Economics · Oct / Nov 2023 · Paper 21 · Question 2

0455

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A third of the world’s ski resorts are located in the Alps. Prices for holidays in the Alps are relatively higher than in other regions. The recent pandemic, however, reduced the revenues of many large and small firms in the tourism industry in the winter season of 2020/2021. Many blamed strict government regulations for this. However, government intervention also helped many firms to survive.

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2(a)[2]
State how average revenue is calculated. Average revenue = total revenue (1)
/ quantity sold (1)
2 Accept quantity without ‘sold’ as the divisor.
2(b)[4]
Explain two advantages of a large firm. Logical explanation which might include: economies of scale (1)
(average) cost lower than smaller firms (1)
finance / capital available (1)
ease of getting loans from banks (1)
technological development (1)
high productivity (1)
large customer base (1)
high revenue / profits (1)
may be well-known (1)
increase brand loyalty (1). 4 One mark each for each of two advantages identified and one mark each for each of two explanations. Accept explanation of two different economies of scale. Credit another example of economies of scale e.g. financial economies.
2(c)[6]
Analyse the possible causes of higher prices of a product such as ski holidays in the Alps. Coherent analysis which might include:
higher demand / higher popularity (1)
from e.g. advertisements / reputation (1)
rise in quality (1)
rise in price of a substitute / another type of holiday (1)
more inelastic demand (1)
quantity demanded less responsive to changes in price (1)
e.g, due to higher brand loyalty (1)
higher income of target market (1)
luxury good (1)
lower supply (1)
e.g. due to better quality (1)
more inelastic supply (1)
quantity supplied less responsive to changes in price (1)
more regulations (1)
higher cost of production (1)
higher labour costs (1)
higher minimum wage (1)
higher living costs of workers in ski industry (1)
investment in improving facilities e.g. ski lifts (1)
may raise costs in the short run (1). 6 Accept any relevant example of a fall in the price of a complement e.g. ski equipment, as a reason for higher demand.
2(d)[8]
Discuss whether or not government intervention is beneficial for firms. In assessing each answer, use the table opposite. Why it might:
government could provide subsidies to reduce firms' costs / help boost output / help during natural disasters / help firms survive
government could reduce taxes to reduce cost of production
minimum prices could increase revenues of firms
government spending on education could increase skills of workers
government spending on benefits could increase demand for products
regulations controlling monopolies could promote competition. Why it might not:
government regulations could increase cost of production
minimum wage could add to firms' costs, reducing profits
indirect taxes or direct taxes could reduce firms’ profits
maximum prices could reduce firms’ revenues
trade restrictions could limit competition. 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 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 Guidance Level Description 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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