Table Of Contents

Section A .................................................. Page 1

Section B ................................................. Page 6
 SECTION A

Question Answer Mark

Number

1 Correct option B (1 mark) (4)

• Definition of producer surplus (the difference between the

price producers are willing to supply to the market and
the actual market price, OR, the area between the supply
curve and equilibrium price line). (1 mark)

• Identification of original area of producer surplus on

diagram or written as PeXY (1 mark)

• Annotation of the diagram to show an increase in the

demand curve with a higher price (1 mark) and the
increase in area of producer surplus or new level of
producer surplus.(1 mark)

Rejection marks
• Options A and C incorrect since an increase in demand will
cause an increase in price. (1 mark)

NB: do not double award if candidate has already gained a

mark for showing an increase in price on the diagram.

• Option D incorrect as an increase in demand will cause an

increase in consumer surplus (this must be shown on
diagram) (1 mark)

1
 Question Answer Mark
Number

2 Answer C (1 mark) (4)

• Definition of producer surplus (the difference

between the price firms are willing to sell the good for
and the market price it is sold at / the area above the
supply curve and below the equilibrium price). (1
mark)

• Original producer surplus is P1XK. (1 mark)

• The loss of producer surplus is P1P2YX. (1 mark)

• The original and loss of producer surplus may be

shown by annotation of the diagram but they must be
labelled correctly. NB: do not double award here.
(1+1 marks)

Rejection marks
 Option A incorrect as P2JY is the new consumer
surplus area. (1 mark)

 Option B incorrect as LXP1 is the original area of

consumer surplus. (1 mark)

 Option D incorrect as 0P2YQ2 is the new area of total

revenue or total expenditure. (1 mark)

2
 Question Answer Mark
Number
3 Answer D
• Definition of producer surplus (the difference between
the price firms are willing to sell a good for and the
actual market price or the area above the supply curve
and below the price line) (1 mark)

• Original producer surplus is P1XZ (1 mark)

• New producer surplus is P2YZ (1 mark)

(the original and new producer surplus may be annotated

on the diagram)

• P1XL being consumer surplus (1 mark)

Rejection marks
¾ Option A is incorrect since this is consumer surplus.
(1 mark)

¾ Option B is incorrect since this is the original

producer surplus. (1 mark)

¾ Option C is incorrect since this is the new level of

producer surplus. (1 mark)
(4)
NB: Do not double award marks in this question.

3
Questio Answer Mark
n
Number
4 Answer B (1)
• Definition of consumer surplus (the difference between the price one is
prepared to pay for a good and the actual price / market price paid) OR
(the area above the equilibrium price and below the demand curve). (1)

• Identification of original consumer surplus as £500 / further

development using a numerical example(1)

• Definition of VAT (a tax placed on the expenditure / a tax set as a

percentage of the price of a good) or indirect tax (1)

• Explanation that a reduction in VAT will reduce the price of cruise

holidays and so lead to an increase in consumer surplus. (1)

• Diagrammatic analysis depicting an outward shift in supply curve (either

showing the original consumer surplus / the new level of consumer
surplus / the change in consumer surplus) (1+1) (accept parallel shift in
supply)

Rejection marks
o Option A is incorrect since an increase in wages to cruise holiday
workers will increase production costs / possibly raise the price of cruise
holidays – reducing consumer surplus. (1)

o Option C is incorrect since an increase in price of cruise holidays to

£3000 will eliminate Neringa’s consumer surplus. (1)

o Option D is incorrect since a decrease in the number of companies in the

industry may shift the supply curve inwards and so raise the price of
Caribbean cruise holidays (1). (4)

4
 Question Answer Mark
Number
5 Answer D
• Definition of consumer surplus (the difference in the
price consumers are prepared to pay for a good and
the actual market price paid) (also accept the area
above the equilibrium price and below the demand
curve) (1 mark).

• Original consumer surplus is XYP1 (1 mark).

• Increase in consumer surplus is P1YZP2 (1 mark). (4)

Question Answer Mark

Number
6 B (1)

• Definition of producer surplus (the difference between the price

producers are willing to supply a good for and the actual market
price) (1 mark).

• Annotation of diagram which shows the new area of producer

surplus (1 mark)
(3)
• Original producer surplus (in winter) is P1YZ (1 mark).

New level of producer surplus is P2XZ (1 mark).

5
 SECTION B

Question Answer Mark

Number
7 Knowledge 2, Application 2, Analysis 2

Knowledge

2 marks for e.g.

 Define producer surplus e.g. a measure
of producer welfare or the difference between
what producers are willing and able to supply a
good for and the price they actually receive
 Diagram to show the original demand and supply
curve and equilibrium
 Identify the original producer surplus

Analysis

2 marks for e.g.

 Diagram illustrates increased producer surplus (1)

resulting from demand shifting out (1)

Application

2 marks for e.g.

 Explain that there is an increase in prices (1) as
demand for houses rises (1)
 Explain that there is an extension in supply or a
rise in the housing availability
 House builders will make a larger surplus (profit)
 Producer surplus is likely to be only for new
housing. With the existing housing stock, any
increase in house prices would not be referred to
as increasing producer surplus as the seller still
has to find a home to live in.
 Effect of PED/PES on size of producer surplus (6)

6
 Question Answer Mark
Number
8 6 KAA marks
• Consumer and producer surplus are likely to fall (need (6)
to mention that both have fallen) (1 mark)
• Definition of consumer surplus (e.g. the difference
between the price consumers are willing to pay for a
good and the actual market price OR stating the area
below the demand curve and above equilibrium price))
(1 mark).
• Definition of producer surplus (e.g. the difference
between the price producers are willing to supply a good
for and the actual market price OR stating the area
above the supply curve and below the equilibrium price)
(1 mark).

• Diagram (up to 4 marks)

i. Original areas of consumer and producer surplus
(both must be identified) (1)
ii. An inward shift in the demand curve for tobacco (1)
iii New consumer area identified / or the change in
consumer surplus identified (1)
iv. New producer surplus area identified / or the change
in producer surplus identified (1)

Price
A
Original consumer
surplus is AXPe.
New consumer
R
S surplus is RLP1

Original producer
Pe X surplus is BXPe.
P1 New producer
L surplus is BLP1

D
B
D1

Qe Quantity

• NB: Accept relevant diagram which depicts a decrease in

the supply curve for tobacco and the original and new
areas of consumer and producer surplus identified (up
to 4 marks)

NB: cap at maximum of 3 marks if no suitable diagram

offered