), (2+2+2) and (1+2+3). Have many possible answers. Best is to segregate them through impact onto consumers, producers, government and nation. Answers like lower price and higher consumer surplus, better products as a result of greater R&D, greater productive efficiency as a result of fierce competition which has reduced TR etc. Standard evaluations would be e.g. no longer enjoy EOS, pass on the higher price, more ‘misleading’ advertisements which will cause greater asymmetric information, lower profits and cannot conduct R&D. Break down is (3+3), (2+2+2) and (1+2+3)

99. To what extent is the airline/ newspaper/ car industry contestable? (12m). Define contestability (1m) leaving KAA marks for only (5m). If not (3+3), (2+2+2) and (1+2+3). Always follow the traditional path by saying that oligopoly industry is not contestable at all e.g. high start-up costs, major expenditure on advertisements, significant EOS by existing rivals and limit pricing by large firms. Evaluations can be (3+3), (2+2+2) and (1+2+3) where we argue for CONTESTABLE

110.Assess the pricing and non pricing strategy that could be adopted to increase sales/ market share/ profits (16m). To increase sales or market share, candidates cannot use profit maximisation and also cost-plus pricing. However, if the question is on how to increase profits than these two points are valid. Some standard answers are like predatory pricing, limit pricing, sales maximisation, revenue maximisation, buy one free one, collusion, advertisement, celebrity endorsement, enlarge range of products, improve quality, mergers and acquisitions, loyalty schemes, coupons and others. Standard evaluations are like predatory pricing is illegal and can attract fines, limit pricing better and not so obvious, most likely to collude than compete through price war and others. Breakdown is 8m for KAA and 8m for evaluations. Combinations are (4+4), (3+3+2), (2+2+2+2) or (4+2+1+1) 

Tuesday, January 8, 2013

Problematic Topics in GCE Edexcel Economics Unit 1 Identified


Students are generally weak in the following topics:

1.  Production possibility frontier (PPF)
  • Unaware that PPF shows so many other things other than opportunity cost, for e.g. living standards, growth and recession, workers are not easily transferred from one use to another and there is no opportunity cost to move from inside PPF towards the boundary
2.  Consumer and producer surplus
  • Unable to differentiate instruction e.g. consumer surplus increase to the area vs. consumer surplus increase by/ gain of consumer surplus is
  • Confusing both the areas between consumer and producer surplus due to pure memorising without understanding
3.  Price elasticity of demand (PED)
  • Unaware that definition can be in the form of formula
  • Unaware that elasticity means sensitivity
  • Thinking that elasticity is gradient
  • Formula is written upside-down
4. Cross elasticity of demand (XED)
  • Confuse substitute as having negative sign and complements as positive sign as a result of memorising without pure understanding
5. Price elasticity of supply (PES)
  • Unable to draw the diagram accurately. Bear in mind, Inelastic PES must be drawn from the horizontal axis while elastic PES from the vertical axis. It is due to the mathematical property
  • Unable to provide a satisfactory explanation for the meaning of inelastic supply or elastic supply
 6.  Taxation
  • Unable to tell the difference between direct and indirect tax
  • Unable to distinguish between specific tax and ad-valorem tax. Bear in mind that specific tax means tax for every unit is fixed irrespective of price while ad-valorem is a % upon the value. The greater the value, the greater will be the divergence/ pivotal shifts
  • Unable to identify and shade the areas of incidence of tax correctly
7.  Subsidy
  • Unable to identify and shade the areas of subsidy
8.  Public goods and free riders
  • Provide too lengthy definition for public good in MCQs
  • Always forget to define free riders
  • Fail to appreciate why public goods are part of market failure
9.  Cost-benefit diagram
  • Does not realise that market failure takes place at Qe where a good is either underprovided/ under consumed (merit goods/ positive externalities) or overprovided/ over consumed (demerit goods/ negative externalities)
  • Does not realise that when we talk about external benefits, we assume that external costs are absent. That is why we label MPC = MSC because MEC = 0 (no divergence). Similarly, when we discuss about external costs, we assume that external benefits are none and so MPB = MSB where MEB = 0 (no divergence)
  • Welfare gain area can also be labeled as welfare loss
10.  Minimum guaranteed price (MGP)


  • Does not understand why a ‘minimum line’ is above equilibrium instead of below. Simple. Bear in mind that in a free market with no government intervention, sometimes a market price can really fall to a low level. To the producers, that price may not be reflective of all the hard work that they have put in and this explains the logic that they should have received more. So, the minimum price they now receive must be above the equilibrium/ market price
11.  Buffer stock diagram

  • There are so many versions of buffer stock diagram and students often face asymmetric information as in which to use. To your best interest, use 
Hope that helps!! You still have about 12 hours to fix this !! Cheers. I am signing off now

Monday, January 7, 2013

Forecast Question for Data Response Unit 1 (Data Response): Congestion


Good morning folks! Sorry for the long delay. I was away for the whole weekend for my friend’s wedding.

As have been mentioned, this will be the continuation from the previous post. What will be the most anticipated line-up CONGESTION questions?

Question (a) (6m)


  • Reasons for the increase in the number of private cars. Data reference e.g. % of increase (2m). Any possible two reasons (rise in income, cheaper in real term, increase in lengths of roads built etc) (4m)

Question (b) (6m)


  • Relationship between private cars and bus travel. Define XED (1m). Mention that both are substitutes (1m) with reference to extract (1m). Both have positive XED (1m). Explain their relationship e.g. higher ticket fares and hence more choose private cars (1m). Diagram/ own numerical example (1m)

Question (c) (8m)


  • Whether bus travel is a normal good or inferior good. Define YED (1m). Mention that normal good has YED > 0 (1m) and inferior good has YED < 0 (1m). Say bus travel is normal good (1m) supported by reference (1m). Diagram (1m). Evaluation (2m) e.g. argue that it is neither as evidenced by some rich people who also commute to work by bus

Question (d) (14m)


  • Methods to reduce congestion. Provide any three solutions e.g. BUILD MORE ROADS, CONVERTING HARD SHOULDERS TO MOTORWAYS, CONGESTION CHARGE, FUEL TAX, SUBSIDIES FOR PUBLIC TRANSPORT, CAR SHARING LANES etc (8m). Evaluations (3+3) or (2+2+2)

Question (e) (14m)


  • Benefits of increased subsidy for bus and rail travel. Define subsidy (1m). Diagram of subsidy (3m) (can be more depending on the details shown on diagram). Provide two benefits (4m) e.g. keeping them afloat, protect jobs, reduce congestion etc. Evaluations (3+3) or (2+2+2)


  • Effectiveness of fuel tax to reduce congestion. Define/ identify this as indirect tax (1m). Diagram of fuel tax (3m) (can be more depending on details added). Mention that it is effective for two reasons (4m) e.g. revenue to improve public transport, people discouraged to drive etc. Evaluations (3+3) or (2+2+2) e.g. regressive, PED fuel < 1 so people are paying anyway, inflation, street protests etc

Other important notes:

1. Try to make sure that you have at least 25 minutes to cater for the last two 14m questions. What to do if on average you have less than 6 minutes for each 14m question? Are you going to revisit Section A to further improvise your answers by providing lengthier explanations? Or you do the same thing onto the first three Data Response questions? It is none of the above. BELIEVE IT OR NOT, POINTS CARRY MORE WEIGHTAGE THAN ELABORATIONS. Key points, even if it is only 1/2 WORDS, AUTOMATICALLY you get 1 mark. Long winded elaboration carries another 1 marks. So, if I were you, I will (Step 1) define all key words, (Step 2), draw diagram, (Step 3) OUTLINE POINTS ONLY and (Step 4) OUTLINE POINTS even for evaluations

For illustration, economic effects of higher fuel price:

Inflation (1m). All firms will be adversely affected because of higher logistic costs (1m)……..

Regressive effect (1m). Poor people are more badly affected than the rich because they need to    devote a large percentage of their monthly income onto fuel than the rich (1m)……..

2. If the question REQUIRES DIAGRAM, PLEASE PROVIDE. But, if the question does not mention anything, you can get full marks WITH OR WITHOUT DIAGRAM

3. Keep a good habit of monitoring the time for every question that you advance into. A simple and very effective strategy but yet often overlooked by those who complain about insufficient time

Examination strategy for Unit 1 can be a very very lengthy post if I am serious about going deep into that which I think, may not be possible. Hope these two postings help! Cheers folks J

Highly Possible Questions for GCE Edexcel Economics Unit 1: Markets: How They Work and Why They Fail (Data Response)


Before I start, there are few key details that each candidate is required to know:
a)      The new syllabus for GCE Edexcel Economics Unit 1 started in year 2008. That means, the very first set of Unit 1 paper was in January 2009. As such there is no need to hunt for Unit 1 papers anytime earlier than that

b)      COMMODITY is by far the most popular exam question. It appears with the highest frequency and is also recognised as the no.1 choice for candidate. (June 2009-Q10 Rice), (January 2010-Q9 Petrol), (May  2010-Q9 Food), (January 2011-Q9 Sugar), (June 2011-Q10 Copper), (January 2012-Q9-Beef) and (June 2012-Q10 Cotton)

c)       Before January 2011, the marks are very irregular despite the total is still 48 marks for Section B. As such it has created few problems for candidates worldwide. First, it is hard to decide how many marks are supposed to be allocated for evaluations. For instance, I have seen that an 8 marks question has 4m for KAA and 4m for evaluation and in another case 6m for KAA and 2m for evaluation. Second, due to such nature, the questions were much harder to predict back then despite it still can be done

d)      Commencing from January 2011, the Examination Board has decided to standardise the marks as the following: (a) to (e) as 4-6-10-14-14 or another possibility is 6-8-6-14-14. Another good news is, candidates no longer need to get themselves confused over which questions that need to be evaluated and what are those evaluation keywords (Justify, Evaluate, Discuss, Assess, To what extent and Examine). This is because, STRICTLY ONLY question (c), (d) and (e) that need to be argued

e)      The good news is, most of these questions have STANDARD ANSWERS and EVALUATIONS

What will the most possible line-up questions for this 15th January 2013 Unit 1 examination?

For a COMMODITY question,
Question (a) (4m)
  • Demand and supply diagram (only 1 curve shifts).  Reference (1m), Diagram (2m) and short explanation (1m)
  • PED. Definition (1m), Mention about nature (most likely to be inelastic) (1m). Reference (1m) and diagram (1m)
  • PES. Definition (1m). Mention that supply is inelastic in short run (1m) and reference (1m). Mention that long run usually more elastic (1m)

Question (b) (6m) 
  •  Demand and supply diagram (6m) (both curves shifting, usually demand increases but supply falls). Reference (1m). Diagram (4m). Explanations for both movements (2m)
  • YED (6m). Define YED (1m). Mention that normal good has positive YED (1m) and inferior food negative YED (1m). Decide the status of that commodity (1m) and reference (1m). Diagram (1m)
  • XED (6m). Define XED (1m). Mention that both are substitutes (1m) with reference (1m). Positive XED (1m). Explain their relationship (1m). Diagram (1m)

Question (c) (10m)
  • PES. Define (1m). Explain price inelastic of supply/ price elastic of supply (1m). Short run inelastic (1m) and reason (1m). Long run elastic (1m) and reason (1m). Give two evaluations (2m + 2m
  • YED. Define (1m). Mention normal good has YED > 0 (1m) and inferior good has YED < 0 (1m). Identify status (1m) and reference (1m). Diagram/ sample calculation (1m). Evaluations (2m+2m)

Question (d) (14m)
  • ECONOMIC EFFECTS of increase in production cost/ higher tax/ greater subsidies/ introduction of minimum guaranteed price. Diagram (2m to 4m depending on the details added to the curves). Economic effects (give 2/3, 4m to 6m). Evaluations (2m+2m+2m or 3m+3m)

Question (e) (14m)
  • Buffer stock analysis. Diagram (4m). Explain what will happen during good and bad harvest (4m). Evaluations (2m+2m+2m or 3m+3m)
  • External costs from consumption and production. Define external costs (2m). Diagram (4m). Explain the 3rd party effect from consumption (1m) and production (1m). Evaluations (2m+2m+2m or 3m+3m)
 I will blog about other possible questions very soon. If there are queries, do not hesitate to ask. Cheers. Good night!!