Economics · Oct / Nov 2022 · Paper 21 · Question 4

0455

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Some firms have social welfare as their main objective. Globally, the number of this type of firm is increasing. Consumers are also starting to change their spending patterns by moving towards environmentally friendly products such as solar energy. Environmentally unfriendly firms are less able to make profits and some of these firms must merge to survive.

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4(a)[2]
Identify two examples of social welfare objectives of firms. Environmental protection (1)
Provide jobs to disabled / ex-convicts / minorities (1)
Promoting healthy lifestyle (1)
Provide basic necessities to local communities (1)
Good working conditions (1)
2 Accept any reasonable example.
4(b)[4]
Explain two types of merger. Horizontal (1)
is when two (or more) firms at the same stages of production in the same industry merge (1). Vertical (1)
is when two (or more) firms at different stages of production in the same industry merge (1). Conglomerate (1)
is when two (or more) firms in different industries merge (1). 4 Accept forward and backward vertical integration for all 4 marks.
4(c)[6]
Analyse, using a demand and supply diagram, the effects on the solar energy industry of the change in spending patterns towards environmentally friendly products. Up to 4 marks for the diagram: Axes correctly labelled – price and quantity or p and q (1)
Original demand and supply curves correctly labelled (1)
Demand curve shifts to the right (1)
Equilibriums shown by lines or e.g. E1 and E2 (1). Up to 2 marks for written comments: Changing spending patterns towards greener products will encourage more people to demand solar energy since it is more environmentally friendly and cleaner (1)
decreased demand for polluting substitutes such as coal energy (1)
price and quantity of solar energy will be higher (1).
4(d)[8]
Discuss whether or not a merger can help a firm survive. In assessing each answer, use the table opposite. Why merger can help a firm survive:
Merger may enable a firm to take greater advantage of economies of scale
Merger will enable struggling firm to get more capital injection to enable more production / cover debts
Merger will enable transfer of technology from other firms which could lead to increase efficiency and productivity
Merger will increase awareness of struggling firm and could increase demand. Why merger cannot help a firm survive:
Mergers could lead to diseconomies of scale which will increase the average cost
Mergers that lacks synergy will make it more difficult for the firm to operate
Mergers may eliminate the brand name of the struggling company altogether
Merger will close parts of the firm. Level Description A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 Guidance Level Description A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 A mark of zero should be awarded for no creditable content.

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