NCEA Level 3 Economics 91400 (3.2) — page 1 of 7

SAMPLE ASSESSMENT SCHEDULE

Economics 91400 (3.2): Demonstrate understanding of the efficiency of different market structures using marginal analysis

Assessment Criteria

Achievement / Achievement with Merit / Achievement with Excellence
Demonstrate understanding typically involves providing an explanation of:
  • pricing and output decisions for perfectly competitive and/or monopolist firms using marginal analysis
  • efficiency of a market structure
  • impact of a change in a market on the short and/or long run pricing and/or output decisions of a firm
  • a government policy to improve the efficiency of a monopoly market.
/ Demonstratein-depth understanding typically involves providing a detailed explanation of:
  • pricing and output decisions for perfectly competitive and/or monopolist firms using marginal analysis
  • the efficiency of a market structure
  • the impact of a change in a market on the short and/or long run pricing and/or output decisions of a firm
  • a government policy to improve the efficiency of a monopoly market.
/ Demonstratecomprehensive understanding typically involves comparing and contrasting:
  • the efficiency of market structures
  • the effectiveness of government policies to improve the efficiency of a monopoly market
  • the impact of a change in a market on the short and long run pricing and/or output decisions of a firm.

Evidence Statement

One / Expected Coverage
Not Achieved / NØ / No response; no relevant evidence. / Evidence of understanding includes:
(a)FIVE correct of (i) no barriers; (ii) no control; (iii) large number; (iv) strong barriers; (v) strong control; (vi) one.
(b)Pe and Qe correctly identified. (See Appendix One)
(c)explains that that allocatively efficient equilibrium is where S = D OR MC = AR.
(d)Pm and Qm correctly identified. (See Appendix Two).
(e)Qm is where MR = MC and Pm is price consumers will pay for Qm.
(f)For a perfectly competitive firm, profit maximising equilibrium occurs where MR = MC OR allocatively efficient equilibrium occurs where MC = AR.
N1 / 1/6 requirements for Achievement are met.
N2 / 2/6 requirements for Achievement are met.
Achievement / A3 / 3/6 requirements for Achievement are met.
A4 / 4/6 requirements for Achievement are met.
Merit / M5 / (c) OR (e). / Evidence of in-depth understanding includes:
(c)Detailed explanation that the allocatively efficient equilibrium is where the supply and demand curves intersect. For a monopoly firm the MC curve is the market supply curve and the AR curve is the market demand curve. Pe and Qe are where AR and MC intersect.
(e)Detailed explanation that Qm is the quantity where MC intersects with MR. At that quantity consumers are willing and able to pay price Pm which is determined by the AR curve. Any quantity less than Qm and the firm would not be gaining all marginal profits (MR>MC) and any quantity more than Qm and the firm would make marginal losses (MC>MR) on extra output produced. At any output less than or more than Qm, total profits would be less.
(f)Detailed explanation that a perfectly competitive firm is a price taker, which means that whatever quantity it produces will receive the same price. Therefore its AR/D is also its MR curve. This means that the profit maximising equilibrium MR=MC is also where AR=MC (or D = S), which is also the allocatively efficient equilibrium.
M6 / (e) AND (c)
OR
(f).
Excellence / E7 / 3/4 requirements for Excellence met. / Evidence of comprehensive understanding in (f) includes comparing and contrasting the efficiency of market structure through demonstrating that:
  • Both a perfect competitor and a monopoly firm will produce the quantity where MR and MC intersect in order to maximise profits. The allocatively efficient equilibrium of a firm is where its supply curve intersects with the demand curve, which is where MC and AR curves intersect.
  • A perfectly competitive firm is a price taker, which means that whatever quantity it produces will receive the same price. Therefore its AR is also its MR curve. This means that the profit maximising equilibrium MR=MC is also where AR=MC, which is also the allocatively efficient equilibrium.
  • For a monopoly firm where MC=MR, profit is maximised but it is at a lower quantity and higher price than where AR=MC.
  • Therefore a profit maximising monopoly firm is not allocatively efficient.

E8 / ALL FOUR requirements for Excellence met.

NCEA Level 3 Economics 91400 (3.2) — page 1 of 7

Two / Expected Coverage
Not Achieved / NØ / No response; no relevant evidence. / Evidence of understanding includes:
(a)Idea of Auckland International Airport being able to supply the entire market at a lower price than two or more airports could due to high average costs.
(b)Pe and Qe correctly identified and DWL correctly shaded. (See Appendix Three)
(c)Idea that a DWL is a loss of consumer and producer surpluses.
(d)Idea that average cost pricing will move the price and quantity closer to the allocatively equilibrium (Qe and Pe).
(e)Idea that marginal cost pricing requires the firm to charge the price where AR=MC.
N1 / 1/5 requirements for Achievement are met.
N2 / 2/5 requirements for Achievement are met.
Achievement / A3 / 3/5 requirements for Achievement are met.
A4 / 4/5 requirements for Achievement are met.
Merit / M5 / 1/3 requirements for Merit are met. / Evidence of in-depth understanding includes:
(c)Detailed explanation that a deadweight loss is a loss of total consumer and producer surplus that is not transferred to any other party. Total consumer and producer surplus is maximised at the allocatively efficient equilibrium where AR = MC.If Auckland International Airport wants to profit maximise it will operate at the quantity where MR = MC. At that quantity there is a loss of total CS and PS represented by the DWL in Appendix Three.
(d)Detailed explanation that average cost pricing requires the firm to charge the price where AR=AC. This is a lower price and at the price the monopoly will produce more, which is closer to the allocatively efficient equilibrium. The area of DWL is smaller so represents an improvement in efficiency.
(e)Explanation that marginal cost pricing requires the firm to charge the price where AR=MC. This is the allocatively efficient equilibrium for the market so there is no DWL.
M6 / 2/3 requirements for Merit are met.
Excellence / E7 / Both AC pricing and MC pricing are explained
AND
MC pricing is more efficient than AC pricing explained with reference to DWL. / Evidence of comprehensive understanding includes comparing and contrasting the effectiveness of government policies through:
(d)Average cost pricing is explained as pricing where AC = AR.
(e)Average cost pricing is the less effective price control as the monopoly is still allocatively inefficient, ie, there is still a DWL.
  • With average cost pricing, the firm will make a normal profit, which is sufficient for it to stay in business so may be more desirable than marginal cost pricing.
  • Marginal cost pricing requires the firm to price where MC = AR. Marginal cost pricing is more effective in terms of allocative efficiency as there is no DWL.
  • With marginal cost pricing, the firm will make a subnormal profit which might require the government to subsidise the firm from taxpayer funds to help the monopoly stay in business, ie, cover the economic loss that it will make.

E8 / ALL requirements for Excellence met.

NCEA Level 3 Economics 91400 (3.2) — page 1 of 7

Three / Expected Coverage
Not Achieved / NØ / No response; no relevant evidence. / Evidence of understanding includes:
(a)TWO criteria given, eg, kiwifruit varieties are not homogenous, barriers to entry exist, imperfect knowledge.
(b)MC curve correctly drawn and positioned AND Pm and Qm identified.(See Appendix Four)
(c)Normal profit identified.
(d)AR/MR/P/D curve moved downwards and correctly labelled.
(d)Qnew and Pnew correctly identified.(See Appendix Five)
N1 / 1/5 requirements for Achievement are met.
N2 / 2/5 requirements for Achievement are met.
Achievement / A3 / 3/5 requirements for Achievement are met.
A4 / 4/5 requirements for Achievement are met.
Merit / M5 / 1/3 requirements for Merit met. / Evidence of in-depth understanding includes:
(e)(i)The MR curve would decrease following a decrease in demand, at Qm there is a disequilibrium where MR would now be less than MC.
(e)(ii)Marginal losses are now being made between Qm and Qnew. To avoid making marginal losses the firm will reduce output to Qm, where MRnew = MC and the firm is maximising profit.
(f)Following a decrease in demand the kiwifruit grower AND/OR Zespri will be making a subnormal profit.
M6 / 2/3 requirements for Merit met.
Excellence / E7 / 2/3 requirements for Excellence met. / Evidence of comprehensive understanding in (f) include comparing and contrasting the impact of a change in market on pricing and output decisions of firms through:
  • Comparison between characteristics of BOTH structures with barriers to entry important in determining the response made by each. For a perfectly competitive firm there are no barriers; but the barriers are strong for a monopoly.
  • Both types of firms will make a subnormal profit following a decrease in demand. In the long run, if a monopoly continues to make subnormal profits then they will choose to leave the industry.
  • The perfectly competitive firm will make a normal profit in the long run as some other firms will exit the market causing market supply to decrease and the market price to increase. Therefore AR/MR/P/D will tend back to the point where AR/MR/P/D=AC=MC, which will be an increase in output.

E8 / 3/3 requirements for Excellence met.

NCEA Level 3 Economics 91400 (3.2) — page 1 of 7

Appendix One: Question One (b)

Appendix Two: Question One (d)

NCEA Level 3 Economics 91400 (3.2) — page 1 of 7

Appendix Three: Question Two (b)

Appendix Four: Question Three (b)

NCEA Level 3 Economics 91400 (3.2) — page 1 of 7

Appendix Five: Question Three (d)