Mark Scheme (Results)

Summer 2023

Pearson Edexcel GCE AS Level

In Economics A (8EC0)
Paper 01 Introduction to Markets and Market
Failure
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Summer 2022
Publications Code 8EC0_01_2306_MS
All the material in this publication is copyright
© Pearson Education Ltd 2022
General Marking Guidance

• All candidates must receive the same treatment.

Examiners must mark the first candidate in exactly the
same way as they mark the last.
• Mark schemes should be applied positively. Candidates
must be rewarded for what they have shown they can
do rather than penalised for omissions.
• Examiners should mark according to the mark scheme
not according to their perception of where the grade
boundaries may lie.
• There is no ceiling on achievement. All marks on the
mark scheme should be used appropriately.
• All the marks on the mark scheme are designed to be
awarded. Examiners should always award full marks if
deserved, i.e. if the answer matches the mark scheme.
Examiners should also be prepared to award zero marks
if the candidate’s response is not worthy of credit
according to the mark scheme.
• Where some judgement is required, mark schemes will
provide the principles by which marks will be awarded
and exemplification may be limited.
• When examiners are in doubt regarding the application
of the mark scheme to a candidate’s response, the team
leader must be consulted.
• Crossed out work should be marked UNLESS the
candidate has replaced it with an alternative response.
Question Answer Mark
Number
1(a) The only correct answer is C

A is not correct because this is the change divided by

the new price

B is not correct because this is a distractor (1)

D is not correct because 694 is the change in price

Question Answer Mark

Number
1(b) Application 2

Identifies original maximum price below equilibrium (1) (2)

Identifies the new maximum price above original (1)
£1277 (1) & £1971(1) for new and original permitted
Question Answer Mark
Number
1(c) Knowledge 1

Knowledge/Understanding:
1 mark for definition, e.g.
• The price at which supply equals demand. (1)
• The balanced point with no tendency to change
• No excess demand or excess supply
• Market clearing price
Question Answer Mark
Number
2(a) Knowledge 1, Application 1 and Analysis 1

Knowledge/understanding
1 mark for factor e.g.
• Supply of gas is price inelastic (1)
• Lack of storage/stockpile (1)
• Lack of spare capacity (1)
• Inflexible resources (1)
• Time period (1)
• Alternative substitute source of gas available (1) (3)

Application
• Gas prices have risen (1)
• Supply of gas has fallen in 2021 (1)

Analysis
1 mark for linked development e.g. less availability means gas
suppliers are unable to respond to changes in the market price (1) in
the long-run firms can respond (1)

Question Answer Mark

Number
2(b) The only correct answer is C

A is not correct because a 10% increase in the

price of gas would cause a much smaller increase in
supply
(1)
B is not correct because there is not enough
information to say

D is not correct because the supply of gas is more

responsive to changes in price than the demand
Question Answer Mark
Number
3(a) Knowledge 1

Knowledge/understanding
1 mark for definition

Allow reference to a firm, individual or country (1)

• Concentrates on one good/ service (1)

• produces a narrow range of goods or services (1)
• over time develops a cost advantage in producing these
goods and services (1)

Question Answer Mark

Number
3(b)
The only correct answer is A

B is not correct because ‘supply chain disruption is

the most important issue facing governments’ is a
normative statement

C is not correct because ‘the free market leads to (1)

the best allocation of resources’ is a normative
statement

D is not correct because ‘the government should

increase healthcare spending’ is a normative
statement.
Questio Answer Mark
n
Number
3(c)
Knowledge 1 Analysis 1
(2)
1 mark for advantage and 1 mark for linked
development

• Specialisation increases the size of the market (1)

• Gives opportunities to reduce unit costs (1)
• Increased or decreased quality due to specialisation (1)
• Allows for increased productivity within a particular product/
market(1) and ultimately increased profits (1)
Question Answer Mark
Number
4(a) Knowledge 1, Application 1 and Analysis 1

Knowledge/understanding
1 mark for reason
Possible answers include:
• Firms will aim to maximise profits (1)
• Helps to ration demand (1)

Application
• For reference to the stem e.g. ‘shortages of crisps, petrol and other
items’ (1)
• ‘businesses increase prices’ (1)

• Analysis
Consumers bid-up prices (1) (3)

NB Diagram showcasing excess demand can earn

either 1 application and/ or 1 analysis mark

Question Answer Mark

Number
4(b) The only correct answer is D

A is not correct because a negative figure would

indicate they are complements

B is not correct because a figure less than one

indicates a distant relationship

C is not correct because whilst positive is a substitute

a figure less than one does not indicate a close relationship

(1)
Question Answer Mark
Number
5(a) Knowledge 1 Application 1

Knowledge/understanding
1 mark for definition, e.g.
A mixed economy means that part of the economy is left to the free
market and part of it is managed by the government (1)
Public and private sectors existing within the economy (1)

(2)
Application
1 mark
• 11.7 million jobs were furloughed during the global health crisis
(1)
• Costing the UK Government £70 billion (1)
• ‘80% wages paid by the government 80% of their wages/. Some
private sector employers continued to pay the remaining 20%’
(1)
Question Answer Mark
Number
5(b) Application 1

Opportunity cost relating to higher production of consumer goods

must result in a fall in capital goods – this must be clearly highlighted
on the curve
(1)
The diagram below earns 1 mark

Question Answer Mark

Number
5(c) The only correct answer is A

B is not correct because ‘price acts as a signal to

allocate resources’ is an advantage of a free market
economy

C is not correct because ‘price controls cause

shortages of goods’ is a disadvantage of a command
economy

D is not correct because ‘the profit motive gives

firms the incentive to be more efficient’ is an (1)
advantage of a free market economy
Question Answer Mark
Number
6(a) Knowledge 1, Application 2, Analysis 2

Knowledge
1 mark for understanding the positive relationship between price
increases and total revenue when PED is inelastic

Application
2 marks for using data e.g.
• price elasticity of demand for market is -0.6 (1)
• Netflix’s subscriber base ‘has proven highly inelastic’ (1)
3% of customers in a survey said they would cancel their subscription
after Netflix’s latest price rise (1)

Analysis
PED is highly inelastic (1) so firms are able to increase prices for streamed (5)
television services without a fall in total revenue (1) 10% rise in price
causes a 6% fall in quantity demanded (1) this may be shown using a
diagram (1+1)
Question Answer Mark
Number
6(b) Knowledge 2, Application 2 Analysis 2

Knowledge/understanding
Identification of two separate external benefits e.g.
• Provision of unbiased information (1)
• High quality programmes (1)
• Educational benefits (1)
• Reduce information gaps in markets (1)

Application
2 marks for,
e.g.

• ‘to provide impartial news and information’ (1),

• ‘to show the most creative, highest quality and distinctive
televised content’ (1)
• ‘to support learning for people of all ages’ (1)
• ‘quality programming’ (1)
• ‘content for minority groups’ (1)

Analysis
Linked development of why public service broadcasting creates
external benefits e.g. consumption of public service broadcasting (1)
raises educational levels which are expressed in terms of higher
productivity and are manifest in higher wages, profits and per capita
GDP (1)

Award up to 3 marks for each external benefit (6)

Question Indicative content Mark
Number
6(c) Knowledge 2, Application 2, Analysis 2

• Identification of broadcasting as a public good having the

qualities of non-rivalry and non-excludability

• Broadcasting is non-rivalrous because one person’s

consumption of the service does not interfere with another
person’s consumption

• Broadcasting is non-excludable because a TV aerial or

broadband router is all that is required to access services

• Public service broadcasting such as the BBC is freeto-air

funded partially by the TV licence

• The marginal cost of providing a pure public good to an

extra user is zero, and this implies that, in order to achieve
allocative efficiency, the charge for the product should be
zero (6)
• Private sector businesses are unlikely to consider providing
pure public goods because they will not be able to make any
profit at a zero price, and many consumers can take a free
ride on such goods because of non-excludability
Level Mark Descriptor
0 A completely inaccurate response.
Level 1 1–2 Displays isolated or imprecise knowledge and understanding of
terms, concepts, theories and models.
Use of generic or irrelevant information or examples. Descriptive
approach which has no link between causes and consequences.

Level 2 3–4 Displays elements of knowledge and understanding of economic

principles, concepts and theories.
Applies economic ideas and relates them to economic problems in
context, although does not focus on the broad elements of the
question.
A narrow response or the answer may lack balance.

Level 3 5–6 Demonstrates accurate knowledge and understanding of the

concepts, principles and models.
Ability to link knowledge and understanding in context using
relevant and focused examples which are fully integrated. Economic
ideas are applied appropriately to the broad elements of the
question.
Question Answer Mark
Number
6(c) Evaluation 4
continued

• Public service broadcasting faces enormous challenges as

the industry experiences a technological revolution. Most of
the UK’s 25 million TV homes have access to multi-
channel services such as Freeview digital terrestrial service.
A large number have access to Sky TV, Netflix and the
other subscription services

• Digital broadcasters can now exclude non-payers using set- (4)

top boxes. The BBC and ITV broadcasting services
continue to be completely non-rival and it is this that really
matters in the context of the services that the BBC provides

• Questioning the extent of the effect over time. How

significant is this?

• Possible perception that some paid for television content/

license fee cost means service is in essence regressive,
excluding those on lower incomes

• Quasi public goods as not fully non-excludable and also

element of rivalry due to caps on sharing of accounts

• Judgement should focus on how important this effect is

NB KAA can be treated as Evaluation and vice-
versa

Level Mark Descriptor

0 No evaluative comments.

Level 1 1–2 Identification of generic evaluative comments without supporting

evidence/ reference to context.
No evidence of a logical chain of reasoning.

Level 2 3–4 Evaluative comments supported by chains of reasoning and

appropriate reference to context.
Evaluation is balanced and considers the broad elements of the
question.
Question Answer Mark
Number

6(d) Knowledge 2, Application 2

Knowledge/understanding
2 marks for e.g.
A substitute good is one which has rivals in consumption /
‘competitive demand’ / A good that can be replaced by another to (4)
satisfy a want(1)

A complementary good is one which is consumed with another good

or service/ A good where the demand increase of one good causes an
increase in demand of a related good/ service (1)

Application
2 marks for, e.g.
Netflix and Disney+ are substitute goods (1) Flatscreen
televisions are consumed with streamed television services
(1)
Question Indicative content Mark
Number
6(e) Knowledge 3, Application 3, Analysis 3

Reasons why the market price within the streaming television content
is rising;

Reasons causing demand to shift; (9)

• The demand for streamed services has increased significantly

because of quality content
• Lockdowns have increased demand as people watched much more
television whilst at home.
• Since the end of the first quarter of 2014 to the end of
2021, Netflix has grown its U.S. subscriber base by 70%. Its
subscription price for its most popular plan is now 62% higher
than it was in the first quarter of 2014
• The supply of streamed services has increased with competition
from Amazon prime and Disney+. The cost of gaining new
subscribers has increased significantly

Reasons causing supply to shift;

• New content is expensive and has increased the costs of content

producers. ‘The costs of providing streaming television content have
risen.
• Consumers now expect original content, for example Stranger
Things which costs around £10 million an episode to make’.
• ‘Furthermore, advertising in a saturated market is expensive’
causing firms costs to increase

NB For Level 3 KAA one relevant demand and

supply diagram is required showing D or S shift/ or
both
Level Mark Descriptor
0 A completely inaccurate response.
Level 1 1–3 Displays isolated or imprecise knowledge and understanding of terms,
concepts, theories and models.
Use of generic or irrelevant information or examples. Descriptive
approach which has no chains of reasoning or links between causes
and consequences.
Level 2 4–6 Displays elements of knowledge and understanding of economic
principles, concepts and theories.
Applies economic ideas and relates them to economic problems in
context, although does not focus on the broad elements of the
question.
A narrow response; chains of reasoning are developed but the answer
may lack balance.

Level 3 7–9 Demonstrates accurate knowledge and understanding of the concepts,

principles and models.
Ability to link knowledge and understanding in context using relevant
and focused examples which are fully integrated. Economic ideas are
carefully selected and applied appropriately to economic issues and
problems. The answer demonstrates logical and coherent chains of
reasoning.
Question Indicative content Mark
Number
6(e) Evaluation 6
continued
• Discussion of the impact of demand and supply factors upon the
price of streaming services
• Discussion of ‘saturation’ may mean that prices will start to fall
as number of substitute services, such as Apple TV, continues (6)
to increase
• Discussion of the timescale under consideration. i.e.
whether subscribers will continue to tolerate rising prices
• Much depends on the PED and YED of streamed services and
how high prices will affect demand
• Diagram demonstrating understanding of increased competition
could result in falling prices

Level Mark Descriptor

0 No evaluative comments.
Level 1 1–2 Identification of generic evaluative comments without
supporting evidence/reference to context.
No evidence of a logical chain of reasoning.
Level 2 3–4 Evidence of evaluation of alternative approaches which is
unbalanced.
Evaluative comments with supporting evidence/reference to
context and a partially developed chain of reasoning.
Level 3 5–6 Evaluative comments supported by relevant chain of reasoning
and appropriate reference to context.
Evaluation is balanced and considers the broad elements of the
question.
Question Indicative content Mark
Number
6(f) Knowledge 4, Application 4, Analysis 6

Define government intervention

Government intervention is regulatory action taken by

government that seek to change the decisions made
by individuals, groups and organisations about social
and economic matters.

The extracts contain examples of the external costs of producing

and consuming streamed content and the market failure
associated.

• The carbon footprint produced by fans

watching a month of Netflix’s top 10 global TV
hits is equivalent to driving a car to Saturn
• Every activity in the chain required to stream
video, from the use of huge data centres and
transmission over Wi-Fi and broadband to
watching the content on a device, requires
electricity. The majority of this is generated
by emitting greenhouse gases

Policies should target specific issues

• Use of a tax on usage to increase costs for subscribers and
to reduce the over consumption/ production

• The imposition of a carbon tax is intended to internalise

these externalities. The final price of the good should
include the external costs and not just the private cost.
Those who cause environmental costs should be made to
pay the full social cost of their actions
(14)
The tax shifts the supply curve from S to S2. With the tax,
consumers now face the full social cost (SMC). Quantity
falls from Q1 to Q2. Q2 is socially efficient because social
marginal cost = social marginal benefit

Alternatives such as provision of information may be used

to inform subscribers of the issues being caused and reduce
the asymmetric information problem

The focus of any government intervention could encourage

alternative forms of entertainment and recreation

Improve information on the environmental effects or

to use regulation to limit viewing hours for
individuals
Knowledge, application and analysis
Level Mark Descriptor
0 A completely inaccurate response.
Level 1 1–3 Displays isolated or imprecise knowledge and understanding of terms,
concepts, theories and models.
Use of generic or irrelevant information or examples. Descriptive
approach which has no chains of reasoning or links between causes
and consequences.
Level 2 4–6 Displays elements of knowledge and understanding of economic
principles, concepts and theories.
Applies economic ideas and relates them to economic problems in
context, although does not focus on the broad elements of the
question.
A narrow response or superficial, two stage chains of reasoning only.

Level 3 7–10 Demonstrates accurate knowledge and understanding of the concepts,

principles and models.
Ability to apply economic concepts and relate them directly to the
broad elements of the question with evidence integrated into the
answer.
Analysis is clear and coherent, although it may lack balance. Chains of
reasoning are developed but the answer may lack balance.

Level 4 11–14 Demonstrates precise knowledge and understanding of the concepts,

principles and models.
Ability to link knowledge and understanding in context using
appropriate examples. Analysis is relevant and focused with evidence
fully and reliably integrated.
Economic ideas are carefully selected and applied appropriately to
economic issues and problems. The answer demonstrates logical and
coherent chains of reasoning.
Question Indicative content Mark
Number
6(f) Evaluation 6
continued
Effectiveness of policies used ‘in a free market dominated by US
firms’

Intervention – tax

• Production may shift to countries with no or lower carbon taxes.

(so-called ‘pollution havens’) This can give developing countries
an incentive to encourage
production processes which cause pollution, i.e. there is
‘outsourcing’ of pollution
• The cost of administrating the tax may be quite expensive
reducing its efficiency
• It is difficult to evaluate the level of external cost and how much
(6)
the tax should be
• Possibility of tax evasion. Higher taxes may encourage firms to
hide carbon emissions
• If demand is price inelastic, the tax may have to be very high to
reduce demand significantly. In the short term, firms may not
feel they have many alternatives. Though, over time, demand
will become more elastic as more alternatives are generated
• Impact on income inequality/fairness/impact on poorer
communities

Other methods can be discussed including;

Regulation of number of hours of content watched by individuals
Subsidies of more energy efficient devices from which to consume
content
Level Mark Descriptor
0 No evaluative comments.
Level 1 1–2 Identification of generic evaluative comments without supporting
evidence/reference to context.
No evidence of a logical chain of reasoning.
Level 2 3–4 Evidence of evaluation of alternative approaches which is unbalanced
leading to unsubstantiated judgements. Evaluative comments with
supporting evidence/reference to
context and a partially developed chain of reasoning.

Level 3 5–6 Evaluative comments supported by relevant reasoning and appropriate

reference to context.
Evaluation is balanced and considers the broad elements of the
question, leading to a substantiated judgement.
Question Indicative content Mark
Number
6(g) Knowledge 4, Application 4, Analysis 6

The free-market approach to providing television content is based on

subscription to paid services such as Netflix and advertising-funded
commercial television stations

Broadcasting has historically been provided publicly, financed through a

mixture of television licence fees, appropriations from general taxation,
and advertising

Negatives with the free market approach;

• Market provision leading to excessive advertising levels. Excessive

(14)
advertising is an issue with commercial television

• Under provision of resources to programming and whether these

resources be used to produce appropriate programming

• Left to the market alone there will be under-consumption of public

service broadcasting. This can be illustrated through an externalities
diagram:

The diagram below shows the marginal private benefit

(MPB) and marginal social benefit (MSB) curves and
the marginal private cost (MPC) and marginal social
cost
(MSC) curves for public service broadcasting
 The external benefits of public service broadcasting
are social benefits that spillover to benefit others in
the society and future generations. These are seen in
the public purposes of the BBC’s Charter

Government intervention can be used to ensure that the optimum

quantity of provision, J, is consumed rather than the free market
outcome at H

Knowledge, application and analysis

Level Mark Descriptor
0 A completely inaccurate response.
Level 1 1–3 Displays isolated or imprecise knowledge and understanding of terms,
concepts, theories and models.
Use of generic or irrelevant information or examples. Descriptive
approach which has no chains of reasoning or links between causes
and consequences.
Level 2 4–6 Displays elements of knowledge and understanding of economic
principles, concepts and theories.
Applies economic ideas and relates them to economic problems in
context, although does not focus on the broad elements of the
question.
A narrow response or superficial, two stage chains of reasoning only.

Level 3 7–10 Demonstrates accurate knowledge and understanding of the concepts,

principles and models.
Ability to apply economic concepts and relate them directly to the
broad elements of the question with evidence integrated into the
answer.
Analysis is clear and coherent, although it may lack balance. Chains of
reasoning are developed but the answer may lack balance.

Level 4 11–14 Demonstrates precise knowledge and understanding of the concepts,

principles and models.
Ability to link knowledge and understanding in context using
appropriate examples. Analysis is relevant and focused with evidence
fully and reliably integrated.
Economic ideas are carefully selected and applied appropriately to
economic issues and problems. The answer demonstrates logical and
coherent chains of reasoning.
Question Answer Mark
Number
6(g)
continued Evaluation 6

Arguments in favour of the free market approach include:

• Charging for usage allows content providers to improve the

quality of their services. The ‘streaming wars’ are generating
innovation and improved customer satisfaction

• The greater the number of subscribers the more easily

content providers can spread the costs of programming, (6)
leading to reduced prices

• Greater efficiency when compared to public service

provision

Problems of public service broadcasting include:

• There is a significant issue surrounding the funding of public

service broadcasting. The five public purposes of the BBC’s
Charter are expensive to fulfil.

• Content is expensive to create. The licence fee is seen as

problematic because it is a regressive form of taxation, with
everyone paying the same fee regardless of their income

• As technology develops, it become even harder to sustain a

compulsory licence fee when people have moved
predominantly to alternative sources of information through
the internet, digital channels and smart phones
Evaluation

Level Mark Descriptor

0 No evaluative comments.
Level 1 1–2 Identification of generic evaluative comments without supporting
evidence/reference to context.
No evidence of a logical chain of reasoning.
Level 2 3–4 Evidence of evaluation of alternative approaches which is unbalanced
leading to unsubstantiated judgements. Evaluative comments with
supporting evidence/reference to context and a partially developed
chain of reasoning.
Level 3 5–6 Evaluative comments supported by relevant reasoning and appropriate
reference to context.
Evaluation is balanced and considers the broad elements of the
question, leading to a substantiated judgement.
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