Edexcel A-Level Economics Paper 1 June 2024 | Model Answers
This page contains a model answer to Section B from the Edexcel A-Level Ecoomics Paper 1 from June 2024.
Edexcel A-Level Economics Paper 1 June 2024
Section B
With reference to Extract A, explain the likely reasons for the change in price of electronic devices. Include a supply and demand diagram in your answer. (6 marks)
Extract A line 6 and 7 mentions that there are two reasons for an increase in price for electronic devices. 'Higher material costs' affects costs of production which is a factor of supply. 'Growing popularity' refers to tastes and fashions which is a factor of demand. Demand would shift to the right and supply would shift to the left due to these changes so therefore equilibrium price would increase from p1 to p2, as shown below.
Examine two factors which might influence the supply of labour in the electronics industry. (8 marks)
One factor which coulda affect the supply of labour in electronics is the nature of skills required. Extract B Line 6 states that jobs are now requiring increasing levels of 'problem solving' skills. If jobs become more difficult, there would be less people who are willing and able to work at each given wage, hence there would be a left shift in supply of workers in the industry.
Another factor that could be affecting supply of labour is non-monetary considerations. Extract B Lines 1 and 2 states that many people 'retire' from the industry every year. If people are choosing to value leisure time over the wage, then the opportunity cost of working increases, so supply of labour will decrease as less people are willing and able to work at each wage.
Overall, it is difficult to say what the main factor is that is reducing the supply of labour in this industry but it is clear that the level of technical skills required is one of them. In evaluation, this is something that AI is already helping with (Line 7) and something that could be reduced with external economies of scale, or if the government or firms invest in better training for staff or apprentices.
Assess whether firms in the electronics industry benefit from economies of scale. (10 marks)
Firms in the electronics industry benefit from economies of scale. Extract C Line 10 mentions 'finance' and 'advertising' which are two types of economies of scale. Financial economies of scale occur if large firms are able to reduce long run average costs because they are able to get cheaper loans compared to smaller firms. Secondly, firms would be able to benefit from marketing economies of scale as they face lower long run average costs for advertising. For example, when Tesco use their slogan 'every little helps', they are advertising on behalf of all of their stores with one single advertisement, compared to a small local business spending the same amount to advertise their single store.
However, it is not guaranteed that firms benefit from economies of scale even when they are large. This is because diseconomies of scale may outweigh economies of scale so therefore firms would actually face rising long run average costs with larger outputs instead of benefiting from economies of scale. One common example is that large firms will suffer from communication diseconomies of scale. This is when, due to a large size, managers are unable to keep staff motivated as they do not feel important and valuable. This leads to workers being less productive than they used to be and producing less output per hour. Therefore firms long run average costs are falling as they are spending costs on staff who are producing a lower output.
Discuss the likely concerns of the competition authorities regarding the proposed merger of the two companies referred to in Extract C. (12 marks)
One concern of a merger is that the firm will exploit their monopoly power through high prices. Extract C line 3 mentions that it is a £29.5 billion deal which means that Nvidia will gain a signficant increase in their market share, which is already very high to begin with. Because Nvidia would have increasing market share, they will have even greater price setting ability. Monopolies set prices to profit maximise, which is at the point where marginal revenue equals marginal cost.
At this point, firms are allocatively inefficient. This is because, at q1, they are setting a price (p1) that is greater than marginal cost. This means consumer surplus is not being maximised and consumers will not be getting as much value for money when buying goods and services where chips are produced from Nvidia.
However, price-setting power also means that firms like Nvidia are able to make supernormal profits in the long run, leading to the ability to re-invest and innovate and improve products. This is known as dynamic efficiency and will mean that consumers benefit in the long run, for example with faster chips and faster phones and computers.
A second concern of a possible merger is that firms in a monopoly is poor choice for consumers. In a market with monopoly power, there are usually high barriers to entry. This prevents new firms from entering the market. This means consumers will not have much variety of goods and services to choose from. The extract also mentions that 'the merger could reduce choice'. This leads back to low allocative efficiency, as firms are providing poor value for money by selling one good or service at a high price knowing that other firms are unable to undercut them or provide better quality for the same price. Also, there are 'severe global shortages of computer chips' mentioned in the extract which only means there are higher costs, thus making it even less attractive for new firms to enter the market, thus increasing barriers to entry and magnifying the concerns.
However, if Nvidia increase their size they will be able to benefit from economies of scale, where a larger output leads to lower long run average costs as mentioned in Extract C, Line 10. This could be beneficial as low costs could be passed down to consumers in the form of lower prices.
With reference to Extract D, discuss possible methods of government intervention to reduce electronic waste. (15 marks)
One method of government intervention to reduce electronic waste is imposing indirect taxes on electronic devices. An indirect tax is an additional cost of production imposed by the government on firms and this leads to a left shift in the supply curve.
The diagram shows that this indirect tax (specific) leads to the new supply curve meeting the demand curve at a new equilibrium quantity of q2, which is lower than q1. This is going to reduce electronic waste as less people will be buying new devices as firms have passed on the higher costs onto consumers in the form of higher prices. Extract D Line 4 mentions that 1.2 million tonnes of electronic devices were sold in 2018 and if the government are able to reduce the sales of new electronic devices, this would slow down the waste problem.
However, an indirect tax would not solve the issue of electronic waste if demand for electronic devices is inelastic. Inelastic demand means that there is a small percentage change in demand despite a percentage increase in price. The 1.2 million tonnes of electronic devices sold in the UK in 2018 could imply that electronic devices may be price inelastic although we don't have data on prices. It could be inelastic because electronic devices like games consoles and pohones can be addictive, but also because devices like computers and keyboards are necessities to people and businesses for their staff.
Another government intervention to reduce electronic waste is provision of information about the benefits of recycling electronic devices. Extract D Line 10 mentions the external costs of prodcing electronic waste, such as water pollution and contaminating soil because items like headphones are taken to waste instead of being recycled.
The diagram shows the negative externalities when new electronic devices are consumed. These are the negative impacts that affect third parties when a good or service is consumed. Each time a new electronic device is bought, there is a chance an old electronic device will go in the bin and then in landfill or waste. If the government provides information via an advertising campaign, people would be more aware of their impact on society and therefore either cut down on buying new electronic devices when not necessary, or increase the number of electronic devices that they correctly recycle.
However, this may not be the best possible government intervention as an advertising campaign may be completely ignored or may not be seen by some people at all. Furthermore, there is a huge opportunity cost from such campaigns, and it may be more cost effective to increase taxes to deter waste, or impose stricter rules and regulation and impose fines on people who do not correctly dispose of such electronic problems.