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UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS GCE Advanced Subsidiary and Advanced Level

MARK SCHEME for the November 2005 question paper

9708 ECONOMICS
9708/04 Paper 4, maximum raw mark 70

This mark scheme is published as an aid to teachers and students, to indicate the requirements of the examination. It shows the basis on which Examiners were initially instructed to award marks. It does not indicate the details of the discussions that took place at an Examiners’ meeting before marking began. Any substantial changes to the mark scheme that arose from these discussions will be recorded in the published Report on the Examination. All Examiners are instructed that alternative correct answers and unexpected approaches in candidates’ scripts must be given marks that fairly reflect the relevant knowledge and skills demonstrated. Mark schemes must be read in conjunction with the question papers and the Report on the Examination. The minimum marks in these components needed for various grades were previously published with these mark schemes, but are now instead included in the Report on the Examination for this session. •

CIE will not enter into discussion or correspondence in connection with these mark schemes.

CIE is publishing the mark schemes for the November 2005 question papers for most IGCSE and GCE Advanced Level and Advanced Subsidiary Level syllabuses and some Ordinary Level syllabuses.

Page 1

Mark Scheme GCE AS/A LEVEL – NOVEMBER 2005

Syllabus 9708

Paper 4

Section A 1 (a) What evidence is there in the article that the UK mobile phone companies operate in an imperfect market structure? Only four companies, can fix price, have product differentiation in the handsets, no perfect knowledge. (b) Explain the statement ‘one result will be that cross-subsidisation will disappear and the price of a new handset will go up considerably.’ Explanation of meaning of subsidising one product or service by the profits on another which itself may be overpriced. The removal of the subsidy will result in the price of the subsidised product increasing if profit levels are to be maintained. Often the subsidised product makes a loss but is produced because it is supplementary to other profit making products or services. (c) The article says the decision of the High Court will cost the companies £1.5 billion to £2 billion. Explain how the phone companies might react in order to retain their profit levels. Could try to reduce labour costs, implement some redundancies, could stop research and development, could generally try to reduce costs or could try to increase revenue by promoting products through advertising. (d) Explain with the aid of a diagram how the existence of termination charges would affect consumer surplus. Termination charges are placed above the market level. Diagram should show a price above market clearing which will result in reduction in consumer surplus. 1 mark for D/S diagram correctly labelled; 1 for showing the reduced area of consumer surplus; 1 for explanation. (e) Does the information lead you to agree with the spokesperson when he said that consumers should not necessarily regard the decision as a good thing? In consumers’ interest: they would save £700 but over next three years, price reduction would be on all calls. Against consumers’ interest: cost of telephone handset would rise; there is a fear of increased calls for text messages; possibility of phone company finding some other way to keep profits high. [6] [4] [4] [3]

[4]

© University of Cambridge International Examinations 2005

Page 2

Mark Scheme GCE AS/A LEVEL – NOVEMBER 2005

Syllabus 9708

Paper 4

General comments for Section B The essay questions carry a maximum mark of 25. Try not to 'bunch' marks, but use the whole mark range. If there is any doubt in your mind, give the benefit of doubt to the candidate. The difference in grades should be assessed on the ability of the candidate to demonstrate...
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