aT OcR®™ Tuesday 13 May 2014 - Morning AS GCE ECONOMICS Wht l THINK Edie 1 F581/01 Markets in Action QUAK, truly om Gicawn poger: ‘Candidates answor on the Question Paper. (Ch supplied mater: Duration: 1 hour 30 minutes ther materials rec Bs | Pair a) ead | | ae A = rane ae; pn mal || INSTRUCTIONS TO CANDIDATES * — Write your name, centre number and candidate number in the boxes above. Please write clearly and in capital letters. + Use black ink. HB pencil may be used for ge and ciara cry ont + Answerall the quéstions—., Kent N.SIGPY * lead each question caretuly hake slo y wi let AT yu epee starting cCouNnTy! + Write your answer to each question in the space provided. Iradltional space is required, you should use the lined pages at the end of this booklet. The question number(s) must be clearly shown. * Donot write in the bar codes. INFORMATION FOR CANDIDATES * The number of marks is given in brackets [ ] at the end of each question or part question, + The total number of marks for this paper is 60. + The quality of your written communication will be taken into account in the marking of your answer to the question labelled with an asterisk (*). + This document consists of 16 pages. Any blank pages are indicated. may. MS A LOENCE= DON'T WAFFLE COCA AIAT De (Su) 7997612 Turn over * 5027732301 *- Poactent Ba UCAYm- witemcho ud Crapetthvenest, 7 7 2 Airfix —- A UK firm making model kits in a competitive market 7 REMEMBER ~ Supply not ddwmande rf elachity (pace) Cnet Airfix is a firm supplying plastic model kits of planes, vehicles and ships to customers. Conswey make and paint them. Its main customer type has changed significanth Tthag | taste -d had to adapt to this in the most effective way. has led the firm to consider very carefully | _ faitow) the opportunity cost of its production choices. Fig. 1 below, for example, illustrates how the oh OF ts customers has changed. C Choeee of wuld to qvedunce> 5 “ - Ve e ‘Aged 16 and under | Aged over 16 . 1972 77% 23% \ ca | () | 2012 18% 82% e, by aR Fig. 1 - Per of sal N yy be fine OF ig. 1 — Percentage of sales © Sewre. This change in demand for m ‘substitutes available to those ‘aged 16 al has been caused by an increase in the number of Inder’ such as computer-based games and social ‘media However, the Airfix brand has also become more attractive to those ‘aged over 16'as a eel result of advertising and television programmes, sUch as James May's Toy Stories’, where the presenter builfa full scale model of a World War 2 Spite plane. This resulted in a significant 10 increase in the demand for Spitir kits. During the 40-year period, 1972-2012, there have also been significant improvements in the quality of the products, dué to technological innovations, which have Stengionod hapa appeatof Alah products lo consumers aged ever 16 Feelnslogyy ok w- une Ate we S, The Marketing Director of Airfix has always taken a keer terest in how economic theory wo can be applied to the firm's model kits. He estimated that in the recent UK recession, despite 15 average incomes falling by 10%, the demand foi priced kits fell by only 2%. He also ‘One reason for this is the growing number of other model kit manufacturers which Operate inthis market. Subshitnte goods Mane Prinly? + Shetts te night -GAsTic Ped tr Ay bx weisgeds Cost of producing its kits redute significantly as manufacturing has moved _C1@fhe, believes that the demand for these kits is| froyf the UK to China, and the production process has become more efficient due to advances 20 in technology. Despite this, Airfix can only produce a limited number of different kits and, therefore, it has had to make choices over which planes and other models it will produce in any year. TT OC! 3A ped? : Increased production in China is creating a number of negative externalities including pollution. The Chinese government has been under pressure, both domestically and internationally, to 25 reduce pollution. There are various policy measures available to the Chinese government to internalise the negative externalities and currently it is examining the likely impact of imposing a pollution tax. This could lead to Airfix increasing the price of its model kits. rT Leeds te he ttet So te AL AEP Tet pees $d- Airfix has remained a successful firm by responding to changes in demand and regularly ‘examining its production techniques. Itis using many forms of advertising, such as Facebook, { 30 YouTube and Twitter, as well as running its own website. The Airfix Club makes special offers to members and the firm has recently started an Airfix magazine. 4 Advethesing. \ WANT TO pRemer WHR deep] Gaede THEORIES THIS CASE SHr~U bh. Witt && APPLIED To... A "5027732302"7 | IVE GoT Loe of TIME \ 7 Answer alll questions. 4 (@) Define the term ‘opportunity cost. EASY - roca fom leanury ih State two factors of production. x 2 Be meee Ae tbo queuhom Mae Explain one advantage and one disadvantage of specialisation to a firm such as Airfix, (he THEORY Advantag Disadvantage UNOW MM CEP \ Dia AY D2: ANDI Dont WAFFLE JORN- RememRee iT A CO ENCE! Ws “T Lien oe Turn over _I mama Be {OA4 “7 4 (a) Using a diagram, show how the market price of model kits is determined. Th's re as easy os it wack tweed - dnt op od LABELS t+ weet Watt! ow as tomplicatet! pt ait wk. B) (b) The success ofthe programme prosofited by lanes May and the move of production to China have each hadan él ‘equilirium for Airfix Spitfire models ' ot swt Using one demand and supply diagram, explain the likely impact of these changes on the z market — dort sah + 1. Hos ane chen ry S shu fts at UEC ure? LACES! Rance — Pec: 2 AP fir danyrom, Nobel, fur | sere | A? by ee powatn. fangu! Arne dor ned fun ttt 4o? th thnie chet Leone | a san nn ananannananannanananaannannanaanannnanannanaanaaaannannananananannanganaaannenT~ s 7 (c) Other than a change in taste and fashion, state and explain how two determinants of demand might shift the demand curve Tor Alifixtodel kits. ———= it the demand guy obvrom fom, PLT - g z g g 2 i i z z g if @ R R Li seenan tumover | i IAAse tg Tee GULL TOL — mast math TT Fe Ft ne teRerOR aL Mee eau Se poseable. 5 (a) Given the Marketing Pirector’s figures as to how the (Soman) for Airfix's model kits was affected recession: — (i) calculate the income elasticity of demand for the lower priced model kits. Romounbey Ty befe “1 © alphabet. nat the value you have calculatedin part §(a)(j) indicates to Airfix. REcEcsION. 2] erage eaeEaeipn.. YOOCOD00000000000000000000000000000000000000000 0000 000000000000 000NNMANADANANNDE6 (a) Ts cond (ve aan UE mance b TF only v1 ‘Comment on the extent to which the Chinese government should aim to redijce the negative externalities of pollution. Wirg some of he Wiel Camment paruts Ushouth gek af lees 4 ovtot G pomb- Turn over (OEr- 8 7 (b)* Discuss whether indirect taxation is the most effective policy measure to correct the market. {18] failure arising from the negative externalities of production. JOOWVUDVOUUDOUOUU DUD ODD ODDO DDD DODD OOD OBO NDANDAAAAARANADAAANANAARAAAAAAANANAAAAN