2023 H2 Economics Paper 1 Case Study 1: Suggested Answers
The case study examines the costs and benefits of education, drawing on it to test private and external benefits, opportunity cost, asymmetric information, the social returns to spending across education levels, and whether equity or market failure is the stronger case for government intervention.
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A two mark data comparison from Figure 1, contrasting two potential benefits for a US graduate with a Bachelor's degree against a school leaver with a High School Diploma.
A graduate with a Bachelor's degree is likely to earn, on average, about 67 per cent more than a school leaver with a High School Diploma, with average weekly earnings of US$1,305 against US$781.
A graduate with a Bachelor's degree is also less likely to be unemployed, at a 5.5 per cent unemployment rate, compared with 9.0 per cent for a school leaver with a High School Diploma.
Award one mark for the earnings comparison and one for the unemployment comparison, each using the figures.
Tests: National income and GDP
A three mark question asking, with a supply and demand diagram, for one reason for the higher average earnings of graduates with a Professional degree compared with those holding a Bachelor's degree.
The extracts point to a rise in the number of students undertaking higher education, which raises the supply of both Bachelor's and Professional degree holders. However, additional mandatory training is needed for careers requiring a Professional degree, such as doctors, so there are higher barriers to completing a Professional degree.
The supply of workers with a Bachelor's degree therefore rises by more than the supply of workers with a Professional degree. With a larger supply of Bachelor's degree holders relative to Professional degree holders, and demand for labour given, the wage for Bachelor's degree holders settles below the wage for Professional degree holders.
On a labour market diagram with wages on the vertical axis and quantity of labour on the horizontal axis, the supply curve for Professional degree holders sits to the left of the supply curve for Bachelor's degree holders, so the equilibrium wage for Professional degree holders is the higher of the two.
Identify a supply side difference, link it to a leftward relative supply position for Professional degree holders, and a higher equilibrium wage.
A three mark question asking for one example of an opportunity cost that might make free schooling unaffordable for some families.
Opportunity cost is the next best alternative forgone. When a student pursues education, he or she forgoes the earnings that could have been earned by working instead of schooling.
For a low income family, this forgone income is significant. The potential loss of immediate income that a child could have contributed to the household can make even free schooling unaffordable, because the family cannot manage without that income.
Define opportunity cost and apply it to forgone earnings that make free schooling unaffordable for a poorer household.
Tests: Opportunity cost, Scarcity and the central economic problem
A four mark question on how asymmetric information may lead to wrong choices in the market for education.
Asymmetric information occurs when one party in a transaction holds more or better information than the other. In education the two main parties are students and their families on one side and education providers on the other.
Wrong choices by students. Students may decide on a university using incomplete or selective information. Institutions often highlight headline figures such as high employment rates or average graduate salaries, while saying less about median incomes, the spread of job types or long term prospects. Students may also overlook hidden costs, both explicit costs such as accommodation and implicit costs such as income forgone by studying rather than working. This can lead them to overestimate the benefits and underestimate the true costs, and so enrol in a course that does not match their finances or career goals.
Wrong choices by providers. Universities rely on standardised tests and interviews to judge applicants, but these can be prepared for and may not reflect a student's true ability or suitability. Institutions may therefore admit students who test well but later struggle with the wider demands of university, leading to poor outcomes and dissatisfaction.
Define asymmetric information and develop a wrong choice on each side of the market, students and providers.
An eight mark discussion, with reference to Table 1, of whether a government wishing to increase education spending should concentrate that increase on primary education.
- Read the relevant social return figures from Table 1 and set up the efficiency case for the level with the highest social return.
- Develop the case for concentrating the increase on that level, linking the return to the external benefits it captures.
- Build the counter case from the role of the other education levels, introducing the equity dimension the table omits.
- Weigh the efficiency case against the equity and wider development considerations.
- Reach an evaluative judgment on whether the increase should be concentrated on one level or spread.
This part is gated. The full model answer with the worked use of the table 1 returns and the evaluative judgment, with the diagrams and the full evaluation, is in the ETG TYS Answers book from SAP and is worked live in the TYS Crashcourse. ETG students also get the AI TYS coach that guides them through this exact question. Message the team to find out more.
A ten mark discussion of whether equity issues are more important than market failures as a reason for the government to intervene in the market for education.
- Frame the two competing grounds for intervention, market failure and equity, and define education as a merit good.
- Develop the market failure ground through positive externalities and imperfect information, and the policy mechanism that corrects it.
- Develop the equity ground and how it bears on access for lower income households.
- Show how one type of intervention can address both grounds at once, then weigh which ground is the stronger driver.
- Reach an evaluative conclusion on the relative importance of equity against market failure.
This part is gated. The full model answer with the worked subsidy diagram and the evaluation, with the diagrams and the full evaluation, is in the ETG TYS Answers book from SAP and is worked live in the TYS Crashcourse. ETG students also get the AI TYS coach that guides them through this exact question. Message the team to find out more.
Tests: Merit and demerit goods, Government intervention in markets
Questions students ask
Where can I get the full worked answers to the 2023 H2 Economics paper 1 case study 1?
The full model answers, with the diagrams and the higher mark evaluation, are in the ETG TYS Answers book published by SAP and sold at Popular, and are worked live in the TYS Crashcourse. Every ETG student also gets the AI TYS coach on our learning management system, which guides you through how to tackle every essay and every case study question from the last ten years.
Are these the official 2023 A Level Economics answers?
No. SEAB sets and marks the A Level paper. These are suggested answers by Mr Eugene Toh, author of the H1 and H2 A Level Economics TYS answer keys, published by SAP and sold at Popular.
How are these case study suggested answers structured?
The lower mark parts are answered in full. The higher mark parts are outlined here, with the full worked answers reserved for the ETG TYS Answers book and the TYS Crashcourse.
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