Economics - annotated exemplars level 3 AS91402

Demonstrate understanding of government interventions where the market fails to deliver efficient or equitable outcomes (3.4)

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TKI Economics Assessment Resources

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This annotated exemplar is intended for teacher use only. The student work shown does not always represent a complete sample of what is required. Selected extracts are used, focused on the grade boundaries, in order to assist assessors to make judgements at the national standard.

Low Excellence

Commentary
Student work extract

Student 1 (PDF, 81KB)

For Excellence, the student needs to demonstrate comprehensive understanding of government interventions where the market fails to deliver efficient or equitable outcomes.

This involves:

  • using a detailed explanation to make a justified recommendation on which government intervention is better in terms of efficiency and equity
  • integrating an economic model(s) into the justified recommendation.

The student provided evidence that met the Merit requirements of the standard.

This excerpt shows the recommendation and justification of using incremental tax increases to address the negative externalities associated with the consumption of cigarettes, for Excellence.

The student has justified how incremental tax increases would affect price for consumers and producers, integrating the language of the SMC/SMB model. The recommended tax is clearly explained in terms of the efficiency and equity implications for society and government (1).

The student has explained in detail how a ban would affect consumers and producers, P and MU and therefore their decisions, and the allocative inefficiency and inequity of this intervention was explained (2).

The student has compared the two policies in terms of their efficiency and equity and made a justified recommendation as to which policy would better internalise the negative externalities (3).

For a more secure Excellence, the student should also integrate the language of the SMC/SMB model in the explanation of a ban’s inefficiency. For example, the student could state that if a ban was imposed and Qfm decreased to Q=0, then this would result in a DWL (efficiency loss), the triangle areas of CS and PS where MSC=MSB. 

High Merit

Commentary
Student work extract

Student 2 (PDF, 60KB)

For Merit, the student needs to demonstrate in-depth understanding of government interventions where the market fails to deliver efficient or equitable outcomes.

This involves providing a detailed explanation of:

  • why the market may not be delivering efficient or equitable outcomes
  • government interventions
  • the implications of the government interventions for equity and efficiency
  • using an economic model(s) to support a detailed explanation(s).

The student provided evidence that met the Merit requirements of the standard.

This excerpt shows a recommendation to implement both policies of a subsidy on healthy foods and an education program to address the negative externalities associated with the consumption of unhealthy foods, approaching Excellence (1).

The student has explained how the combined policies would better address the market failure than either one alone, in terms of efficiency and equity (2).

To reach Excellence, the student could provide more detail around the efficiency and equity of these policies by integrating the language of the models used earlier in the report. For example, the model illustrating a subsidy on healthier foods (e.g. milk and fruit; encouraging consumers to switch from soda and potato crisps) should be integrated. The change to MB and quantity demanded of unhealthy food (Qm towards Qs) on the SMC/SMB model from the education program should also be integrated.

Additionally, the student could explain how the combined interventions move the market closer to allocative efficiency and remove social DWL, therefore justifying the recommendation, which is needed for Excellence.

Low Merit

Commentary
Student work extract

Student 3 (PDF, 236KB)

For Merit, the student needs to demonstrate in-depth understanding of government interventions where the market fails to deliver efficient or equitable outcomes.

This involves providing a detailed explanation of:

  • why the market may not be delivering efficient or equitable outcomes
  • government interventions
  • the implications of the government interventions for equity and efficiency
  • using an economic model(s) to support a detailed explanation(s).

The student explained why the alcohol market may not be delivering efficient or equitable outcomes, in detail. Additionally, the policy of implementing a sales tax on alcohol was explained in detail, in terms of efficiency and equity, using the SMC/SMB model to support the explanation (1).

This snippet shows the second policy of imposing a minimum price on alcohol, explained in terms of the efficiency implications for society and government, using changes shown on the SMC/SMB model to support the explanation (2).

The student has also explained the policy in terms of the equity implications for society, incorporating the language of the SMC/SMB model (3).

For a more secure Merit, the student could add more detail to the explanations of efficiency and equity. For example, the student could state that the minimum price creates an efficiency gain in the market, because at the socially desirable equilibrium of Ps and Qs the private loss of CS and PS shown by the area ABD is smaller than the benefits of reduced spillover costs (area ABCD). Therefore, an efficiency gain of area BCD, the social DWL at the private market price and quantity.

High Achieved

Commentary
Student work extract

Student 4 (PDF, 225KB)

For Achieved, the student needs to demonstrate understanding of government interventions where the market fails to deliver efficient or equitable outcomes.

This involves providing an explanation of:

  • why the market may not be delivering efficient or equitable outcomes
  • government interventions
  • the implications of the government interventions for equity and efficiency
  • using an economic model(s) to support an explanation(s).

The student explained why the alcohol market may not be delivering efficient or equitable outcomes, in detail (1).

The policy of imposing a ban on alcohol was explained in detail, in terms of efficiency and equity, using the SMC/SMB model to support the explanation (2).

This excerpt shows the second policy of implementing a sales tax on alcohol in terms of efficiency, using changes shown on the SMC/SMB model to support the explanation (3).

The student has started to explain the policy of implementing a sales tax on alcohol in terms of the equity implications for society (4).

To reach Merit, the student needs to provide more explanation of the tax policy in terms of the equity implications for society, incorporating the language of the SMC/SMB model.

Additionally, the student could explain why “the tax reduces the spillover costs and is much more beneficial due to the amount of externalities being reduced than the costs of the loss of consumer and producer surplus” (5), using the language of the SMC/SMB model.

Low Achieved

Commentary
Student work extract

Student 5 (PDF, 82KB)

For Achieved, the student needs to demonstrate understanding of government interventions where the market fails to deliver efficient or equitable outcomes.

This involves providing an explanation of:

  • why the market may not be delivering efficient or equitable outcomes
  • government interventions
  • the implications of the government interventions for equity and efficiency
  • using an economic model(s) to support an explanation(s).

The student explained why the fisheries market may not be delivering efficient or equitable outcomes. The policy of implementing an indirect tax on the fisheries market was explained in terms of efficiency and equity, using the SMC/SMB model (1).

This snippet shows the second policy of implementing regulations in terms of efficiency implications for government and society, using changes shown on the SMC/SMB model to support the explanation (2).

The student has started to explain the policy of implementing regulations on producers in the fisheries market in terms of equity implications (3).

For a more secure Achieved, the student needs to provide more explanation of the regulation policy in terms of the equity implications for society and government, incorporating the language of the SMC/SMB model.

Additionally, the student could use the SMC/SMB model more to support the explanation of efficiency implications. For example, the student could explain that the social DWL at the private market price and quantity is area ABD, and the regulatory policy will internalise some of the spillover costs by area E, reducing the social DWL to area C, moving the market closer to where MSC=MSB, the socially desirable level of production.

High Not Achieved

Commentary
Student work extract

Student 6 (PDF, 153KB)

For Achieved, the student needs to demonstrate understanding of government interventions where the market fails to deliver efficient or equitable outcomes.

This involves providing an explanation of:

  • why the market may not be delivering efficient or equitable outcomes
  • government interventions
  • the implications of the government interventions for equity and efficiency
  • using an economic model(s) to support an explanation(s).

The student explained why the alcohol market may not be delivering efficient or equitable outcomes, and the policy of implementing a sales tax on alcohol was explained, in terms of efficiency and equity, using the SMC/SMB model to support the explanation (1).

This snippet shows the second policy of imposing a ban on alcohol being illustrated (2), and the student has started to explain the policy in terms of efficiency implications (3).

The student has briefly described the policy of imposing a ban on alcohol in terms of the equity implications for society (4).

To reach Achieved, the student needs to provide more explanation of the policy in terms of equity implications, incorporating the language of the SMC/SMB model.

Additionally, the student needs to use the SMC/SMB model to support an explanation of the efficiency implications. For example, the student could explain that the area of EDF (consumer and producer surplus) would become the efficiency loss (DWL) if Qpm is reduced to Q0, rather than operating at the socially efficient point where MSC=MSB, Qs and Ps.

 
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