Exemplar for internal assessment resource Economics for Achievement Standard 91402B

Exemplar for Internal Achievement Standard

Economics Level 3

This exemplar supports assessment against:

Achievement Standard AS91402B

Demonstrate understanding of government interventions to correct market failures (3.4B)

An annotated exemplar is an extract of student evidence, with a commentary, to explain key aspects of the standard. These will assist teachers to make assessment judgements at the grade boundaries.

New Zealand Qualification Authority

To support internal assessment from 2014

© NZQA 2014

Exemplar for internal assessment resource Economics for Achievement Standard 91402B

Grade Boundary: Low Excellence

1. The student demonstrates a comprehensive understanding of government interventions to correct market failures, which is required for Excellence.

The student’s second market failure was done on alcohol (consumption externalities) to an Excellence level.

The student has explained the market failure (inequitable income distribution) in detail in the report, and has used information to support this explanation. Additionally, the Lorenz curve and the equity-efficiency trade-off model were used to support detailed explanations, in terms of their efficiency or equity, of the market failure and the two government interventions to correct it (namely, working for families’ tax credits and a progressive tax system).

The justified recommendation (proposal) used information from the report to support the explanation of the more efficient or equitable government intervention to use in order to correct the market failure. Refer to parts A.

Additionally, an equity-efficiency possibility curve (model) has been integrated into the explanation of how working for families would result in more efficiency and equity than the progressive tax system. Refer to part B.

A more secure Excellence would be attained if the relevant economic statistics from earlier in the report were applied to a Lorenz curve and integrated to show how working for families would result in more efficiency and equity than the progressive tax system. For example:

A Gini coefficient measures the extent to which the distribution of income within an economy deviates from a perfectly equal distribution. A Gini coefficient of zero represents perfect equality while a coefficient of 1 implies perfect inequality. In the late 2000s the Gini coefficient of NZ was 0.455 before tax and transfers and was 0.330 after tax and transfers (source: The world Factbook). This shows that both progressive tax and working for families (WFF) improves distribution of income. NZ spends $2.8 billion on WFF tax credits and the OECD suggests using a progressive tax system. While the Gini coefficient suggests that income distribution is getting more even after government interventions, NZ remains one of the countries with the most inequality of income distribution in the developed world (source: The NZ Herald). Both the policies are equitable, but the WFF package is comparatively more efficient and equitable than the progressive tax system at reducing inequality of income distribution.

© NZQA 2014

C

Efficiency

Equity

Graph Five: Showing Equity and Efficiency

A

A

Student 1: Low Excellence

A

B

Exemplar for internal assessment resource Economics for Achievement Standard 91402B

Grade Boundary: High Merit

2. The student demonstrates an in-depth understanding of government interventions to correct market failures, which is required for Merit.

The student’s second market failure was done on inequitable income distribution to a Merit Level.

The student has explained the alcohol market failure in detail in the report, and has used information to support this explanation. Additionally, social and private marginal cost/marginal benefit models were used to support detailed explanations of the market failure, in terms of their efficiency or equity, and the two government interventions to correct it (namely, increase the alcohol excise tax or increase the legal drinking age).

The justified recommendation (proposal) used information from the report to support the explanation of the more efficient or equitable government intervention to use in order to correct the market failure. Refer to part C.

To reach Excellence the student would need to integrate a supporting marginal cost/marginal social benefit model showing the change in consumption of alcohol with an increase in the legal drinking age. Also there would need to be supporting MC + tax/ MSB model integrated into the recommendation for the increase in alcohol excise tax. Refer to part D.

© NZQA 2014

C

D

Student 2: High Merit

Exemplar for internal assessment resource Economics for Achievement Standard 91402B

Grade Boundary: Low Merit

3. The student demonstrates an in-depth understanding of government interventions to correct market failures, which is required for Merit. The student’s second market failure was done on Obesity (consumption externalities) to a Merit Level. The student has explained the market failure (fuel emissions from ships) in detail in the report, and has used information and models to support this explanation. Refer to parts E.

The government intervention of a tax has been explained in detail, in terms of its efficiency or equity, and a model used to support this explanation. Refer to part F.

The government intervention of a ban was explained, and information was used to support the explanation in terms of its equity. The MB/MC/MSC model was used to show the change a ban on high sulphur fuel would make on MC and the production externalities. Refer to parts G.

The language of the Supply and Demand (S/D) model and Qs and Ps of the MB/MC/MSC model was used to support the explanation of the increased shipping and transporting costs of production. Refer to parts G. A more secure Merit would be attained if the government intervention of a ban was explained in more detail, how it would work in relation to converting to low sulphur fuel (what are the incentives, timeframe, etc.), and how compliance with the regulations would be enforced.

Additionally, the language of the MB/MC/MSC model would also be used in the explanation and linked to the S/D model, e.g. MC curve shifts to MSC, and Qm decreases to Qs, and Q2 on the S/D model links to Qs, e.g. shifting output from Q1 (and Qm – unregulated market equilibrium) to Q2 moves it closer to Qs – social equilibrium.

© NZQA 2014

Student 3: Low Merit

E

E

E

E

F

Shipping and other firms affected b y the increased costs of converting to low sulphur fuel. Supply moves from S to S1 and quantity demanded reduces from Q1 to Q2 and Qs above, because price increases from P1 to P2 and Ps on model above.

G

G

G

Exemplar for internal assessment resource Economics for Achievement Standard 91402B

Grade Boundary: High Achieved

4. The student demonstrates understanding of government interventions to correct market failures, which is required for Achieved.

The student’s second market failure was done on Inequitable income distribution to a High Achieved Level.

The student has explained the market failure (smoking) in detail in the report, and has used information and models to support this explanation. Refer to parts H.

The government intervention of increasing the excise tax on tobacco was explained and illustrated on a marginal cost/marginal benefit model, but the MC +tax curve was not added. Refer to part I.

The government intervention of fully funding quit-smoking treatments was explained, although not in detail, and was illustrated as the 2-graph model of a reduction in the price of a substitute and therefore a decrease in demand for tobacco products. Refer to part J.

However, detailed explanations are required for Merit. Both government interventions should include more discussion and specific information about the efficiency or equity of these options in order to achieve at Merit level.

© NZQA 2014

H

H

Student 4: High Achieved

Graph Five: 2-graphs; Price of Substitute decreases, and shift left of D curve for smoking.

I

J

Exemplar for internal assessment resource Economics for Achievement Standard 91402B

Grade Boundary: Low Achieved

5. The student demonstrates understanding of government interventions to correct market failures, which is required for Achieved.

The student’s second market failure was done on smoking (consumption externalities) to an Achieved level.

The student has briefly explained the market failure (positive externalities of R&D) in the report, and has used models to support this explanation. Refer to parts K.

(Graph 1: PMC/PMB model; Graph 2: SMC curve, changes in Q and P, spillover benefits and social equilibrium shown; Graph 3: Deadweight loss illustrated; Graph 4: Government subsidy/funds, area shaded and changes in Q and P shown).

The government intervention of tax incentives has been briefly explained and a model (Graph 4) illustrating subsidy/funding, but how this relates to tax incentives is not clearly explained. Refer to part L.

The government intervention of funding for small businesses has not been adequately explained – Graph 4 is mentioned as the illustration of this intervention. Refer to part M.

The proposal to government section contained some evidence of explaining the government interventions in terms of efficiency or equity, and Graphs 2, 3, and 4 were referred to in the explanations. Refer to part N.

A more secure Achieved would be attained if more information was provided on the externalities and the ‘third party-businesses’ statement was explained, and more explanation of the government interventions was provided.

© NZQA 2014

Proposal to Government

K

K

L

M

Student 5: Low Achieved

N

Exemplar for internal assessment resource Economics for Achievement Standard 91402B

Grade Boundary: High Not Achieved

6. The student has not adequately demonstrated an understanding of government interventions to correct market failures, which is required for Achieved.

The student’s second market failure done on inequitable income distribution was also a Not Achieved.

The student has explained the market failure (smoking) in the report, and has used information and models to support this explanation. The student refers to "over-produced" instead of over-consumed, but uses correct economic language later in the report. Refer to parts O.

The government intervention of the excise tax on cigarettes has been explained in terms of efficiency or equity and a model used to illustrate the intervention, which is required for Achieved. Refer to part P.

The detail in the report is insufficient, as there is no economic model used to illustrate the government intervention of a ban, which is required for Achieved.

To achieve the standard, the student would need to adequately explain the government intervention of a total ban in terms of efficiency or equity and use an economic model to illustrate this intervention. Refer to part Q.

Additionally, more explanation of this intervention is needed and attention paid to the correct use of economic language.

© NZQA 2014

O

O

O

Student 6: High Not Achieved

POLICY OPTION: BAN CIGARETTES (TOBACCO) ALTOGETHER

P

Q