AQA MERGED QUESTION PAPER AND MARK SCHEME ECONOMICS PAPER 1-7136/1 MARKETS AND MARKET FAIL, Exams of Economics

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7136/

Wednesday 15 May 2024 Morning Time allowed: 2 hours

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A-level

ECONOMICS

Paper 1 Markets and Market Failure

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Section A

Answer EITHER Context 1 OR Context 2.

EITHER

Context 1 Total for this context: 40 marks

The market for university accommodation

Study Extracts A , B and C and then answer all parts of Context 1 which follow.

Extract A

Table 1: Average weekly university rent, selected UK cities, 2015 and 2021

Figure 1: Number of full-time students at UK universities, and type of accommodation, 2015 to 2021

Selected UK cities

Average weekly university rent, 2015

Average weekly university rent, 2021 Birmingham £113.88 £157. Brighton £143.00 £235. Bristol £141.58 £184. Liverpool £112.97 £136. Manchester £120.87 £180. UK average £121.16 £169.

Source: Cushman Wakefield Student Accommodation Report, 2022

Extract B: A serious shortage of student accommodation

The number of 18-year-olds in the UK applying to university is rising. In addition, there was a record number of 277 000 foreign students in 2022.

Universities have expanded the number of places on offer to students, but the supply of student accommodation is highly inelastic. Providers of rental accommodation have been deterred by stricter rules on shared houses, higher taxes and greater rights for renters. Rising construction costs, interest rates and inflation have resulted in an insufficient number of new developments in many university cities. Supply shortages have been particularly acute in some cities, and certain universities have asked students to live at home.

Shortages of accommodation could mean that some students are discouraged from applying to university. The average private sector rent outside London consumes almost three-quarters of

the maximum student loan, and most students are ineligible for this maximum. Some of the top

universities may become out of reach to poorer students who do not live locally.

Source: News reports, 2023

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Turn over ►

Extract C: Policies to solve the shortage of student accommodation

The causes of the shortage of student accommodation are varied and some, but not all, result from market failure. Rising rents ought to incentivise more supply, but that has not worked recently. Planning restrictions have limited the number of new building projects. Relaxing such rules might help, but local residents complain that high numbers of students can alter the nature of their communities. Subsidies to the builders of student accommodation could increase supply, but with a likely delay of many years.

Some students have been offered financial incentives to defer their entry by a year or to live at home. To reduce further the demand for student accommodation, some people have urged the government to restrict foreign student numbers. However, the 22% of students who are foreign pay 44% of all tuition fees and so subsidise costs for UK students.

Policies to tackle high rents could include rent subsidies from the government or an increase in the grants and loans available to students. In Scotland, university students have benefited from controls which limit rent increases to a fixed percentage each year. The National Union of Students is calling for nationwide rent controls. A maximum rent can help keep the cost of student accommodation lower than it would otherwise be, but risks some landlords withdrawing from the market. Some argue that high-quality student accommodation is a merit good and ought to be provided by the government at a fair rent.

Source: News reports, 2023

0 1 Inflation resulted in a basket of goods and services that cost £100 in 2015 costing £ in 2021. Using this information and the data in Extract A ( Table 1 ), calculate the percentage increase in average university rent, in real terms, between 2015 and 2021.

Give your answer to one decimal place. [2 marks]

0 2 Explain how the data in Extract A ( Figure 1 and Table 1 ) show that the supply of university and private rental accommodation has failed to match the increase in student numbers between 2015 and 2021. [4 marks]

0 3 Extract B (lines 3–4) states that ‘Universities have expanded the number of places on offer to students, but the supply of student accommodation is highly inelastic’.

With the help of a diagram, explain the impact of the increase in the number of students

attending university on the market for student accommodation.

[9 marks]

0 4 Extract C (lines 14–16) states that ‘A maximum rent can help keep the cost of student accommodation lower than it would otherwise be, but risks some landlords withdrawing from the market’.

Using the data in the extracts and your knowledge of economics, discuss the advantages and disadvantages of policies the government might introduce to improve the market for student accommodation. [25 marks]

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Do NOT answer Context 2 if you have answered Context 1.

OR

Context 2 Total for this context: 40 marks

Trade union membership and industrial disputes

Study Extracts D , E and F and then answer all parts of Context 2 which follow.

Extract D

Table 2 : Trade union membership, % of workforce, 2001 to 2021

Figure 2: Growth in average annual nominal earnings, %, January 2015 to September 2022

Year (^) employeesAll^ Privatesector^ Publicsector

2001 29.3 18.4 59. 2006 28.3 16.6 58. 2011 26.0 14.2 56. 2016 23.5 13.4 52. 2021 23.1 12.8 50.

Source: Department for Business, Energy and Industrial Strategy, 2022

Source: Office for National Statistics, 2023

Extract E: UK public sector workers hit hardest by cost of living crisis

In November 2022, members of nursing trade unions voted to strike. Many more public sector unions have joined the nurses on strike, in attempts to gain pay rises that keep up with inflation. It is notable that many of the employers facing strike action, such as the NHS, are monopsonistic employers, who have considerable labour market power.

UK public sector workers have been particularly hard hit by the cost of living crisis, according to official figures that show the gap between public and private sector pay growth is at its widest on record. Annual growth in pay was 6.6% in the private sector in September 2022, compared with just 2.2% for the public sector. Overall, pay growth accelerated to 5.7% as employers struggled to hire workers due to low unemployment. In November 2022, 13.3% of businesses reported experiencing a shortage of workers leading to upward pressure on wages. The construction and hospitality sectors were worst affected.

However, wage growth has not kept pace with inflation, which reached 10.1% in September 2022, leading to growing industrial unrest. Until recently, strikes largely affected local authorities, transport services and some private sector employers. But the latest figures show the pay squeeze has been far worse for teachers, NHS staff and other public sector workers who have started to take industrial action, including strikes. Louise Murphy, economist at the Resolution Foundation, said there was now a “huge wedge” between private and public sector pay, creating severe difficulties for public sector recruitment and retention. Staff shortages in the public sector are likely to worsen unless public sector pay and working conditions improve.

Source: News reports, 2023

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Turn over ►

Extract F: The role of trade unions

Over the past century, British unions have successfully campaigned for a minimum wage, holiday and sickness pay, equal opportunity rights, maternity and paternity rights and a two-day weekend for workers. Unions support individual workers in workplace disagreements, and engage in collective bargaining on behalf of their members by negotiating with employers on pay and working conditions. But unions can do much more for employees and even for employers. Research shows that their benefits can include reducing staff turnover, providing or promoting training and encouraging innovation.

UK trade union membership peaked at 13.2 million members in 1979 but fell consistently during the 1980s and 1990s. There has been a recent reversal of this trend with membership increasing in each of the last four years, primarily amongst public sector workers. Unions suggest that new members have been joining due to wages falling in real terms, and the hope that a trade union might protect their interests. Collective pay bargaining, reinforced by the threat of strikes, has achieved some notable successes for workers, such as the 18% pay rise for London bus drivers in February 2023. However, 205 000 working days were lost to strike action in September 2022, almost as many as in the whole of 2019. Critics argue that strikes by transport workers, teachers, nurses and others create enormous disruption for everybody else and make labour markets less efficient. Source: News reports, 2023

0 5 Using the data in Extract D (Table 2) , calculate the difference between the mean percentage trade union membership in the private sector and the mean percentage trade union membership in the public sector over the period 2001–2021.

Give your answer to one decimal place. [2 marks]

(^0 6) Explain how the data in Extract D (Figure 2) , show that, since 2015, living standards of people working in the private sector are likely to have increased compared to those working in the public sector. [4 marks]

(^0 7) Extract E (lines 9–10) states that ‘In November 2022, 13.3% of businesses reported experiencing a shortage of workers leading to upward pressure on wages’.

With the help of a diagram, explain how (^) and to what extent a shortage of labour is likely to affect the wage in a competitive labour market. [9 marks]

(^0 8) Extract F (lines 12–13) states that ‘Collective pay bargaining, reinforced by the threat of strikes, has achieved some notable successes for workers’.

Using the data in the extracts and your knowledge of economics, evaluate the view that trade unions improve the operation of labour markets by protecting the interests of workers. [25 marks]

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Section B

Answer one essay from this section.

Each essay carries 40 marks.

EITHER

Essay 1

In the UK, 64% of the population are considered to be overweight. Many policies have focused on promoting active lifestyles, whilst taxes have been introduced on sugary drinks and alcohol. There has also been regulation of advertising aimed at young children. Attention has recently turned to the use of behavioural economics techniques to change diets.

0 9 Explain why imperfect and asymmetric information may lead to market failure in the market for food. [15 marks]

1 0 Evaluate the view that the consumption of unhealthy foods can best be reduced through the use of nudges and other techniques from behavioural economics. [25 marks]

OR

Essay 2

In 2018, the Competition and Markets Authority issued a report which criticised a ‘situation where businesses charge higher prices to existing customers who stay with them, than they do to new customers’. However, according to Citizens Advice, some broadband and mobile phone companies continue to charge existing customers more than they charge new customers.

(^1 1) Explain the likely impact on consumer surplus and producer surplus as an industry moves away from a competitive market structure to one that is dominated by a few large firms. [15 marks]

(^1 2) Evaluate the view that price discrimination is damaging for consumers. [25 marks]

OR

Essay 3

Britain’s energy market was plunged into chaos in 2021 as surges in wholesale electricity and gas prices exposed the weaknesses of many companies. Since deregulation in 2016, 49 energy supply companies have collapsed, with customers taken on by larger firms. This market chaos has led to renewed calls for the government to nationalise the energy industry.

1 3 Explain, using examples, how the existence of economies and diseconomies of scale affect firms’ average costs of production. [15 marks]

1 4 Assess the view that privatised industries, such as electricity and gas, should be taken back into public ownership. [25 marks]

END OF QUESTIONS

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A-level

ECONOMICS

7136/

Paper 1 Markets and Market Failure

Mark scheme

June 202 4

Version: 1.0 Final

MARK SCHEME – A-LEVEL ECONOMICS – 7136/1 – JUNE 2024

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Mark schemes are prepared by the Lead Assessment Writer and considered, together with the relevant questions, by a panel of subject teachers. This mark scheme includes any amendments made at the standardisation events which all associates participate in and is the scheme which was used by them in this examination. The standardisation process ensures that the mark scheme covers the students’ responses to questions and that every associate understands and applies it in the same correct way. As preparation for standardisation each associate analyses a number of students’ scripts. Alternative answers not already covered by the mark scheme are discussed and legislated for. If, after the standardisation process, associates encounter unusual answers which have not been raised they are required to refer these to the Lead Examiner.

It must be stressed that a mark scheme is a working document, in many cases further developed and expanded on the basis of students’ reactions to a particular paper. Assumptions about future mark schemes on the basis of one year’s document should be avoided; whilst the guiding principles of assessment remain constant, details will change, depending on the content of a particular examination paper.

No student should be disadvantaged on the basis of their gender identity and/or how they refer to the gender identity of others in their exam responses.

A consistent use of ‘they/them’ as a singular and pronouns beyond ‘she/her’ or ‘he/him’ will be credited in exam responses in line with existing mark scheme criteria.

MARK SCHEME – A-LEVEL ECONOMICS – 7136/1 – JUNE 2024

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Level of response marking instructions

Level of response mark schemes are broken down into levels, each of which has a descriptor. The descriptor for the level shows the average performance for the level. There are marks in each level.

Before you apply the mark scheme to a student’s answer read through the answer and annotate it (as instructed) to show the qualities that are being looked for. You can then apply the mark scheme.

Step 1 Determine a level

Start at the lowest level of the mark scheme and use it as a ladder to see whether the answer meets the descriptor for that level. The descriptor for the level indicates the different qualities that might be seen in the student’s answer for that level. If it meets the lowest level then go to the next one and decide if it meets this level, and so on, until you have a match between the level descriptor and the answer. With practice and familiarity you will find that for better answers you will be able to quickly skip through the lower levels of the mark scheme.

When assigning a level you should look at the overall quality of the answer and not look to pick holes in small and specific parts of the answer where the student has not performed quite as well as the rest. If the answer covers different aspects of different levels of the mark scheme you should use a best fit approach for defining the level and then use the variability of the response to help decide the mark within the level, ie if the response is predominantly level 3 with a small amount of level 4 material it would be placed in level 3 but be awarded a mark near the top of the level because of the level 4 content.

Step 2 Determine a mark

Once you have assigned a level you need to decide on the mark. The descriptors on how to allocate marks can help with this. The exemplar materials used during standardisation will help. There will be an answer in the standardising materials which will correspond with each level of the mark scheme. This answer will have been awarded a mark by the Lead Examiner. You can compare the student’s answer with the example to determine if it is the same standard, better or worse than the example. You can then use this to allocate a mark for the answer based on the Lead Examiner’s mark on the example.

You may well need to read back through the answer as you apply the mark scheme to clarify points and assure yourself that the level and the mark are appropriate.

Indicative content in the mark scheme is provided as a guide for examiners. It is not intended to be exhaustive and you must credit other valid points. Students do not have to cover all of the points mentioned in the Indicative content to reach the highest level of the mark scheme.

An answer which contains nothing of relevance to the question must be awarded no marks.

MARK SCHEME – A-LEVEL ECONOMICS – 7136/1 – JUNE 2024

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Section A

Below is the levels of response marking grid to be used when marking any 25-mark question.

Level of response

Response Max 25 marks

Sound, focused analysis and well-supported evaluation that:

• is well organised, showing sound knowledge and understanding of economic terminology, concepts and principles with few, if any, errors
• includes good application of relevant economic principles to the given context and, where appropriate, good use of data to support the response
• includes well-focused analysis with clear, logical chains of reasoning
• includes supported evaluation throughout the response and in a final conclusion.

21 – 25

marks

Sound, focused analysis and some supported evaluation that:

• is well organised, showing sound knowledge and understanding of economic terminology, concepts and principles with few, if any, errors
• includes some good application of relevant economic principles to the given context and, where appropriate, some good use of data to support the response
• includes some well-focused analysis with clear, logical chains of reasoning
• includes some reasonable, supported evaluation.

16 – 20

marks

Some reasonable analysis but generally unsupported evaluation that:

• focuses on issues that are relevant to the question, showing satisfactory knowledge and understanding of economic terminology, concepts and principles but some weaknesses may be present
• includes reasonable application of relevant economic principles to the given context and, where appropriate, some use of data to support the response
• includes some reasonable analysis but which might not be adequately developed or becomes confused in places
• includes fairly superficial evaluation; there is likely to be some attempt to make relevant judgements but these aren’t well-supported by arguments and/or data.

11 – 15

marks

A fairly weak response with some understanding that:

• includes some limited knowledge and understanding of economic terminology, concepts and principles is shown but some errors are likely
• includes some limited application of relevant economic principles to the given context and/or data to the question
• includes some limited analysis but it may lack focus and/or become confused
• includes some evaluation which is weak and unsupported.

6 – 10

marks

A very weak response that:

• includes little relevant knowledge and understanding of economic terminology, concepts and principles
• includes application to the given context which is, at best, very weak
• includes attempted analysis which is weak and unsupported.

1 – 5

marks

MARK SCHEME – A-LEVEL ECONOMICS – 7136/1 – JUNE 2024

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Section A

Context 1 Total for this context: 40 marks

0 1 Inflation resulted in a basket of goods and services that cost £100 in 2015 costing £112 in

2021. Using this information and the data in Extract A (Table 1) , calculate the percentage increase in average university rent, in real terms, between 2015 and 2021.

Give your answer to one decimal place. [2 marks]

Calculation:

Cost of average rent in 20 15 at 20 21 prices: 121.16 X 1.12 = 135.

Increase in real average rent: 169.35 – 135.6992 = 33.

% increase in real average rent: 33.6508/135.6992 X 100 = 24.79 8

Correct answer: 24.8%

or

Cost of average rent in 2021 at 2015 prices: 169.35/1.12 = 151.

Increase in real average rent: 151.205 - 121.16 = 30.

% increase in real average rent: 30.045/121.16 X 100 = 24.79 8

Correct answer: 24.8%

or

169.35/121.16 X 100/112 = 1.24798 then subtract 1 and multiply by 100

Response Max 2 marks

For the correct answer, to one decimal place, with % sign: 24.8% 2 marks

For the correct answer but without the % sign and/or not to one decimal place: eg 24.8 or 24.798% OR For the correct method, but the wrong answer, to one decimal place, with the % sign OR For subtracting 12 from 39.8 to get 27.8%

1 mark

MAXIMUM FOR QUESTION 01: 2 MARKS

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(^0 2) Explain how the data in Extract A (Figure 1 and Table 1) show that the supply of university and private rental accommodation has failed to match the increase in student numbers between 2015 and 2021. [4 marks]

Response Max 4 marks

• Includes evidence that shows that the supply of university and private rental accommodation has failed to match the increase in student numbers.
• Clearly explains how this data is evidence that the supply of university and private rental accommodation has failed to match the increase in student numbers.

4 marks

• Includes evidence that shows that the supply of university and private rental accommodation has failed to match the increase in student numbers.
• Explanation of how this data is evidence that the supply of university and private rental accommodation has failed to match the increase in student numbers.

3 marks

• Includes some evidence that shows that the supply of university and private rental accommodation has failed to match the increase in student numbers.
• Limited explanation of how this data is evidence that the supply of university and private rental accommodation has failed to match the increase in student numbers.

2 marks

• Includes evidence that does not clearly show that the supply of university and private rental accommodation has failed to match the increase in student numbers.
• No explanation of how this data is evidence that the supply of university and private rental accommodation has failed to match the increase in student numbers.

1 mark

Relevant issues include:

• total student numbers have increased from approximately 1.7 million to 2.1 million in the period, an increase of 24%
• university rental properties have barely changed at all, hovering around the 33 0 000 level
• private rental properties have increased slightly, from 650 000 to 750 000
• the shortfall of around 300 000 is accounted for by the increase in students living at home, from 75 0 000 to just over 1 million
• Table 1 shows that the nominal cost of university rent has risen by 39.8% (allow 24.8% increase in real terms) from £121.16 to £169.
• the rise in rents indicates that the supply of university and private rental accommodation has not matched the increased demand as reflected in the increase in student numbers.

Allow a margin of error of +/- 100 000 MAXIMUM FOR QUESTION 02: 4 MARKS

MARK SCHEME – A-LEVEL ECONOMICS – 7136/1 – JUNE 2024

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(^0 3) Extract B (lines 3 – 4 ) states that ‘Universities have expanded the number of places on offer to students, but the supply of student accommodation is highly inelastic’.

With the help of a diagram, explain the impact of the increase in the number of students attending university on the market for student accommodation. [9 marks]

Level of response

Response Max 9 marks

• Is well organised and develops one or more of the key issues that are relevant to the question.
• Shows sound knowledge and understanding of relevant economic terminology, concepts and principles.
• Includes good application of relevant economic principles and/or good use of data to support the response.
• Includes well-focused analysis with a clear, logical chain of reasoning.
• Includes a relevant diagram that will, at the top of this level, be accurate and used appropriately.

7 – 9 marks

• Includes one or more issues that are relevant to the question.
• Shows reasonable knowledge and understanding of economic terminology, concepts and principles but some weaknesses may be present.
• Includes reasonable application of relevant economic principles and/or data to the question.
• Includes some reasonable analysis but it might not be adequately developed and may be confused in places.
• May include a relevant diagram.

4 – 6 marks

• Is very brief and/or lacks coherence.
• Shows some limited knowledge and understanding of economic terminology, concepts and principles but some errors are likely.
• Demonstrates very limited ability to apply relevant economic principles and/or data to the question.
• May include some very limited analysis but the analysis lacks focus and/or becomes confused.
• May include a relevant diagram but the diagram is not used and/or is inaccurate in some respects.

1 – 3 marks

MARK SCHEME – A-LEVEL ECONOMICS – 7136/1 – JUNE 2024

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Expected diagram

A supply and demand diagram is expected, showing a shift in demand to the right. It is also expected that the student’s diagram will show an inelastic supply curve.

Relevant issues include:

• definitions of demand, supply, inelastic supply
• explanation of why student numbers are rising o rising numbers of foreign students o demographic change leading to more UK 18-year-olds
• explanation of why this leads to an increase in demand for student accommodation o the demand for university places and the demand for student accommodation are complementary
• explanation of why supply of student accommodation is inelastic including o planning restrictions o high construction costs, rising interest rates and inflation o time taken to build new accommodation
• explanation of why the expected outcome is that prices would rise and rise substantially including o the price (rent) rises because there is excess demand at the original price (rent) o the rationing and/or incentive functions of the price mechanism
• explanation of why the expected outcome in terms of quantity is that quantity would increase but only slightly.

MAXIMUM FOR QUESTION 03: 9 MARKS

MARK SCHEME – A-LEVEL ECONOMICS – 7136/1 – JUNE 2024

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(^0 4) Extract C (lines 1 4 – 16 ) states that ‘A maximum rent can help keep the cost of student accommodation lower than it would otherwise be, but risks some landlords withdrawing from the market’.

Using the data in the extracts and your knowledge of economics, discuss the advantages and disadvantages of policies the government might introduce to improve the market for student accommodation. [25 marks]

Areas for discussion include:

• explanation of the market for student accommodation
• how a well-functioning market would resolve the shortage of accommodation via incentives, rationing and signalling
• the nature of the market failure(s) including o excess demand for university accommodation, high rents affecting social mobility and inequality by pricing some students out of university accommodation o leading to fewer students choosing to go to university, university education as a merit good o high-quality student accommodation as a merit good o poor quality student accommodation as a demerit good o immobility of factors of production (in this case land) can lead to market failure
• other problems which are not the result of market failure including o planning restrictions o objections to new accommodation by neighbours
• analysis and evaluation of policies to reduce the market failure here including o rent subsidies o rent controls o subsidising builders of student accommodation o state provision of accommodation o reducing planning restrictions o reducing demand for accommodation, eg limits on foreign students o grants and loans to support students with high costs
• use of the data in the extracts, particularly Extract C , to support analysis and evaluation of the policies discussed
• whether or not the problem of excess demand is likely to persist
• the objectives of government policy in this area
• market failure arguments
• government failure arguments
• an overall assessment of the advantages and disadvantages of policies the government might introduce to improve the market for student accommodation.

The use of relevant diagrams to support the analysis should be taken into account when assessing the quality of the student’s response to the question.

Use the level mark scheme on page 4 to award students marks for this question.

MAXIMUM FOR QUESTION 04: 25 MARKS

MARK SCHEME – A-LEVEL ECONOMICS – 7136/1 – JUNE 2024

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Context 2 Total for this context: 40 marks

(^0 5) Using the data in Extract D (Table 2) , calculate the difference between the mean percentage trade union membership in the private sector and the mean percentage trade union membership in the public sector over the period 2001–2021.

Give your answer to one decimal place. [2 marks]

Mean of private sector trade union membership: (18.4+16.6+14.2+13.4+12.8)/5= 15. Mean of public sector trade union membership: (59.7+58.7+56.6+52.8+50.1)/5= 55. Difference = 55.58-15.08 = 40.5 percentage points (accept 40.5%)

Response Max 2 marks

For the correct answer, to one decimal place, with % sign: 40.5 percentage points or 40.5% 2 marks

For the correct answer but without the % sign and/or not to one decimal place: eg 40.5 or 40% or 41% OR For the correct method, but the wrong answer, to one decimal place, with the % sign

1 mark

MAXIMUM FOR QUESTION 05: 2 MARKS

MARK SCHEME – A-LEVEL ECONOMICS – 7136/1 – JUNE 2024

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(^0 6) Explain how the data in Extract D (Figure 2) show that, since 201 5 , living standards of people working in the private sector are likely to have increased compared to those working in the public sector. [4 marks]

Response Max 4 marks

• Includes evidence that shows why living standards of people working in the private sector are likely to have increased compared to those working in the public sector since 2015.
• Clearly explains how this data is evidence that the living standards of people working in the private sector are likely to have increased compared to those working in the public sector since 2015.

4 marks

• Includes evidence that shows why living standards of people working in the private sector are likely to have increased compared to those working in the public sector since 2015.
• Explanation of how this data is evidence that the living standards of people working in the private sector are likely to have increased compared to those working in the public sector since 2015.

3 marks

• Includes some evidence that shows why living standards of people working in the private sector are likely to have increased compared to those working in the public sector since 2015.
• Limited explanation of how this data is evidence that the living standards of people working in the private sector are likely to have increased compared to those working in the public sector since 2015.

2 marks

• Includes evidence that does not clearly show why living standards of people working in the private sector are likely to have increased compared to those working in the public sector since 2015.
• No explanation of how this data is evidence that the living standards of people working in the private sector are likely to have increased compared to those working in the public sector since 2015.

1 mark

MARK SCHEME – A-LEVEL ECONOMICS – 7136/1 – JUNE 2024

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Relevant issues include:

• explain how growth in pay is a significant determinant of improvements in living standards
• private sector pay growth has been above public sector pay growth for much more than half of the time period since 2015
• the biggest gap between private sector pay growth and public sector pay growth was 7.6% in 2021
• there is only one period of any significant length when private sector pay growth was below public sector pay growth, in 2020
• the peak in private sector pay growth was much higher (10.5%) compared to the peak for public sector pay growth (5.5%)
• when private pay growth hit its low point of - 2.2% in 2020, it rebounded very quickly to peak at 10.5% in 2021
• the end of the period shows a significant gap emerging between private and public sector pay growth (6.8% versus 2.9%)
• since the growth in private sector pay has been higher than the growth in public sector pay for most of the period, living standards for people in the private sector are likely to have increased by more than people working in the public sector.

Allow a margin of error of +/- 0. 5 percentage points MAXIMUM FOR QUESTION 06: 4 MARKS

MARK SCHEME – A-LEVEL ECONOMICS – 7136/1 – JUNE 2024

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(^0 7) Extract E (lines 9 – 10 ) states that ‘In November 2022, 13.3% of businesses reported experiencing a shortage of workers leading to upward pressure on wages’.

With the help of a diagram, explain how and to what extent a shortage of labour is likely to affect the wage in a competitive labour market. [9 marks]

Level of response

Response Max 9 marks

• Is well organised and develops one or more of the key issues that are relevant to the question.
• Shows sound knowledge and understanding of relevant economic terminology, concepts and principles.
• Includes good application of relevant economic principles and/or good use of data to support the response.
• Includes well-focused analysis with a clear, logical chain of reasoning.
• Includes a relevant diagram that will, at the top of this level, be accurate and used appropriately.

7 – 9 marks

• Includes one or more issues that are relevant to the question.
• Shows reasonable knowledge and understanding of economic terminology, concepts and principles but some weaknesses may be present.
• Includes reasonable application of relevant economic principles and/or data to the question.
• Includes some reasonable analysis but it might not be adequately developed and may be confused in places.
• May include a relevant diagram.

4 – 6 marks

• Is very brief and/or lacks coherence.
• Shows some limited knowledge and understanding of economic terminology, concepts and principles but some errors are likely.
• Demonstrates very limited ability to apply relevant economic principles and/or data to the question.
• May include some very limited analysis but the analysis lacks focus and/or becomes confused.
• May include a relevant diagram but the diagram is not used and/or is inaccurate in some respects.

1 – 3 marks

MARK SCHEME – A-LEVEL ECONOMICS – 7136/1 – JUNE 2024

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Suggested Diagram

A labour market diagram is expected, showing disequilibrium in the form of excess demand for labour.

Acceptable alternative diagrams include a leftward shift in the labour supply curve, or a rightward shift in the labour demand curve.

Relevant issues include:

• definition of a competitive labour market
• explanation of how wages are determined in competitive labour markets
• explanation of the reasons for labour shortages o those caused by an increase in the demand for labour and a rightward shift of the demand curve o those caused by a decrease in the supply of labour and a leftward shift of the supply curve
• explanation of how excess demand for labour puts upward pressure on wages as firms compete for workers
• explanation of the signalling, rationing and incentive functions of rising wages
• explanation of why wages are likely to rise until labour supply is in equilibrium with labour demand
• explanation of the factors which determine the extent to which wages rise including o the amount of the shortage o wage elasticity of labour supply o wage elasticity of labour demand.

MAXIMUM FOR QUESTION 07: 9 MARKS

MARK SCHEME – A-LEVEL ECONOMICS – 7136/1 – JUNE 2024

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(^0 8) Extract F (lines 12–13) states that ‘Collective pay bargaining, reinforced by the threat of strikes, has achieved some notable successes for workers’.

Using the data in the extracts and your knowledge of economics, evaluate the view that trade unions improve the operation of labour markets by protecting the interests of workers. [25 marks]

Areas for discussion include:

• explanation of ‘improve the operation of labour markets’
• explanation of trade unions and their objectives
• explanation of the various factors that affect the ability of trade unions to influence wages and levels of employment in different labour markets
• explanation of how wages and the level of employment are determined in competitive labour markets
• discussion of how all labour markets are imperfectly competitive to some extent
• how various factors such as monopsony power, trade unions and imperfect information contribute to imperfections in a labour market
• how, in a monopsony labour market, the employer can use market power to reduce both the wage rate and the level of employment below those that would exist in a perfectly competitive labour market
• analysis and evaluation of how wages and employment are likely to be affected by the introduction of a trade union into a previously competitive labour market and into a monopsony labour market
• analysis and evaluation of how trade unions may have an impact in reducing discrimination within the labour market
• use of Extract D to show that pay growth in the more unionised public sector has fallen behind pay growth in the private sector, suggesting a degree of ineffectiveness in terms of pay
• use of the data in the extracts generally to support analysis and evaluation of whether trade unions improve the operation of labour markets
• analysis and evaluation of whether trade unions bring benefits to labour markets more generally, for example by providing a single negotiator for firms to deal with
• the extent to which the operation of labour markets is improved or damaged by worker interests being protected, possibly linked to the degree of monopsony power held by employers
• analysis and evaluation of the extent to which trade union actions such as strikes can have negative impact on wider labour markets by disrupting the working lives of others
• use of examples, eg beneficial effects on staff turnover, innovation and training
• market failure arguments
• government failure arguments
• an overall assessment of whether trade unions improve the operation of labour markets by protecting the interests of workers.

Use the level mark scheme on page 4 to award students marks for this question.

MAXIMUM FOR QUESTION 08: 25 MARKS

MARK SCHEME – A-LEVEL ECONOMICS – 7136/1 – JUNE 2024

16

Section B

Below is the levels of response marking grid which should be used to mark the 15 - mark questions.

Level of response

Response Max 15 marks

A good response provides an answer that:

• is well organised and develops a selection of the key issues that are relevant to the question
• shows sound knowledge and understanding of economic terminology, concepts and principles with few, if any, errors
• includes good application of relevant economic principles to the given context and, where appropriate, good use of data to support the response
• includes well-focused analysis with clear, logical chains of reasoning.

11 – 15 marks

A reasonable response provides an answer that:

• focuses on issues that are relevant to the question
• shows satisfactory knowledge and understanding of economic terminology, concepts and principles but some weaknesses may be present
• includes reasonable application of relevant economic principles to the given context and, where appropriate, some use of data to support the response
• includes some reasonable analysis which might not be adequately developed or becomes confused in places.

6 – 10 marks

A weak response provides an answer that:

• has identified one or more relevant issues
• has some limited knowledge and understanding of economic terminology, concepts and principles but some errors are likely
• has very limited application of relevant economic principles to the given context and/or data to the question
• might have some limited analysis but it may lack focus and/or become confused.

1 – 5 marks

MARK SCHEME – A-LEVEL ECONOMICS – 7136/1 – JUNE 2024

17

Section B

Essay 1 Total for this context: 40 marks

(^0 9) Explain why imperfect and asymmetric information may lead to market failure in the market for food. [15 marks]

Areas for discussion include:

• explanation of imperfect information, asymmetric information and market failure
• explanation of different types of market failure likely to exist in market for food, for example, positive and negative externalities in consumption, food as a merit good, food as a demerit good
• explanation of the importance of information for decision making
• explanation of why imperfect information makes it difficult for economic agents to make rational decisions and is a potential source of market failure
• application and analysis of demand and supply diagrams (or MSB/MSC diagrams) to help explain why asymmetric and imperfect information is likely to lead to a misallocation of resources in the market for food
• explanation of why food manufacturers and retailers are likely to have more information about their products than consumers
• explanation of how customers often have a poor understanding of nutrition in general, so even if well-informed about food products would still not be able to make good decisions
• particular concerns around children consuming food, as this is one of the few areas of spending that children regularly participate in, and they may be less informed than others
• explanation of how regulations around food labelling can help inform customers but may not form an important part of the buying decision.

The use of relevant diagrams to support the analysis should be taken into account when assessing the quality of the student’s response to the question.

Use the level mark scheme on page 1 6 to award students marks for this question.

MAXIMUM FOR QUESTION 09: 15 MARKS