In this set of adapted past papers I have written questions according to the style being used for

AS in the 2015 Economics B specification.

My starting point was the past papers. I then tried to write questions in the 2015 style and

relate them to the 2015 specification. I took the question styles from the SAMs as shown in the

table. If you would like to write your own ‘AS style’ case studies and share them with

colleagues please do not hesitate to send them to me.

AO1 AO2 AO3 AO4

Define/what is meant by 2

Draw/illustrate (QS) 2 1 1

Calculate (QS) 1 3

Explain 1 2 1

Discuss

Levels of Response mark schemes Assess

Evaluate

The questions and suggested possible responses have not gone through the normal question

paper writing process and as a subject advisor I do not have any contact with the Assessment

team or the examiners when they are discussing exams. I have adapted this case study to

support teachers looking for practice material.

The suggested responses should not be taken to imply that this would be the only way to

answer the questions. They are suggestions.

Colin Leith

TeachingEconomics@pearson.com

Section A

David’s Choice: Chapman’s or Chic?

On 1 March 2011 David Benbow celebrated his 40th birthday

and an annual turnover of £150,000 for the first time in his 19 years as an entrepreneur.

On leaving school in 1987, David started work as a technician in Chapman’s Opticians, for what was then

a high wage of £300 a week. Before long David realised that this job failed to match his passion for creativity. A year later he started work as a junior stylist in Raymond’s hair salon, Birmingham. Given his

commitment to working long hours and a flair for style, David was swiftly promoted, becoming a senior

stylist at Raymond’s in 1990. By the summer of 1992 David decided it was time to be self-employed.

Rather than rent his own premises and pay high start-up costs, David rented a chair* in a Stourbridge salon. This gave David the opportunity to learn more about the financial aspects of hairdressing, as he

became more familiar with costs and the factors which affect sales income.

In March 2005, once he had sufficient savings, David opened up his own hair salon in the city of Worcester. Advertising costs were negligible because David had developed a strong customer base and

reputation in Stourbridge, so clients simply followed him to nearby Worcester. David had also taken

advantage of professional development opportunities over the years by paying for courses to update his

skills. He did this through formal training with the internationally respected Sassoon Academy in London; David is now one of their partner trainers.

Today David Benbow Hair looks prestigious. Salon prices are by no means as cheap as the £7 charged by

a local barber for a dry cut. In this industry David believes “quality counts”, by which he does not simply

mean hair treatment. The salon has recently undergone a high specification refit which cost in excess of £40,000, including Italian handmade leather sofas for waiting clients, Shiatsu massage chairs, Italian

porcelain sinks, solid oak flooring and LED lighting. David feels his clients are worth every penny. No

wonder the salon has featured in Elle fashion magazine.

*Chair = paying the owner a rental fee for the use of part of the salon.

Extract from 2011 Price List

Colour treatment Cut and care treatment Children’s treatment

High/lowlights – £90–£105

Colour – full head – £42–£47

Bleach – full head – £30–£35

New style – £30–£42

Wet cut – £25–£31

Dry cut – £14–£18

£8–£14

10% off for students and

pensioners

a) What is meant by advertising? (2 marks)

b) Explain how a small business like David’s can survive (4 marks)

c) David has estimated that the price elasticity of demand for his salon is -0.45. He wants to increase

the price of his £90 colour treatment to £100 and increase all his prices by the same percentage. Calculate the effect this would have on the number of customers visiting his salon. You are

advised to show your working. (4 marks)

d) Discuss ways in which David’s salon might achieve a competitive advantage. (8 marks)

e) Assess the factors David would need to take into account when deciding on his pricing strategy (12

marks)

Possible responses

(a) What is meant by advertising? (2)

Question Answer Mark

(a) Knowledge 2

Knowledge/understanding: up to 2 marks for understanding advertising, e.g.

Paid for communication through media such as

television, radio, newspapers or the Internet.

2

(b) Explain how a small business like David’s can survive (4 marks)

Question Number

Mark

(b) Knowledge/understanding 1, Application 2,

Analysis 1

Knowledge/understanding: for defining or

showing understanding of what is meant small firm

survival e.g. targeting a niche market (1 mark) or

selling a unique product/ or product differentiation

(1 mark)

Application: up to 2 marks for contextual answers

e.g. David’s link to Sassoon makes him different

from local competitors, hairdressing is a sector

where small businesses can survive due to the

importance of customer service and the ability to

build strong and lasting relationships with customers

Analysis: 1 mark is available for giving a

reason/cause/consequence of why small businesses

can survive e.g.

• may be able to give better customer service than a

large organisation resulting in customer loyalty OR • the prestige aspect of David’s salon is not

something a larger competitor could easily replicate

which means that he can build a niche following

(4)

(c) David has estimated that the price elasticity of demand for his salon is -0.45.

He wants to increase the price of his £90 colour treatment to £100 and increase all his

prices by the same percentage. Calculate the effect this would have on the number of

customers visiting his salon. You are advised to show your working.

Question

Number Mark

(c) Knowledge/understanding 1, Application 3

Knowledge/understanding: 1 mark for

defining/using price elasticity of demand

PED = % change in quantity demanded / % change

in price

Application up to 3 marks for:

Calculate the percentage change in price

= (new price-old price)/old price x 100%

= 100-90/90 x 100% = 10/90 x 100% = 11% = 0.11

Re-order formula

-0.45 = % change in quantity demanded/0.11

-0.45 x 0.11 = % change in quantity demanded = -0.05 = -5%

If answer given is -5% award 4 marks

(4)

(d) Discuss ways in which David’s salon might achieve a competitive advantage. (8)

Question

Number

Answer Mark

(d) Knowledge / understanding 2, Application 2, Analysis 2, Evaluation 2

e.g. focus on a high quality service/experience.

Offering waiting clients Italian handmade sofas,

handmade sofas will make the client experience

more enjoyable which may therefore lead to customer loyalty. However, if by providing a

better quality experience Shiatsu massage chairs

adds significantly to the price of the hair

treatments, then some price-conscious

customers may be put off going to the salon.

e.g. David’s reputation and the status of being a

Sassoon trainer will signal to customers that the

product is high quality and the Sassoon link can

be used in advertising to highlight ‘international

quality’ rather than the salon being just another

local salon. However, this might deter some

customers who might feel that they will be charged ‘London prices’.

(8)

(e) Assess the factors David would need to take into account when deciding on his pricing

strategy (12 marks)

Question

Number

Answer Mark

(e) Knowledge / understanding 2,

Application 2, Analysis 4, Evaluation 4

Possible factor 1: level of competition. Other hair

salons in the local area may impose a limit on the

prices David can charge although this will depend on

whether they are targeting the same premium

segment that David is catering for.

Possible factor 2: costs and need to make a profit.

David has decided to spend money on expensive

décor and furniture. His prices will have to cover

this and also the cost of staff and materials he uses

in running the salon.

Possible factor 3: strength of his brand/reputation.

David may feel that his reputation will allow him to

charge prices above his competitors and indeed

might be concerned about the negative impression

which might be given by low prices.

Possible factor 4: number of USPs/amount of

differentiation. The Sassoon link, the leather sofas,

the porcelain sinks – these things set him apart and

his may be the only salon offering such features

which might allow him to charge more

Possible judgement – because David has positioned

himself at the upper end of the market he may not need worry too much on what other salons charge

although he cannot assume that demand for his

service is completely price inelastic. The external

environment could also have an impact – even high

end customers can become more price sensitive

during an economic downturn.

(12)

Section B

Evidence A: Up to 40% of High Street shops ‘could close over next five years’ In a recent report by Deloitte, 40% of shops in the UK will close by 2017 as consumers increasingly reject traditional shops in favour of online shopping. Analysts state that the majority of UK retailers, such as Halfords and Argos, will have to close 30–40% of their shops to remain competitive. Electrical retailer, Dixons, is already reducing the number of its shops from 650 to 450. Causes of high street decline include increasing shop rents, a movement away from music and film retailing to downloads, and most importantly, an increase in all online sales. Some retailers employ more technology: Burberry use big screen previews instore, and provide iPads for customer use. Ocado and Tesco have developed apps allowing customers to order groceries on the move. Department stores such as Debenhams offer ‘click and collect’ where shoppers order online and pick up from the shop of their choice. Online retailing now accounts for 17% of total UK retail sales and is likely to increase. Marks & Spencer’s 2012 first quarter results showed general merchandise sales, 90% of which is clothing, falling by 6.8% after being left behind by online competitors. The UK Government commissioned retail expert Mary Portas to review UK high streets, where vacant town centre shops reached 14.8% in June 2012. Her recommendations included: operating town centres like businesses, with team managers; encouraging large retailers to support the high street; reducing business rates and providing cheap car parking. In the town of Eccles the shop vacancy rate is 29.7%. Two of the town’s prime retail units are engaged in a bargain basement price war. A pound shop that was undercut by a new rival, calling itself the 89p superstore, has responded by rebranding itself the 85p store. (Source: adapted from http://www.guardian.co.uk/business/2012/mar/20/high-street-shops-close-deloitte/print by 20 March 2012)

Evidence B: 141 HMV shops are rescued The rescue of HMV arrived when the new owner Hilco, spent an estimated £50m buying the retailer out of administration. This move will save 141 shops and 2,500 jobs. HMV’s previous management failed to react quickly enough to online competition. Hilco already owns HMV in Canada. A company spokesperson said: ‘This is an exciting investment for the Hilco team and we will be able to use some of the developments already progressed in Canada to restore HMV to health.’ (Source: http://www.thisismoney.co.uk/money/markets/article-2304657/New-HMV-owner-Hilco-focusmusic- heritage-internet.html#ixzz2QYLlkzh8, By Rupert Steiner, 5 April 2013)

a) What is meant by online retailing? (2 marks)

b) Explain how a small business on the high street might be able to survive despite the lack

of economies of scale (4 marks)

c) Explain how the long tail can give an online retailer an advantage over high street music

retailers such as HMV. (4 marks)

d) Discuss the potential impact of the decline of UK high streets on retailers. (8 marks) e) Assess how retailers on the high street could be affected by a recession in the UK.

(12 marks)

http://www.guardian.co.uk/business/2012/mar/20/high-street-shops-close-deloitte/print%20by%2020%20March%202012http://www.guardian.co.uk/business/2012/mar/20/high-street-shops-close-deloitte/print%20by%2020%20March%202012

Possible responses

(a) What is meant by online retailing? (2)

Question Answer Mark

(a) Knowledge 2

Knowledge/understanding: up to 2 marks for

understanding online retailing, e.g.

Where a retailer’s website makes it possible for

customers to shop online, order what they

want, pay for it and have the goods delivered to

their home or to a collection point.

2

(b) Explain how a small business on the high street might be able to survive despite the lack

of economies of scale. (4 marks)

Question

Number

Explain how a small business on the high street

might be able to survive despite the lack of

economies of scale.

Mark

(b) Knowledge/understanding 1, Application 2,

Analysis 1

Knowledge/understanding: for defining or

showing understanding of what is meant by

economies of scale e.g. average unit cost decreases as output increases (1 mark) or why a business can

survive e.g. selling a unique product/having good

customer service/niche market (1 mark)

Application: up to 2 marks for contextual answers

e.g. small firms such as newsagents, hairdressers,

corner shops , chemists

Analysis: 1 mark is available for giving a

reason/cause/consequence of why small businesses

can survive e.g.

• may be able to give better customer service than a large organisation resulting in customer loyalty OR

• some consumers do not have access to the

internet so will still have to use local shops OR

• small businesses have unique products which

leads to higher sales compared to mass market

retailers OR

• small businesses may have access to e-tailing

(4)

(c) Explain how the long tail can give an online retailer an advantage over high street music

retailers such as HMV. (4 marks)

Question

Number

Explain how the long tail can give an online retailer

an advantage over high street music retailers such

as HMV.

Mark

(c) Knowledge/understanding 1, Application 2,

Analysis 1

Knowledge/understanding: 1 mark for defining

or showing understanding of what is meant by the

long tail e.g. retailing strategy of selling a large

number of unique items with relatively small

quantities sold of each (1 mark)

Application: up to 2 marks are available for a

contextualised answer, e.g. Online retailers can

stock a wider range of music than a physical retailer

therefore having a larger product portfolio of music, music is often downloaded from iTunes/ HMV sells

music in physical high street retail shops

Analysis: 1 mark for giving a reason /cause

/consequence e.g.

• lower overheads mean that online retailers can

lower the prices leading to greater sales OR • HMV failed to react quickly to online sales

resulting in less demand for its products OR

• Online retailing is more convenient for consumers

resulting in less buying from high street stores

(4)

d) Discuss the potential impact of the decline of UK high streets on retailers. (8 marks)

Question

Number

Answer Mark

(d) Knowledge / understanding 2,

Application 2, Analysis 2, Evaluation 2

retailers are firms or organisations that sell

products/service to consumers

up to 40% of shops may close on the

high street Dixons have already started to close

many of its stores

retailers with just high street shops

may see a reduction in their sales as

consumers switch to online shopping

many high street retailers such as Halfords may have to close even more

stores in order to survive

vacancy rates increase allowing new

businesses to enter the market

many products such as clothing and/or

low value items still will be bought on

the high street as consumers want to try before they buy therefore sales on

the high street may not fall

many online retailers such as Not on

the high street, Amazon, ASOS will

benefit as consumers switch to online

shopping as the high street declines

(8)

e) Assess how retailers on the high street could be affected by a recession in the UK. (12

marks)

Question

Number

Answer Mark

(e) Knowledge / understanding 2,

Application 2, Analysis 4, Evaluation 4

Possible impact 1: e.g recession causes incomes to

fall which may decrease demand for luxury products sold by high street retailers like M&S, Burberry, Apple

Possible impact 2: e.g many budget retailers or

retailers who sell inferior goods may see an increase

in sales as the recession reduces the income of

shoppers who switch to cheaper alternatives such as Aldi, Primark, Poundland

Possible impact 3: e.g. recession may encourage

consumers to seek more savings by shopping online

and online retailing can reduce the search costs for

consumers

Possible impact 4: e.g. as some retailers close the

high street becomes a less attractive place to visit

because shoppers visit the high street for a range of

retailers not just one

Possible assessment: changes in revenue will depend upon the PED and/or YED of consumers because

many luxury retailers like Mulberry may not

experience any change in sales as consumers on

higher incomes could continue to spend as they are

not affected by recession

The impact may depend upon the duration of the

recession and how deep the recession is as to the

extent of the impact on high street retailers.

(12)

Section C

3. Evaluate possible conflicts between macro-economic objectives which might arise from demand-side policies

Question Number

Answer Mark

3 Knowledge / understanding 4, Application 4, Analysis 6, Evaluation 6

Identification of fiscal policy as being demand-side macroeconomic policy (reward implicit understanding) • Identification of monetary policy as being demand-side macroeconomic policy (reward implicit understanding) • Identification of two macroeconomic objectives o Economic Growth o Control of inflation o Reduction in unemployment o Making the distribution of income more equal o Accept reduction of the national debt or balancing the budget o Restoration of equilibrium in the balance of payments o Protection of the environment Fiscal • Increasing government spending increasing employment and/or growth. Potential conflict with inflation • Reduction in taxation rates through borrowing or policy financed through lowering immediate tax burden increasing AD, increasing employment and/or growth. Potential conflict with inflation • Fiscal contraction through reducing government spending. Potential conflict with growth and employment. • Increasing taxation reducing inflation and/or improving government budget. Potential conflict with growth and employment. Monetary • Reduction in interest rates (or increase in money supply) increasing borrowing, reducing debt payments, increasing employment and growth. Potential conflict with inflation. • Reduction in interest rates (or increase in money supply) weakening exchange rate and improving competitiveness, increasing employment and growth and improving the current account. Potential conflict with inflation. Comments might include reference to • If government increases spending on health/education AS will also increase so inflation might not occur • If increased government spending increases growth this should increase tax revenues

• Lower interest rates might lead to increased investment

Relative merits of policies which justifies prioritisation • Tax cuts ineffective if used to increase savings or repay debts • Cuts in Bank of England’s interest rate ineffective if banks unwilling to lend or if banks do not reduce interest rates to customers • Reduced impact of interest rate cuts as they near zero • Long term debt payments to repay will reduce future living standards • Time lag for full effect such as with interest rates (18-24 months) • Magnitude of the changes • Apparent conflict between expansionary monetary policy and

attempts to have austerity in fiscal policy

(20)

Level descriptions mark schemes.

How to award marks when level descriptions are used 1. Finding the right level The first stage is to decide into which level the answer should be placed in. To do this, use a ‘best-fit’ approach, deciding which level most closely describes the quality of the answer. Answers can display characteristics from more than one level, and where this happens markers must use the guidance below and their professional judgement to decide which level is most appropriate. For example, one stronger passage at L4 would not by itself merit a L4 mark, but it might be evidence to support a high L3 mark, unless there are substantial weaknesses in other areas. Similarly, an answer that fits best in L3 but which has some characteristics of L2 might be placed at the bottom of L3. An answer displaying some characteristics of L3 and some of L1 might be placed in L2. 2. Finding a mark within a level After a level has been decided on, the next stage is to decide on the mark within the level. The instructions below tell you how to reward responses within a level. However, where a level has specific guidance about how to place an answer within a level, always follow that guidance. Levels containing 2 marks only Start with the presumption that the work will be at the top of the level. Move down to the lower mark if the work only just meets the requirements of the level. Levels containing 3 or more marks

Markers should be prepared to use the full range of marks available in a level and not restrict marks to the middle. Markers should start at the middle of the level (or the upper-middle mark if there is an even number of marks) and then move the mark up or down to find the best mark. To do this, they should take into account how far the answer meets the requirements of the level: • If it meets the requirements fully, markers should be prepared to award full marks within the level. The top mark in the level is used for answers that are as good as can realistically be expected within that level • If it only barely meets the requirements of the level, markers should consider awarding marks at the bottom of the level. The bottom mark in the level is used for answers that are the weakest that can be expected within that level • The middle marks of the level are used for answers that have a reasonable match to the descriptor. This might represent a balance between some characteristics of the level that are fully met and others that are only barely met.