Practise explaining how price changes signal preferences and scarcity, ration limited output and incentivise resource movements, then judging limits of market allocation.
Semi-conductors are widely used in the production of many types of electronic goods such as smartphones. It has been estimated that the price elasticity of supply for semi-conductors is 0.2 in the short run and 0.8 in the long run.
Assess the likely effects on resource allocation of a continuing increase in demand for semi-conductors.
OR
Use Table A: AO1 Knowledge and understanding and AO2 Analysis and Table B: AO3 Evaluation to mark candidate responses to this question.
AO1 and AO2 out of 8 marks. AO3 out of 4 marks.
Indicative content
Responses may include:
AO1 Knowledge and understanding and AO2 Analysis
- An analysis of the impact of continuing increases in the demand for semi-
conductors. For example, the rationing function of the price mechanism will result in rising prices for the semi-conductors to remove the excess
demand; the incentive function - rising prices will encourage producers to
investigate ways to increase production levels; the signaling function -rising prices may encourage more firms to enter the market.
- However, the effects on resource allocation may depend on the availability of silicon, the costs of extraction, time lags and government legislation to
limit environmental damage.
- Accept any other reasonable analysis of the effects on resource allocation
- e.g. a PPC approach where producers are likely to increase the
allocation of scarce resources for semi-conductor production - thereby
creating an opportunity cost in terms of potential output of "other goods." In
addition, accept a correct analysis based on it may depend on the type of economy in question.
Level 1 responses will be assertive and lacking in explanations / mainly
descriptive and/or or mainly lacking in relevance to the question.
Level 2 responses may contain some inaccuracies and may be one sided.
Analysis will be explained at least in part and will be largely relevant to the question.
Level 3 responses will consider alternative policies / concepts etc. and will be balanced. Explanations of points raised will be offered and will be accurate and relevant to the question.
AO3 Evaluation
That clearly analyses at both sides of the question and comes to a valid
conclusion.
A one-sided response cannot gain any marks for evaluation.
Please use a text box to show the levels applied and mark split e.g., L3 6
L1 2
OR