NCEA Level 3 Economics (91400) 2013 page 1 of 7

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1 NCEA Level 3 Economics (91400) 2013 page 1 of 7 Assessment Schedule 2013 Economics: Demonstrate of efficiency of different market structures analysis (91400) Evidence Statement Question Evidence ONE (a) (b) (c) At P 0, market is allocatively efficient, as sum of gains to consumers and producers is maximised. As long as market is in equilibrium, it is allocatively efficient. Market equilibrium in Graph One occurs where MC (S) = AR (D). Because restricts to where maximised (), at P p total of consumer surplus (CS) + producer surplus (PS) is reduced from what it would be if it is left at P 0. Although producer gains extra surplus from higher price, it is less than combined loss of surplus to producer from less sales, plus loss to consumer of less consumption at a higher price. By setting price at P 1, price would be lower than would choose, to maximise but it would be above market equilibrium price. It would mean would be higher than would choose, to maximise but it would be below market equilibrium. In this way, deadweight loss would fall to shaded area on, which is smaller than deadweight loss (abc), would exist if chose his / her own price or, thus making market more efficient. P 0 is ideal as no deadweight loss would occur, and market would be allocatively efficient. Some regulation is needed by Commerce Commission, orwise will stay at P p, and would remain re, as strong barriers will stop ors entering market. The price (P 1 ) is an improvement in efficiency over P p, so it would be a good idea. P 0 is best overall price to maximise efficiency.

2 NCEA Level 3 Economics (91400) 2013 page 2 of 7 N1 N2 A3 A4 M5 M6 E7 E8 On, ONE of: Qp, Pp, Q 0 P 0. On, ONE of: a Qp Pp combination a Q 0 P 0 combination. identifying Q 0 P 0 on identifying Q p P p on shading DWL on DWL area (eg abc) why allocative efficiency occurs at P 0 may be identifying Q 0 P 0 on identifying Q p P p on shading DWL on DWL area (eg abc) why allocative efficiency occurs at P 0 why P 0 is most efficient in, effect of P 1 by shifting from P p impact on Q of P 1 regulation. to answers (refers to direction of one point to anor, identifies areas). why P 0 is most efficient in, effect of P 1 by shifting from P p impact on Q of P 1 regulation. to answers (refers to direction of one point to anor, identifies areas). comparing or P 1 with P p P 0 in terms of impact on efficiency. Includes discussion of which is best point by considering overall impact in why Commerce Commission needs to regulate at P1 into discussion by points, shading, or extra labelling to clearly show comparisons between price options. may lack comparing or P 1 with P p, AND P 0 in terms of impact on efficiency. Includes discussion of which is best point by considering overall impact in why Commerce Commission needs to regulate at P1 (referring to features of a monopoly) into discussion by points, shading, or extra labelling to clearly show comparisons between price options. N0/ = No response; no relevant evidence.

3 NCEA Level 3 Economics (91400) 2013 page 3 of 7 Question Evidence TWO (a) s (b) (c) With fall in price to P 2, farmers with low debt and farmers with high debt will lower output to Q 2. This is as at Q 1 MC is now higher than MR 1, meaning losses occur. This is true for all output levels between Q 1 and Q 2, so y reduce output to Q 2, to continue to maximise. For farmer with low debt, large at P 1, as shown in Graph Two, has fallen to smaller at P 2. In comparison, farmer with high debt in Graph Three has gone from having normal to making subnormal at P 2, as shown by shaded area in Graph Three. This is because he has higher average costs due to higher fixed costs in debt servicing. This pushes up total costs, and refore, average costs. This means he could make a higher level of profit for his investment in or industries (eg vineyards), as those industries become relatively more profitable. So in long run, dairy farmer with high debt will leave market (which is easy to do with competition, as re are no exit) if he doesn t believe situation will change.

4 NCEA Level 3 Economics (91400) 2013 page 4 of 7 N1 N2 A3 A4 M5 M6 E7 E8 ONE of: On labels Q 1 new made by eir farmer output which will be produced at lower price. TWO of : On labels Q 1 new made by eir farmer output which will be produced at lower price. N0/ = No response; no relevant evidence. identifying Q 1 identifying Q2 with correct new shown on changes in output analysis some reference to. may be identifying Q 1 identifying Q2 with correct new shown on changes in output analysis some reference to. in analysis (for ). Q 1, Q 2 and new identified. (Reference made to quantities between Q 1 and Q 2) in types of profit for farmer in relation to by correct labelling, shading, or comparing AC and AR at Q 1 and Q 2 to in analysis (for ). Q 1, Q 2 and new identified. (Reference made to quantities between Q 1 and Q 2) in types of profit for farmer in relation to by correct labelling, shading, or comparing AC and AR at Q 1 and Q 2 to between both farmers by: in analysis why low debt farmer makes at Q 1 while high debt farmer makes normal at Q 1 (due to higher AC and fixed costs) change in for each farmer why high debt farmer will leave market s to between both farmers by: in analysis, referring to MR 1 why low debt farmer makes at Q 1 while high debt farmer makes normal at Q 1 (due to higher AC and fixed costs) change in for each farmer why high debt farmer will leave market s to

5 NCEA Level 3 Economics (91400) 2013 page 5 of 7 Question Evidence THREE (a) (b) (c) (d) The is a price taker, as re are many sellers in market all producing identical products. So y cannot influence price. The price is set in market (Graph Five), where S = D (P 1 ). This is price must accept. This is shown in by horizontal demand / MR curve. For, y are only producer in market so by changing, y influence price. This is shown by downward-sloping demand curve in Graph Six. They choose Q 2 as here, and maximised for same reason as. The consumers (demand) n determine what price y are willing to pay for this (P 2 ). Both and choose to produce where, where y maximise. This is because at any before Q 1 for, and Q 2 for revenue is greater than cost. So producing more units increases. This is maximised at Q 1 for, and Q 2 for as after this MC > MR. So producing more will reduce overall. At Q 1 for and Q 2 for, both producers are making (shaded area on Graphs Four and Six) as ir costs (AC) are less than ir revenue (AR) for Q 1 for, and Q 2 for. This means re are better in se markets than in next best alternative, and producers in next best alternative will want to enter this market to get better.

6 NCEA Level 3 Economics (91400) 2013 page 6 of 7 For, new producers can enter market, as re are no entry. This means market supply in Graph Five shifts in long run to S LR, ca market price to fall. Since accepts market price, price y receive also falls (as does ir MR). Since MR is now less than MC at Q 1, y will not want to produce this as it reduces ( loss made). This is true for all units between Q 1 and Q 3, and supplied by will fall to Q 3. The now makes normal (AC = AR) at Q 3, so no one wants to enter or leave market. Normal profit is sufficient to keep in business. So can only make in short run, entry. In comparison, has strong entry. This means those who wish to enter market to get unable to. This could be due to legal barriers, like patents. The can continue to make in long run, as no change will occur in market due to strong barriers. N1 N2 A3 A4 M5 M6 E7 E8 TWO of : shows price for or or places AC Graph Four Six is a price maker but is a price taker. THREE of: shows price for or or places AC Six is a price maker but is a price taker. labelling profit price and price (and n based on this) will enter PC entry labelling profit price and price (and n based on this) will enter PC entry placing AC on BOTH s to have in why profit is maximised at (profit maximizing rule) price (price maker) (price taker) and n based on this will enter PC entry. Shifts Supply in market to right. Shows placing AC on BOTH s to have in why profit is maximised at (profit maximizing rule) price (price maker) (price taker) and n based on this will enter PC entry. Shifts Supply in market to right. Shows between and by: in why PC maximise where (discusses before or after). to explanation for Q decision price, while PC is a price taker and price is set by market why in short run PC makes but in long run only normal can be made. Refers to features of PC why can make between and by: in why PC maximise where (discusses before or after). to explanation for Q decision price, while PC is a price taker and price is set by market why in short run PC makes but in long run only normal can be made. Refers to features of PC why can make in long run and short run.

7 NCEA Level 3 Economics (91400) 2013 page 7 of 7 entry. may be entry. new P and Q on Graph Four; area of profit identified in entry so P and Q unchanged. Area of identified on Graph Six. new P and Q on Graph Four; area of profit identified in entry so P and Q unchanged. Area of identified on Graph Six. in long run and short run. features of s into features of s into N0/ = No response; no relevant evidence. Judgement Statement Not Achieved Achievement Achievement with Merit Achievement with Excellence Score range