CAIE A-Level Economics AS 3.2 Methods and Effects of Government Intervention in Markets Questions

Follow the point-based marking guidance at the top of this mark scheme and award:

up to 3 marks for AO1 Knowledge and understanding up to 3 marks for AO2 Analysis up to 2 marks for AO3 Evaluation.

AO1 Knowledge and Understanding (max 3 marks)

A merit good is thought to be desirable but is underprovided / underconsumed due to information failure/a lack of awareness/better than is realised (1) whereas a demerit good is thought to be undesirable but is overprovided / overconsumed due to information failure/a lack of awareness/worse than is realised (1) Third mark to be awarded for valid examples of both a merit and a demerit good. (1)

AO2 Analysis (max 3 marks)

- Points to consider:

- A subsidy may encourage poorer households to consume more merit goods as the reason for underconsumption may be unaffordability as it reduces the price of merit goods. (1)

- However, quantity demanded may be price inelastic meaning it is less responsive to price changes so quantity demanded will be less responsive to the change in price/the rise in quantity demanded would be less than the decrease in price. (1)

- The problem of information failure persists meaning that consumers remain unaware of the benefits and therefore do not increase consumption, regardless of the fall in price. (1)

AO3 Evaluation (max 2 marks)

- For a balanced evaluation of whether a subsidy will always be effective with 1 mark reserved for a justified conclusion.

Please use a text box to show the mark split e.g., 2,2,1

AO1 Knowledge and understanding

AO2 Analysis

AO3 Evaluation

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
- Use of minimum pricing to increase the price of the demerit good and reduce consumption.
- Problems of using minimum pricing may include discussions around inelastic PED, problem of information failure persists, informal markets may appear etc.
- Alternative policies that may be considered include increasing indirect taxes, education, provision of information and analysis should focus on the advantages and disadvantages of such policies in reducing the consumption of demerit goods.
- Points to consider will include ease of introducing the policy, time and cost, reception by consumers etc.
- Accept any valid policies but the analysis must focus on how they may reduce the consumption of demerit goods and discuss their advantages and disadvantages.
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 will 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
- Requires an assessment of at least one other policy to be compared against minimum pricing policy which leads to
- A justified conclusion as to whether a minimum pricing is the best policy to reduce the consumption of demerit goods.
A one-sided response cannot gain any marks for evaluation.
Please use a text box to show the mark split e.g., L2 5 L1 2
EITHER