Mark Scheme (Results)

January 2020

Pearson Edexcel International GCSE

In Economics (4EC1)

Paper 01 Microeconomics and Business

Economics
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January 2020
Publications Code 4EC1_01_MS_2001
All the material in this publication is copyright
© Pearson Education Ltd 2020
General Marking Guidance

• All candidates must receive the same

treatment. Examiners must mark the first candidate in
exactly the same way as they mark the last.
• Mark schemes should be applied positively. Candidates
must be rewarded for what they have shown they can
do rather than penalised for omissions.
• Examiners should mark according to the mark scheme
not according to their perception of where the grade
boundaries may lie.
• There is no ceiling on achievement. All marks on the
mark scheme should be used appropriately.
• All the marks on the mark scheme are designed to be
awarded. Examiners should always award full marks if
deserved, i.e. if the answer matches the mark
scheme. Examiners should also be prepared to award
zero marks if the candidate’s response is not worthy of
credit according to the mark scheme.
• Where some judgement is required, mark schemes will
provide the principles by which marks will be awarded
and exemplification may be limited.
• When examiners are in doubt regarding the application
of the mark scheme to a candidate’s response, the team
leader must be consulted.
• Crossed out work should be marked UNLESS the
candidate has replaced it with an alternative response.
Question Answer Mark
number
1(a) AO1 1 mark

D 0 (1)

Question Answer Mark

number
1(b) AO2 1 mark

D $750 000 (1)

Question Answer Mark

number
1(c) AO1 2 marks

Award 1 mark for reference to amount producers are willing and able to
sell and 1 mark for reference to price

The quantity of goods or services producers are willing and able to sell (1)
at a given price/at a given time (1) (2)

Question Answer Mark

number
1(d) AO1 1 mark

Award 1 mark for correct example

Building construction/Car production/Shipbuilding

Accept any other appropriate response (1)

Question Answer Mark

number
1(e) AO1 1 mark

Award 1 mark for a correct definition

The people used in the production of goods and services

Accept any other appropriate response (1)

Question Answer Mark
number
1(f) AO2 2 marks

Award 1 mark for showing correct calculation

10 ÷ 25 (1)

Award 1 mark for correct income elasticity of demand (YED).

= 0.4 (1)

Award 2 marks if YED is correctly calculated as 0.4, even if no

calculations are shown

Do not award marks for the formula (2)

Question Answer Mark

number
1(g) AO2 3 marks

Award 1 mark for rightward shift of demand, labelled

Award 1 mark for higher equilibrium price, labelled
Award 1 mark for higher equilibrium quantity, labelled

(3)
Question Answer Mark
number
1(h) AO2 3 marks

Award 1 mark for identifying an opportunity cost

Award 1 mark for developing the opportunity cost
Award 1 mark for the response being in context

• The opportunity cost is a new school the government cannot build (1)
it cannot build the school and the hospital (1) because it does not
have the resources/money to fund both (1)

Accept any other appropriate response (3)

Question Indicative content
number
1(i) AO2 (3 marks)/AO3 (3 marks)

AO2 and AO3

• It is an economic assumption that firms will want to profit maximise

• By matching fundraising of up to $1 000 per employee, McAfee would reduce
the profits it can make
• It is possible McAfee will attract positive publicity due to its fundraising match
programme
• This means that consumers may be more likely to buy computer software
security from McAfee rather than its competitors
• Staff may also be motivated by the programme so staff turnover may
reduce/productivity may increase
• Therefore McAfee could still make larger profits than if it did not run the
programme
• McAfee already has a revenue of over $2.5bn so may believe it can afford to be
charitable
Level Mark Descriptor

0 No rewardable material.

Level 1 1–2 • Demonstrates basic knowledge and understanding by

developing relevant points. Limited application of economic
terms, concepts, theories and calculations (AO2).
• Information presented will lack selectivity and organisation.
Interpretation of economic information will be limited, with a
lack of analysis of issues (AO3).
Level 2 3–4 • Demonstrates partial knowledge and understanding by
developing relevant points. Partial application of economic
terms, concepts, theories and calculations (AO2).
• Information presented will demonstrate some selectivity and
organisation. Interpretation of economic information will be
good, with some analysis of issues (AO3).
Level 3 5–6 • Demonstrates clear knowledge and understanding by
developing relevant points. Appropriate application of economic
terms, concepts, theories and calculations (AO2).
• Information presented will demonstrate excellent selectivity and
organisation. Interpretation of economic information will be excellent,
with a thorough analysis of issues (AO3).
Question Answer Mark
number
2(a) AO2 1 mark

(1)

Question Answer Mark

number
2(b) AO1 1 mark

B A factor of production (1)

Question Answer Mark

number
2(c) AO1 1 mark

Award 1 mark for correct formula in words/as an equation

Total revenue minus total costs (1)

Question Answer Mark

number
2(d) AO2 2 marks

Award 1 mark for showing correct calculation

36 ÷ 30 (1)

Award 1 mark for correct price elasticity of supply (PES)

= 1.2 (1)

Award 2 marks if PES is correctly calculated as 1.2, even if no

calculations are shown

Do not award marks for the formula

(2)
Question Answer Mark
number
2(e) AO1 1 mark

Award 1 mark for reference to money used by a business

Funding for a firm

(1)
Accept any other appropriate response

Question Answer Mark

number
2(f) AO1 2 marks

Award 1 mark for the type of business competition and 1 mark for
development of the response

The Irish Artisan Charcoal Company (IACC) is a monopoly (1) as there are
no other firms producing charcoal in Ireland (1)

Accept any other appropriate response

(2)
Question Answer Mark
number
2(g) AO2 3 marks

Award 1 mark for identifying a relevant reason

Award 1 mark for developing the reason
Award 1 mark for the response being in the context

• One reason is that public goods are non-excludable (1) meaning that
everyone walking/driving along the street would benefit from the
lighting (1) whether or not they pay anything towards it through taxes
(1)

• One reason is that there is non-rivalry for public goods (1) meaning
that one person walking/driving along the street is not preventing
another person from benefitting from street lighting (1) whether or
not they pay anything towards it through taxes (1)

Accept any other appropriate response (3)

Question Indicative content
number
2(h) AO2 (3 marks)/AO3 (3 marks)/AO4 (3 marks)

AO2 and AO3

• Small firms can offer a personal service so they can meet the needs of the
customer more specifically than large firms
• Wonderful Wax produces handmade candles and so the personal service
offered maybe more likely to attract customers, bringing in more sales
• The service offered by Elissa’s small firm could cater for a niche part of the
market and so some customers may pay higher prices for the candles
• By operating a small firm, Elissa is able to maintain control of her business and
help the environment by producing candles made with soy wax and essential
oils
• Increasing production of the candles may mean they can no longer be
handmade and Wonderful Wax may lose its identity

AO4

• However, small firms may struggle to meet demand and so may lose customers
• Wonderful Wax could potentially sell many more environmentally-friendly
candles through use of the production facilities on offer, thus further meeting
Elissa’s original objective to help the environment
• Unit costs of a small firm are likely to be higher as it cannot exploit economies
of scale and therefore the profits might be lower
• A large firm is more likely to be able to compete should other firms set up
selling environmentally-friendly candles
Level Mark Descriptor

0 No rewardable material.

Level 1 1–3 • Demonstrates basic knowledge and understanding by

developing relevant points. Limited application of economic
terms, concepts, theories and calculations (AO2).
• Information presented will lack selectivity and organisation.
Interpretation of economic information will be limited, with a
lack of analysis of issues (AO3).
• Only offers one viewpoint, meaning there is an unbalanced and
incomplete evaluation, showing limited understanding and
awareness (AO4).
Level 2 4–6 • Demonstrates partial knowledge and understanding by
developing relevant points. Partial application of economic
terms, concepts, theories and calculations (AO2).
• Information presented will demonstrate some selectivity and
organisation. Interpretation of economic information will be
good, with some analysis of issues (AO3).
• Offers more than one viewpoint but the argument may lack
balance, leading to an evaluation that may not demonstrate full
understanding and awareness (AO4).
Level 3 7–9 • Demonstrates clear knowledge and understanding by
developing relevant points. Appropriate application of economic
terms, concepts, theories and calculations (AO2).
• Information presented will demonstrate excellent selectivity and
organisation. Interpretation of economic information will be
excellent, with a thorough analysis of issues (AO3).
• Offers more than one viewpoint. The argument is well balanced
and coherent, leading to an evaluation that demonstrates full
understanding and awareness (AO4).
Question Answer Mark
number
3(a) AO1 1 mark

B Skilled labour (1)

Question Answer Mark

number
3(b) AO1 1 mark

C Large firms dominate the market (1)

Question Answer Mark

number
3(c) AO2 3 marks

Award 1 mark for correctly labelling the axes

Award 1 mark for drawing PPC1 closer to the axes than PPC2
Award 1 mark for drawing PPC2 showing positive economic growth
from PPC1

Capital
goods
PPC2

PPC1

Consumer goods

(3)
Question Indicative content
number
3(d) AO2 (3 marks)/AO3 (3 marks)

AO2 and AO3

• The demand for labour is likely to be affected by the wage rate, derived demand,
productivity and the availability of substitutes
• Machines provide a substitute for labour in many jobs and this factor is increasing
• Google has developed an automated assistant meaning jobs currently performed by
labour in call centres may also be replaced by machines
• If machines can do the job more efficiently and/or cheaper then firms are likely to
want to switch to machines, reducing the demand for labour
• The more technology advances, the more substitutes there will be for labour and so
the demand for labour is likely to continue to decrease
Level Mark Descriptor

0 No rewardable material.

Level 1 1–2 • Demonstrates basic knowledge and understanding by

developing relevant points. Limited application of economic
terms, concepts, theories and calculations (AO2).
• Information presented will lack selectivity and organisation.
Interpretation of economic information will be limited, with a
lack of analysis of issues (AO3).
Level 2 3–4 • Demonstrates partial knowledge and understanding by
developing relevant points. Partial application of economic
terms, concepts, theories and calculations (AO2).
• Information presented will demonstrate some selectivity and
organisation. Interpretation of economic information will be
good, with some analysis of issues (AO3).
Level 3 5–6 • Demonstrates clear knowledge and understanding by
developing relevant points. Appropriate application of economic
terms, concepts, theories and calculations (AO2).
• Information presented will demonstrate excellent selectivity and
organisation. Interpretation of economic information will be
excellent, with a thorough analysis of issues (AO3).
Question Indicative content
number
3(e) AO2 (3 marks)/AO3 (3 marks)/AO4 (3 marks)

AO2 and AO3

• Externalities are the spillover effects of consumption or production

• Negative externalities occur when a cost is imposed on a third party by those
organising or paying to attend fireworks displays
• Some former military personnel experience negative externalities because they
suffer from being reminded about experiences as a result of the loud noises
even though they are not choosing to be consumers of the fireworks
• This means the fireworks are providing a negative externality/external cost to
these former military personnel as well as to animals that are frightened by the
‘bang’, ‘pop’ and ‘whizz’ sounds
• As firework displays may take place for many reasons, private and public events
and to celebrate religious occasions, the negative externality may be
experienced at many times of year

AO4

• However, people who see and hear fireworks without paying to attend a display
or intentionally being a consumer, may be experiencing external benefits
• Positive externalities occur when a benefit is enjoyed by a third party
• People away from the fireworks display may enjoy watching the colourful
sparks in the sky but not the ‘bang’, ‘pop’ and ‘whizz’ noises
• It is possible that a third party may experience both positive and negative
externalities at different times
• It may depend how long the fireworks last, the time of day they are displayed or
how close they are to the third party
Level Mark Descriptor

0 No rewardable material.

Level 1 1–3 • Demonstrates basic knowledge and understanding by

developing relevant points. Limited application of economic
terms, concepts, theories and calculations (AO2).
• Information presented will lack selectivity and organisation.
Interpretation of economic information will be limited, with a
lack of analysis of issues (AO3).
• Only offers one viewpoint, meaning there is an unbalanced and
incomplete evaluation, showing limited understanding and
awareness (AO4).
Level 2 4–6 • Demonstrates partial knowledge and understanding by
developing relevant points. Partial application of economic
terms, concepts, theories and calculations (AO2).
• Information presented will demonstrate some selectivity and
organisation. Interpretation of economic information will be
good, with some analysis of issues (AO3).
• Offers more than one viewpoint but the argument may lack
balance, leading to an evaluation that may not demonstrate full
understanding and awareness (AO4).
Level 3 7–9 • Demonstrates clear knowledge and understanding by
developing relevant points. Appropriate application of economic
terms, concepts, theories and calculations (AO2).
• Information presented will demonstrate excellent selectivity and
organisation. Interpretation of economic information will be
excellent, with a thorough analysis of issues (AO3).
• Offers more than one viewpoint. The argument is well balanced
and coherent, leading to an evaluation that demonstrates full
understanding and awareness (AO4).
Question Answer Mark
number
4(a) AO2 2 marks

Award 1 mark for showing correct calculation

€3 600 ÷ €40 (1)

Award 1 mark for correct quantity

= 90 cakes/units (1)

Award 2 marks if quantity is accurately calculated as 90 cakes/units, even if

no calculations are shown

Award 1 mark if quantity is calculated as 90 with or without workings

(2)
Do not award marks for the formula
Question Indicative content
number
4(b) AO2 (3 marks)/AO3 (3 marks)

AO2 and AO3

• A takeover involves one firm buying control of another firm and is a form of external
growth
• Governments may want to control takeovers because if a firm such as Vodafone
pays $21.8bn for Liberty Global it is likely to form a dominant company
• If Vodafone grows larger due to the takeover it may have too much power in the
cable TV market and therefore competition may be restricted
• Restricted competition is bad for the market as it could lead to higher prices for
consumers of cable TV and to reduced service
• The building of a nationwide fibre-optic network may be delayed as a result of the
takeover, meaning delays to improving the service offered
• If Liberty Global remains as a separate company there is more competition available
to challenge Vodafone and offer a better/more varied service to consumers
Level Mark Descriptor

0 No rewardable material.

Level 1 1–2 • Demonstrates basic knowledge and understanding by

developing relevant points. Limited application of economic
terms, concepts, theories and calculations (AO2).
• Information presented will lack selectivity and organisation.
Interpretation of economic information will be limited, with a
lack of analysis of issues (AO3).
Level 2 3–4 • Demonstrates partial knowledge and understanding by
developing relevant points. Partial application of economic
terms, concepts, theories and calculations (AO2).
• Information presented will demonstrate some selectivity and
organisation. Interpretation of economic information will be
good, with some analysis of issues (AO3).
Level 3 5–6 • Demonstrates clear knowledge and understanding by
developing relevant points. Appropriate application of economic
terms, concepts, theories and calculations (AO2).
• Information presented will demonstrate excellent selectivity and
organisation. Interpretation of economic information will be
excellent, with a thorough analysis of issues (AO3).
Question Indicative content
number
4(c) AO2 (4 marks)/AO3 (4 marks)/AO4 (4 marks)

AO2 and AO3

• Price elasticity of demand (PED) measures the responsiveness of quantity

demanded to a change in price
• After VAT in South Africa increased by 1% in 2018, many goods and services
were more expensive, meaning that demand for goods with elastic demand
(PED >1) would have fallen by a larger percentage than the increase in price
• As consumer spending and business confidence fell, it is likely many goods on
which VAT is imposed, will have an elastic demand. Therefore, the South African
Government would receive less revenue from these goods following the
increase in VAT
• By calculating PED, the government would be able to see the likely effect on
demand following further VAT increases and therefore whether its revenue
would increase or decrease following the rise

AO4

• However, PED is only an estimate and actual demand may not be the same as
the calculations suggest
• There may have been other factors affecting consumer spending and business
confidence and so a further rise in VAT may not have the same effect as in 2018
• Goods and services such as fruit and vegetables may have an inelastic PED (<1)
but as these are considered to be necessities, the South African Government
has made them exempt from VAT anyway
• PED would need to be calculated for many different products to allow an
accurate prediction of the effect on government revenue
• It may depend how much the government proposes increasing VAT by, as
another 1% rise will lead to different revenue outcomes for them compared to a
larger increase
• PED may help the government decide whether to increase VAT again, but it may
be better if used alongside other analysis of potential outcomes
Level Mark Descriptor

0 No rewardable material.

Level 1 1–4 • Demonstrates isolated elements of relevant knowledge and

understanding; may lack development of relevant points.
Limited application of economic terms, concepts, theories and
calculations (AO2).
• Information presented will lack selectivity and organisation.
Chain of reasoning may be attempted. Interpretation of
economic information will be limited, with a lack of analysis of
issues (AO3).
• Only offers one viewpoint, meaning there is an unbalanced and
incomplete evaluation, showing limited understanding and
awareness. A judgement or conclusion is unlikely to be
attempted (AO4).
Level 2 5–8 • Demonstrates partial selectivity and some accurate knowledge
and understanding by developing some relevant points. Partial
application of economic terms, concepts, theories and
calculations (AO2).
• Information presented will demonstrate some selectivity and
organisation. Chain of reasoning will be present but may be
limited. Interpretation of economic information will be good,
with some analysis of issues (AO3).
• Offers more than one viewpoint but the argument may lack
balance, leading to an evaluation that may not demonstrate full
understanding and awareness. A judgement or conclusion is
attempted, but may not be fully supported (AO4).
Level 3 9–12 • Demonstrates specific and accurate knowledge and
understanding by developing relevant points. Appropriate
application of economic terms, concepts, theories and
calculations (AO2).
• Information presented will demonstrate excellent selectivity and
organisation. Chain of reasoning will be coherent and logical.
Interpretation of economic information will be excellent with a
thorough analysis of issues (AO3).
• Offers more than one viewpoint. The argument is well balanced
and coherent, leading to an evaluation that demonstrates full
understanding and awareness. A supported judgement or
conclusion is present (AO4).