Wednesday, November 18, 2009

Revision Tips for Edexcel Economics Unit 1: Markets-How They Work and Why They Fail? (Data response)

In Section B (data response) of Unit 1, students will have to choose one out of two options. Each carries 48 marks which comprises questions from both Markets and How They Work? as well as Markets and Why They Fail?.

9 effective strategies:

(1) Read questions not extracts. This is what I always advise my students to do. Some candidates choose an extract just because they think that they are already familiar with it while some choose by ‘love at first sight’. Bear in mind that easy or familiar extracts may not necessarily imply easy questions

Instead, read through ALL the questions first. Try to get a ‘feel’ which question is easier to be answered. As a matter of fact most of the questions can actually be answered without referring to the extracts provided if candidates are really well-prepared. Extracts or texts are merely provided so that students can use evidence or figures to consolidate their explanation. Most of the time, both data response questions are equally balanced. Marks are equally spread out and the level of difficulty for both is about the same. In some cases, it is very obvious that one of the extracts is much tougher than the other. This is where candidates will have to exercise their prudence in determining which question to be answered

(2) Never ‘fall in love’ with a particular question. This is the simplest and yet the most effective strategies of all time. If candidates are stuck with a particular question, then it’s time to move on. Unfortunately, most students choose to ignore it. They spend about 15 minutes for a 6 marks question. The thumb rule is 1 minute to earn 1 mark. So if the question carries 6 marks, candidates should not allocate anything more than 8 minutes in my opinion. Pay more attention to questions that carry larger weightage e.g. 10 marks or 12 marks. Time mismanagement is one of the major reasons as to why candidates are unable to complete the whole paper on time

(3) Read analytically. Students must cultivate the habit of analytical-reading. Each and every sentence must be economically interpreted. For instance:

“House prices fell by 13.4% between October 2007 and September 2008, the fastest rate for more than 50 years, according to Halifax Bank, Britain’s biggest mortgage lender”

(a) Fastest rate for more than 50 years imply that we have never seen such a drastic decline in value of property in the past 50 years

(b) Between October 2007 and 2008 is where the subprime mortgage crisis had begun. Candidates must be able to relate it to major events like large losses suffered by major financial institutions in US and UK
(c) Drastic fall in value of property is bad for British economy. It is a sign of falling wealth, cut in consumption and possible a recession

“The government intends to permit the building of more than 1.1 million homes in the South-East by 2016, despite strong opposition from local councils and environment groups”

(a) 1.1 million homes is definitely an ambitious goal. But is it achievable?
(b) The construction of these homes brings along both positive and negative externalities. It creates jobs for the unemployed, improving local businesses due to higher number of traffic and enabling young workers to climb on the property ladder with more affordable homes. On the other side, it creates congestion and air pollution, noise pollution from construction works and degrading the quality of air in South-East

(c) Strong opposition may cause the current government to lose more votes when it is already unpopular with Britons

(4) Revise on common questions. Trust me. To some extent, questions are predictable for all the Units depending on the nature of the extracts. Let’s consider the following:

Housing market
(a) DD-SS diagram for houses
(b) Elasticity of supply for houses both short run and long run
(c) Are rented and owner-occupied accommodation good examples of substitutes?
(d) Calculation of increase/ decrease in house prices
(e) Comparison of house prices between regions
(f) Labour market immobility which is the main causes for shortage of key workers like teachers and nurses in City
(g) Construction of homes so will involve issues like external costs

(a) DD-SS diagram for a particular commodity
(b) Cross elasticity of demand between two commodities
(c) Elasticity of supply both short run and long run
(d) Impact of the rising price of commodity towards consumers such as manufacturing and even construction industry
(e) Buffer stock scheme to stabilise the price and evaluation of its effectiveness

(a) Define and give examples of private and external benefits
(b) Cost and benefit diagram
(c) Impact of rising tuition fee

Students might not be well aware of this, because similar questions reappear with different phrasing.

(5) KISS principle. Keep every sentence short and simple. Express your thoughts, opinions and economic principles involved systematically. In other word explain things stage by stage. Remember that clarity of expression is taken into consideration whenever you come across questions with asterisk (*). So do this to communicate your answer effectively to the examiner

(6) Link words. Please use lots of this. It helps us to connect ideas and sentences, so that examiner can understand the flow of our ideas. To sequences ideas we use firstly, secondly and finally, the former and the latter and the following. To give examples we use for instance, such as and namely. To add information we use furthermore, moreover, in addition to, besides, apart from etc. To explain result, we normally put as a consequence, therefore, leading to, this means that etc. To evaluate, we normally start with words like however, nevertheless, despite of, in theory and in practice etc

(7) Identify evaluation words. There are six of them. These words are justify, evaluate, discuss, assess, to what extent and examine. Instructions such as explain, outline and analyse require no evaluation.

(8) How many evaluations needed? If candidates bump into an evaluation question of 6 marks or 8 marks, normally one evaluation (2 marks) will be required. If 10 marks give two evaluations with total of 4 marks and 12 marks question will required three evaluations of 2 marks each

(9) Identify key words. Almost every question will carry key words such as price elasticity of demand (PED), price elasticity of supply (PES), cross elasticity of demand (XED), income elasticity of demand (YED), labour mobility, market failure, government failure, PPF etc. If this happens, please provide the definition. Normally it carries 1 mark

Revision Tips for Edexcel Economics Unit 1: Markets-How They Work and Why They Fail? (Section A-MCQ)

First of all, a grand apology to all the readers of my Economics blog. I am not really active in this term as you can see from the history of postings due to an extraordinary busy schedule in my college. Nevertheless I’m still committed and will make a major come back next month when the term break starts.

This post is written to assist all those who will be sitting for the Edexcel A-Levels Economics examination in January 2010. There are two papers offered, Unit 1 and Unit 3. Both are microeconomics. Unfortunately Unit 2 and Unit 4 are available only once a year and that is in June, at least for the meantime (heard that Unit 2 will be available for both January and June sitting 2011 onwards)

For this first posting, I will talk about Unit 1: Markets-How They Work and Why They Fail?

How different is it from the past?

Under the legacy syllabus, these two are called Unit 1: Markets and How They Work? (MAHTW) and Unit 2: Markets and Why They Fail? (MAWTF) However under the new specification, both have been combined to ultimately form the new Unit 1. In Section A, we have eight MCQs. With high possibilities, six of the questions will come from MAHTW and the other two from MAWTF. Unlike in the past, all the eight questions came from MAHTW

Meanwhile, there is a big revamp to Section B. In the past, it used to be 20m but now 48m. To be fair to candidates, the usual 1 hour paper is now becoming 1.5 hour paper. With more things to write, do not imply that candidates are at great disadvantage. In fact I prefer such new format because it makes those questions even more predictable since limited issues can be tested (I will explain this later)

Strategies to do well in Section A :

(1) The 4 principles
(a) If you are given a diagram, please do something to the diagram. For instance, you can draw additional curve on top of the existing one and this is very common with questions related to PPF (inward and outward shift) and consumer as well as producer surplus (new lines will change the area of surplus). Secondly, you can also shade the area (producer and consumer surplus area, incidence of tax and gain of subsidy). Last but not least, you are sometimes rewarded for indicating or labelling the area of tax and subsidy

(b) If you think you can support your answer with diagram, please do so. One of my favourite strategies of all time. Very applicable to questions from price mechanism, consumer and producer surplus, incidence of tax, distribution of subsidy, PED, XED, PES and YED

(c) If you are given table/ figures, perform analysis. Even mentioning “the table shows that for every additional 10 units of X produced, the number of Unit Y foregone will increase” can earn you 1m. Other questions that highly likely to involve calculations are PED, XED, YED and PES

(d) If you think that you can support your answer with own figures, please provide. For instance, the question may mention “YED of foreign holiday is 1.2”. So to convince the examiner that you understand how does the 1.2 come about, you can insert your own figures. This is what I will write:

YED foreign holiday

= (% of change in quantity demanded for foreign holiday) /. (% of change in income)
= (60% / 50%)

This strategy can also be employed onto questions that come from PPF (own figures to show rising opportunity cost), consume and producer surplus (own figures to show how consumer surplus increase or fall)

(2) Eliminating the incorrect option. Sometimes a candidate may fall into a situation of not knowing how to explain the correct option chosen. However, those ‘streetwise’ students are still able to secure full 4m by providing solid explanation of why the other options are wrong. For instance the correct answer is B. rising opportunity cost (based on PPF). The candidate did not explain on why the opportunity cost is rising. Instead, he mentioned “option A is wrong since PPF is showing combination of output instead of shift in demand”

(3) Adopt a proper answering style. EAL Economics marking scheme is highly flexible. Students will be awarded full 4m as long as they get to the heart of the issue, provide relevant and understandable explanation. Usually I advise my students to carefully choose the correct option (1m), provide definition for the concept tested (1m) and explain why that option is chosen with the aid of diagram given/ own diagram/ figures given/ own figures (2m)

(4) Telling yourself that maximum is 5 minutes per question. The paper is 80m (32m Section A and 48m Section B) and time allocated is 90 minutes. So on average, students have 1 minute to earn 1 mark. Section A has 8 questions with 4 marks each. So the duration is about 32-40 minutes

(5) Do not write outside the space provided. Papers are scanned before examined. If you write outside or beyond the area provided, the scanner may not be able to capture the full image of candidates’ work and thereby causing them to lose marks just like that

What popular questions to expect from each topic?

(1) PPF
(a) Reason for PPF shifting inward or outward
(b) Reason for rising opportunity cost given a PPF diagram
(c) Changes in present and future standard of living if an economy chooses to have more capital goods in the present

(2) Positive and normative statement
(a) From the two statements, students have to identity which is positive and which is normative. From experience, one must be positive and another normative. Never in the situation where both are positive or both normative

(3) Price mechanism
One of the main functions tested is rationing. Candidates often have to draw diagram to illustrate. Also must mention that scarce goods are allocated to those who are able to pay

(4) Consumer surplus (CS) and producer surplus (PS)
(a) Identifying new area of consumer surplus or/ and producer surplus due to change in demand or supply
(b) Identifying additional/ reduction in the area of consumer surplus or producer surplus due to change in demand or supply

(5) PED
(a) Calculation of PED
(b) Identifying changes in revenue before and after price increase

(6) XED
(a) Identifying which pair of goods is substitute. Must mention that both have positive XED and increase in price of one will lead to an increase in demand for another
(b) Identifying which pair of goods is complement. Must mention that both have negative XED and increase in price of one will lead to a fall in demand for another

(7) YED
(a) Calculation of YED
(b) Identifying types of goods-necessity, luxury or inferior

(8) PES
Identifying the nature of goods such as banana, pea and houses which have high PES in long run (elastic) and low PES in short run (inelastic)

(9) Taxation
(a) Candidates are given diagram and asked to identify incidence of tax on consumers and producers. Also sometimes asked to identify the area which represents total tax revenue for government
(b) Identifying specific tax per unit of good is given by the vertical distance between old and new supply curve

(10) Subsidy
(a) Candidates are given diagram of subsidy and asked to identify total subsidy payout by government
(b) Acknowledging that subsidy per unit is given by the vertical distance between new and old supply curve

(11) New equilibrium
Candidates will be given information on both demand and supply, and then asked to determine the new equilibrium due to the interaction of these two

(12) Public good (most likely, based on three sets of papers in hand)
(a) Identifying which of the given option is public good
(b) Reason of not being provided in free market-free rider problem

(13) Asymmetric information (most likely, based on three sets of papers in hand)
Identifying which of the given option is reflecting imperfect knowledge, why and what will happen

(14) Positive or negative externalities (most likely, based on three sets of papers in hand)
Given a diagram, students must be able to identify whether this is the case of underconsumption or overconsumption of a good or service. Also must indicate area of welfare loss
Go and have a practice now!! Adhere to the 4 Principles as you go along your past year examination papers. You will realise that there are just too many ways to earn yourself the full 4 marks
I will blog about Section B later