Mark Scheme (Results)

October 2020

Pearson Edexcel International Advanced Level

In Economics (WEC13/01)
Unit 3: Business behaviour
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Autumn 2020
Publications Code WEC13_01_2010_msc
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 Quantitative skills Answer Mark
Number assessed

1 – The only correct answer is B

A is not correct because they are in the

same industry

C is not correct because they are at the

same stage of the production process

D is not correct because they are at the

same stage of the production process
(1)

2 QS9: Interpret, apply The only correct answer is D

and analyse information
in written, graphical, A is not correct because the firm is able to
tabular and numerical cover its average variable costs
forms.
B is not correct because the firm has not
covered its’s average total costs

C is not correct because the firm can cover

average total costs and make normal profit (1)

3 QS8: Make calculations The only correct answer is A

of elasticity and
interpret the result. B is not correct because this would imply
that the supply of aerospace engineers is
elastic

C is not correct because an increase in

government support into training
programmes would make the supply of
labour more elastic

D is not correct because a fall in the demand

for aerospace products would impact the
demand for labour not the elasticity of
supply of labour (1)
4 – The only correct answer is c

A is not correct because a high number of

small firms can still operate in a market with
a small number of large firms and
significant entry barriers

B is not correct because high sunk costs

increase barriers to entry

D is not correct because imperfect

information makes it more difficult for firms (1)
to enter the market

5 QS2: Calculate, use The only correct answer is B

and understand
percentages, A is not correct because demand for workers
percentage changes falls when wages rise
and percentage
point changes. C is not correct because the calculation is
QS8: Make calculations incorrect and the demand for workers falls
of elasticity and as wages rise
interpret the result.
D is not correct because the calculation is (1)
incorrect.

6 QS9: Interpret, apply The only correct answer is C

and analyse information
in written, graphical, A is not correct because an increase in the
tabular and numerical costs of production would cause a
forms. contraction in the demand for labour

B is not correct because a decrease in the

productivity of labour would cause a
contraction in the demand for labour

D is not correct because a decrease in net

migration would decrease the supply of (1)
labour
Question Answer Mark
Number
7 (a) Quantitative skills assessed:
QS2: Calculate, use and understand percentages,
percentage changes and percentage point changes.

Application
Up to 2 marks for calculation:
• Rs5.3bn - Rs 3.7bn = Rs1.6bn (1)
• Rs1.6bn/Rs3.7bn x 100 = 43.24% or 43.2% or
43% (1)

Accept 43%, 43.2%, 43.24%, 43.243%, 43.2432%

and other responses up to 43.2432432432%

NB: If correct answer (eg 43.24%) is given award full

marks regardless of working.
(2)

Question Answer Mark

Number
7 (b) Knowledge 2 Application 2
Knowledge
• 2 marks for defining 'privatisation' - the sale of
state-owned organisations (public sector) to the
private sector (1)

• Privatisation often involves removing barriers to

enable private sector firms to enter a market (1)
• Privatisation may make a market more competitive
(1)
• Privatisation may involve removing the monopoly
power of a state-owned firm (1)

Application - up to 2 marks for application to context

of India's coal mining industry
• The Indian Government decided to privatise part of
India's coal mining industry (1)
• In 2017 state-owned Coal India Ltd. was the sole
producer but domestic private sector mining firms
are now able to enter the industry (1)
• Contracts to private sector mining firms would be
awarded by auction (1)
Any other valid application point - 1 mark for each (4)
Question Answer Mark
Number
7 (c) Knowledge 2 Application 2 Analysis 2
Evaluation 2

Knowledge
Up to 2 marks for two of the following:
• Effect on employment (1)
• Effect on profitability of firms (1)
• Effect on price of coal (1)
• Effect on Government (1)
• Effect on workers (1)
• Effect on efficiency (1)
• Effect on output (1)

1 mark for definition of deregulation - removing

government restrictions/regulations in a particular
market

Application and Analysis

Up to 2 marks for relevant application and up to 2
marks for linked expansion of effects
• More employment of coal miners (1ap) if the coal
industry is more profitable and efficient, higher
demand for labour (1an)
• Entry of firms such as Rio Tinto (1ap) leading to a
more internationally competitive Indian coal mining
industry (1an)
• Entry of firms such as Rio Tinto (1ap) leading to a
more internationally competitive Indian coal mining
industry/ leading to a fall in coal prices because of
greater competition (1an)
• Indian Government raises revenue from sale of
mines (1ap) leading to more funds available for
government spending/opportunity to reduce taxes
(1an)
• More jobs in other industries in coal mining areas
(1ap) as a result of higher incomes - regional
multiplier effect (1an)
 Evaluation
Up to 2 marks for evaluative comments, eg:
• Mining trade unions fear that privatisation and
deregulation may lead to job losses if Coal India, for
example, needs to become more efficient
(rationalise) in order to compete (1+1)
• Privatisation and deregulation may make very little
difference to employees if Coal India continues to
dominate the market (1+1)
• Changes may have a negative effect on the
environment if private sector firms prioritise profit
above environmental factors (1+1)
• Changes may have a negative impact on health and
safety issues if private sector mining firms prioritise
profit (1+1)
• Price of coal may not fall (1) if Coal India continues
to dominate the market/if large international
mining companies are able to exert monopoly
power (1)
(8)

Question Answer Mark

Number
7 (d) Knowledge 2 Application 2 Analysis 2
Quantitative skills assessed:
QS9: Interpret, apply and analyse information in
written, graphical, tabular and numerical forms.

Knowledge
Up to 2 marks for an understanding of predatory
pricing eg:

• Predatory pricing is a deliberate strategy of driving

competitors out of the market (1) by setting very
low prices or selling below AVC (1)
• Predatory pricing is a strategy used by monopoly
firms or firms with a degree of monopoly power (1)
Analysis
Up to 2 marks for linked explanation:
• In the short-run both Ola and Uber are likely to
experience a fall in profits and may even suffer
losses (1) a loss will certainly occur where price is
below AVC/ATC (1)
• Pricing below profit max where MC = MR (1) so
profit is bound to fall (1)
• Ola or Uber may be unable to sustain a lengthy
period of price cutting (1) One of the firms may be
forced out of the market or they cease to adopt
predatory pricing strategies (1)

Up to 2 marks for an accurate diagram to show

predatory pricing

Application
Up to 2 marks for application to context of India's
ride-hailing market:
• If Ola or Uber remove competition they will be able
to raise their price again (1) and secure higher long
term profits (1)
• Low prices and possibly making losses may force
some or all of the smaller rail-hailing market eg: -
Jugnoo, Ixigo and Meru (1)
• The 3 small firms only have 4.2% of the market
between them (1)
• Diagram related to context (labelling) (1)

(6)
Question Indicative content
Number
7 (e) Indicative content guidance
Answers must be credited by using the level descriptors (below) in line with the
general marking guidance. The indicative content below exemplifies some of
the points that candidates may make but this does not imply that any of these
must be included. Other relevant points must also be credited.
Quantitative skills assessed:
QS4: Construct and interpret a range of standard graphical forms
QS9: Interpret, apply and analyse information in written, graphical, tabular and
numerical forms

Knowledge, Application, Analysis (8 marks) – indicative content

• Definition of price discrimination (third degree) – where a firm is charging
different prices to different users for the same product/service
• Conditions necessary for price discrimination - monopoly power (Zambia
Sugar has over 90% of the market), different PED's, able to separate
different consumer groups (domestic and overseas consumers)
• A firm gains higher profits from price discrimination when it charges a
higher price to consumers with inelastic demand and a lower price to
consumers with elastic demand

• Diagrams showing price dicrmination

• Consumers who are negatively affected by price discrimination -

consumers with inelastic demand
- domestic consumers who were paying 40% more than consumers of
Zambia Sugar's exports
- consumers of industrial sugar who were paying higher prices than
others
• Consumers in Diagram A will lose out through price discrimination
(extraction of consumer surplus by Zambia Sugar)
 • Consumers who may benefit from price discrimination - consumers with
elastic demand (Diagram B)
- consumers of Zambia Sugar's exports
- consumers of industrial sugar who were paying lower prices than others

Restrict to a maximum of Level 2 for Knowledge, Application and

Analysis if no diagram is provided
Level Mark Descriptor
0 No rewardable material.
Level 1 1–3 Displays isolated, superficial or imprecise knowledge and
understanding of economic terms, principles, concepts, theories and
models.
Use of generic material or irrelevant information or inappropriate
examples.
Descriptive approach which has no chains of reasoning.
Level 2 4–6 Displays elements of knowledge and understanding of economic
terms, principles, concepts, theories and models.
Ability to apply knowledge and understanding to some elements of the
question. Some evidence and contextual references are evident in the
answer.
Chains of reasoning in terms of cause and/or consequence are evident
but they may not be developed fully or some stages are omitted.
Level 3 7–8 Demonstrates accurate and precise knowledge and understanding of
economic terms, principles, concepts, theories and models.
Ability to link knowledge and understanding in context using relevant
examples which are fully integrated to address the broad elements of
the question.
Analysis is clear, coherent, relevant and focused. The answer
demonstrates logical and multi-stage chains of reasoning in terms of
cause and/or consequence.
 Evaluation (6 marks) – indicative content

• Price discrimination may not have a long-term effect on consumers. Zambia

Sugar was fined ZK76 million by the CCPC and told that it must stop price
discrimination and set fair prices

• If price discrimination ends Zambia Sugar will earn lower profits and this
may lead to a drop in product quality

• Zambia Sugar may set uniform prices by raising them to the higher levels
paid by those consumers whose demand is inelastic, especially as it has
significant market share

• Depends on the degree to which the CCPC is prepared to enforce its

decision

• Market conditions may change eg barriers to entry are lowered (more

contestable market) and other sugar producers are attracted into the
market
Level Mark Descriptor
0 No rewardable material.
Level 1 1–2 Identification of generic evaluative comments.
No supporting evidence/reference to context.
No evidence of a logical chain of reasoning.
Level 2 3–4 Evidence of evaluation of alternative approaches
Some supporting evidence/reference to context.
Evaluation is supported by a partially-developed chain of reasoning.
Level 3 5–6 Evaluation recognises different viewpoints and/or is critical of the
evidence.
Appropriate reference to evidence/context.
Evaluation is supported by a logical chain of reasoning.
Question Indicative content
Number
8 Indicative content guidance
Answers must be credited by using the level descriptors (below) in line with the
general marking guidance.
The indicative content below exemplifies some of the points that candidates
may make, but this does not imply that any of these must be included.
Other relevant points must also be credited.
Quantitative skills assessed
QS4: Construct and interpret a range of standard graphical forms.
QS9: Interpret, apply and analyse information in written, graphical, tabular and
numerical forms.

Knowledge, Application, Analysis (12 marks) – indicative content

• Lack of managerial skills -so the business remains small

• Lack of availability of suitable labour

• Lack of scope for growth within the market- because of limited market
demand

• Limits on the extent to which the firm is able to diversify

ALL OF THE POINTS ABOVE MEAN THAT THE FIRM'S ABILITY TO GAIN
FROM ECONOMIES OF SCALE IS LIMITED. Minimum efficient scale (MES)
is reached at a low level of output

• MES is reached at a relatively low level of output of Q1. Any growth in size
and output beyond Q1 means that the small firm is less efficient and
experiences diseconomies of scale
• The objectives of the owners/managers. Owner(s) may be satisfied with
keeping the business small:
- growth is risky
- expensive
- time-consuming
- profit satisficing objective
- owner's complacency

• Limited access to finance:

- relatively small amount of retained profits
- banking sector may be unwilling to lend
- fewer options when raising external finance

• High financial costs of growth:

- legal and administration costs
- capital costs
- hiring new staff

• Many other firms competing in the market - may be perfectly

competitive or monopolistically competitive

• Small firms may be able to group together to share resources - no real

need to grow

• A small firm can offer specialised products/service - appeals to

consumers

• The macroeconomic climate:

• Slow growth or recession in the economy
• Low effective demand, low consumer purchasing power
• Future uncertainty in the economy – economic, political etc.
• High interest rates
• High inflation rates
• High unemployment rates

Points above should be illustrated with relevant examples

Restrict to a maximum of 9 marks for Knowledge, Application and
Analysis if no diagram provided.
Level Mark Descriptor
0 No rewardable material.
Level 1 1–3 Displays isolated, superficial or imprecise knowledge and
understanding of economic terms, principles, concepts, theories and
models.
Use of generic material or irrelevant information or inappropriate
examples.
Descriptive approach which has no chains of reasoning.
Level 2 4–6 Displays elements of knowledge and understanding of economic
terms, principles, concepts, theories and models.
Limited application of knowledge and understanding to economic
problems in context.
A narrow response or superficial, only two-stage chains of reasoning
in terms of cause and/or consequence.
Level 3 7–9 Demonstrates accurate knowledge and understanding of economic
terms, principles, concepts, theories and models.
Ability to apply knowledge and understanding to some elements of
the question. Some evidence and contextual references are evident in
the answer.
Analysis is clear and coherent. Chains of reasoning in terms of cause
and/or consequence are evident but they may not be developed fully
or some stages are omitted.

Level 4 10–12 Demonstrates accurate and precise knowledge and understanding of

economic terms, principles, concepts, theories and models.
Ability to link knowledge and understanding in context using
appropriate examples which are fully integrated to address the broad
elements of the question.
Analysis is clear, coherent, relevant and focused. The answer
demonstrates logical and multi-stage chains of reasoning in terms of
cause and/or consequence.
Evaluation (8 marks) – indicative content
• Short-run/long-run: most businesses start out small. Over time many will
grow
• Factors such as macroeconomic climate and limited market demand can
change over time
• Government financial support and a more favourable attitude from the
banking & the finance sectors may result in small firms having the
necessary funds to expand
• A change of ownership may lead to a change of objectives, with the new
owners keen to grow the business
• Small firms may be prone to takeover bids by larger businesses
Level Mark Descriptor
0 No rewardable material.
Level 1 1–3 Identification of generic evaluative comments.
No supporting evidence/reference to context.
No evidence of a logical chain of reasoning.
Level 2 4–6 Evidence of evaluation of alternative approaches.
Some supporting evidence/reference to context.
Evaluation is supported by a partially-developed chain of reasoning.
Level 3 7–8 Evaluation recognises different viewpoints and/or is critical of the
evidence, leading to an informed judgement.
Appropriate reference to evidence/context.
Evaluation is supported by a logical chain of reasoning.
Question Indicative content
Number
9 Indicative content guidance
Answers must be credited by using the level descriptors (below) in line with the
general marking guidance.
The indicative content below exemplifies some of the points that candidates
may make, but this does not imply that any of these must be included.
Other relevant points must also be credited.
Quantitative skills assessed:
QS4: Construct and interpret a range of standard graphical forms.
QS9: Interpret, apply and analyse information in written, graphical, tabular and
numerical forms.

Knowledge, Application, Analysis (12 marks) – indicative content

• Conditions for perfect competition – large number of buyers & sellers,
perfect information, no barriers to entry or exit, homogeneous products
• Conditions for monopolistic competition (MC) – as above, but differentiated
products and few or no barriers
• Understanding of allocative, productive and dynamic efficiency
- productive (lowest point of AC)
allocative (p=MC)
dynamic (technical)
PERFECT COMPETITION
• Firms are price takers – hence perfectly elastic demand
• Use of diagram to show that market forces lead to downward pressure on
price
- Any supernormal profit in short-run is removed in long-run with new
entrants
- Rightward shift in market supply curve, shift downwards in firms’
AR=MR=D curve i.e. lower price from P to PE
• Diagram shows that, in the long-run, a perfectly competitive firm achieves
both productive and allocative efficiency and makes normal profit
(p = AC = MC)

MONOPOLISTIC COMPETITION

• The firm is a price maker (differentiated product) and hence faces a

downward sloping demand curve. Demand tends to be relatively elastic
(large number of competing firms)

Short-run monopolistic competition

• MC firms can make supernormal profits where MC =MR
Long-run monopolistic competition
• No barriers means AR shifts downwards until only normal profits are earned
and price is lower at profit max level of output

• Diagrams show absence of efficiency in both short and long-run

-output below lowest point of AC (where MC=AC), so not productively
efficient
- price above MC, so not allocatively efficient

• Proliferation of brands under MC may lead to confusion for consumers so a

possible loss of efficiency
• Price is likely to be higher and output lower under monopolistic competition
than under conditions of perfect competition

Points above should be illustrated with relevant examples

Restrict to a maximum of level 3 for Knowledge, Application and

Analysis if no diagram provided.
Level Mark Descriptor
0 No rewardable material.
Level 1 1–3 Displays isolated, superficial or imprecise knowledge and
understanding of economic terms, principles, concepts, theories
and models.
Use of generic material or irrelevant information or inappropriate
examples.
Descriptive approach which has no chains of reasoning.

Level 2 4–6 Displays elements of knowledge and understanding of economic

terms, principles, concepts, theories and models.
Limited application of knowledge and understanding to economic
problems in context.
A narrow response or superficial, only two-stage chains of
reasoning in terms of cause and/or consequence.
Level 3 7–9 Demonstrates accurate knowledge and understanding of
economic terms, principles, concepts, theories and models.
Ability to apply knowledge and understanding to some elements
of the question. Some evidence and contextual references are
evident in the answer.
Analysis is clear and coherent. Chains of reasoning in terms of
cause and/or consequence are evident but they may not be
developed fully or some stages are omitted.
Level 4 10–12 Demonstrates accurate and precise knowledge and understanding
of economic terms, principles, concepts, theories and models.
Ability to link knowledge and understanding in context using
appropriate examples which are fully integrated to address the
broad elements of the question.
Analysis is clear, coherent, relevant and focused. The answer
demonstrates logical and multi-stage chains of reasoning in terms
of cause and/or consequence.
Evaluation (8 marks) – indicative content
• Complete absence of dynamic efficiency under perfect competition
(homogeneous products, no barriers) - so no incentive to innovate and
carry out product development
• Under monopolistic competition possible dynamic efficiency at least in
the short-run. Availability of super normal profit and some barriers
because of branding/differentiation
• Entry of new firms into both types of market structure in the long-run means
that both types of firm are likely to be x-efficient
Level Mark Descriptor
0 No rewardable material.
Level 1 1–3 Identification of generic evaluative comments.
No supporting evidence/reference to context.
No evidence of a logical chain of reasoning.
Level 2 4–6 Evidence of evaluation of alternative approaches.
Some supporting evidence/reference to context.
Evaluation is supported by a partially-developed chain of
reasoning.
Level 3 7–8 Evaluation recognises different viewpoints and/or is critical of the
evidence, leading to an informed judgement.
Appropriate reference to evidence/context.
Evaluation is supported by a logical chain of reasoning.
Question Indicative content
Number
10 Indicative content guidance
Answers must be credited by using the level descriptors (below) in line with the
general marking guidance.
The indicative content below exemplifies some of the points that candidates
may make but this does not imply that any of these must be included.
Other relevant points must also be credited.
QS4: Construct and interpret a range of standard graphical forms.
QS9: Interpret, apply and analyse information in written, graphical, tabular and
numerical forms.
Knowledge, Application and Analysis (12 marks) – indicative content

Range of business objectives include:

• profit maximisation
• revenue maximisation
• sales maximisation
• profit satisficing will impact on profits
• social objectives
• growth

• If maximising revenue is the main objective, output is where MR=0 and TR is

maximised. The firm in the diagram is making a supernormal profit
(AR exceeds AC), but profit is less than at profit maximising output.
 • Profit maximisation objective where MC = MR (Accept perfect competition or
monopoly diagram). Firm makes highest possible supernormal profit.

• If the firm's objective is sales maximisation this will be where AC=AR or

TR=TC. In this case profit is lower but the firm is selling a higher quantity of
goods. It is prioritising sales volume/market share over profit

• Some private sector organisations are non-profit making (eg charities),

others may prioritise social responsibility eg co-operatives. Therefore profits
are likely to be lower or non-existent

• Restrict to a maximum of 9 marks for Knowledge, Application and

Analysis if no diagram provided.
Level Mark Descriptor
0 No rewardable material.
Level 1 1–3 Displays isolated, superficial or imprecise knowledge and
understanding of economic terms, principles, concepts, theories and
models.
Use of generic material or irrelevant information or inappropriate
examples.
Descriptive approach which has no chains of reasoning.
Level 2 4–6 Displays elements of knowledge and understanding of economic terms,
principles, concepts, theories and models.
Limited application of knowledge and understanding to economic
problems in context.
A narrow response or superficial, only two-stage chains of reasoning in
terms of cause and/or consequence.
Level 3 7–9 Demonstrates accurate knowledge and understanding of economic
terms, principles, concepts, theories and models.
Ability to apply knowledge and understanding to some elements of the
question. Some evidence and contextual references are evident in the
answer.
Analysis is clear and coherent. Chains of reasoning in terms of cause
and/or consequence are evident but they may not be developed fully or
some stages are omitted.
Level 4 10–12 Demonstrates accurate and precise knowledge and understanding of
economic terms, principles, concepts, theories and models.
Ability to link knowledge and understanding in context using
appropriate examples which are fully integrated to address the broad
elements of the question.
Analysis is clear, coherent, relevant and focused. The answer
demonstrates logical and multi-stage chains of reasoning in terms of
cause and/or consequence.
Evaluation (8 marks) – indicative content

• For public sector organisations which can be financed through tax revenues,
a profit objective may be non-existent or less important eg health, education,
transport, postal services

• There may be conflicting objectives in a large private sector organisation

where there is a divorce of ownership and control. Eg shareholders want
higher profits, managers want sales maximisation

• Business objectives can change depending on circumstances

- macroeconomic conditions (eg in a recession survival will be a prime
objective)
- changes within a market (eg more competitive conditions may involve
sacrificing some profit in the short-run)
- new government legislation (eg tightening up on environmental laws may
emphasise social responsibility)
- short-run & long-run distinction. Eg a business may seek to maximise
revenue in the short-run aiming to remove competitors. This may then
enable to business to raise prices and hence profits in the long-run
Level Mark Descriptor
0 No evaluative comments.
Level 1 1–3 Identification of generic evaluative comments.
No supporting evidence/reference to context.
No evidence of a logical chain of reasoning.
Level 2 4–6 Evidence of evaluation of alternative approaches.
Some supporting evidence/reference to context.
Evaluation is supported by a partially-developed chain of reasoning.
Level 3 7–8 Evaluation recognises different viewpoints and/or is critical of the
evidence, leading to an informed judgement.
Appropriate reference to evidence/context.
Evaluation is supported by a logical chain of reasoning.
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