economics BY huf002 – 3 – N05/3/ECONO/HP1 Paper Specific Markscheme In addition to the assessment criteria use the paper-specific markscheme below. Award up to the maximum marks as indicated. Examiners should be aware that candidates may take a different approach, which if appropriate should be fully rewarded. 1 . (a) Explain the differences between monopolistic competition and oligopoly as market structures. [10 marks] ??? large number of firms (m. ) versus a few dominant firms (oligopoly) ??? differentiated product (m. c) versus differentiated or standardized (oligopoly) ??? low barriers to entry m. c) versus high barriers to entry (oligopoly) ??? interdependence of firms in oligopoly ??? comparison of the demand curves Examiners should be aware that candidates may take a different approach, which if appropriate should be rewarded. (b) Discuss the differences between a collusive and a non-collusive oligopoly. 1 5 marks] Collusive Oligopoly ??? formal (cartel) or informal agreement (tacit collusion) among producers to limit competition between themselves ??? they act as if they were a monopoly ??? discussion of the consequences of the firms acting as a monopoly ??? impact on consumers ?? members may compete against each other using non-price competition ??? regulations to prevent collusion Non-Collusive Oligopoly ??? no agreement exists between producers ??? existence of non-price competition with the possibility of price wars ??? the kinked demand curve as one model to describe oligopoly behaviour ??? game theory ??? contestability of markets prevents firms from exploiting monopoly power It would be possible to earn full marks on this question without using diagrams, however use of appropriate diagrams should be rewarded.
Discussion (in part (b)) of only a collusive or only a non-collusive oligopoly should be warded up to a maximum of [7 marks]. 1 . (a) Explain the necessary conditions for price discrimination to take place. [10 marks] Candidates may include any of the following: ??? definition of price discrimination ??? the ability to set market price ??? the ability to separate the market segments ??? separation and splitting of markets based on time, place and income ??? PED must differ in each market ??? examples of price discrimination ??? degrees of price discrimination (b) Discuss the advantages and disadvantages of price discrimination for consumers and producers. 15 marks] Candidates may include any of the following: ?? effects on consumers ??? effects on producers ??? appropriation of consumer surplus (a diagram may be used) ??? effect on competition ??? effect on profits ??? redistributive effects ??? predatory pricing advantages ??? diagram showing separation of markets ??? advantages and disadvantages may be illustrated with examples Examiners should be aware that candidates may take a different approach, which if appropriate should be rewarded. Effective evaluation may be to: ??? consider short run versus long run consequences ??? examine the impact on different stakeholders ??? discuss advantages and disadvantages ??? prioritize the arguments.