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) 

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