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Question 23M.3.HL.TZ0.1b

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Date May 2023 Marks available [Maximum mark: 10] Reference code 23M.3.HL.TZ0.1b
Level HL Paper 3 Time zone TZ0
Command term Recommend Question number b Adapted from N/A
b.
[Maximum mark: 10]
23M.3.HL.TZ0.1b
(b)

Using the text/data provided and your knowledge of economics, recommend a policy which could be introduced by the New Zealand Commerce Commission to limit the possible abuse of market power in the supermarket industry in New Zealand. 

[10]

Markscheme

Refer to Paper 3 markbands for May 2022 forward, available under the "My tests" tab > supplemental materials.

Possible policies may include (but are not restricted to):

  • Legislation to force supermarkets to sell part of their business/their land
  • Removing barriers to the entry of new competitors
  • Sponsoring or facilitating a new competitor
  • Price regulation
  • Government ownership/nationalization
  • Government policy to release more land for building shops/retail activities (deregulation)
  • Fines that arise from fair-trading laws (anti-trust legislation)
  • Windfall tax on super normal profits
  • Any other valid policy.
Examiners report

A wide range of approaches was adopted for the "policy question". Responses which scored well mostly:

  • Selected one clear policy (or two complementary policies where a second policy was introduced to address a limitation of the first).
  • Selected a policy which was appropriate given the context presented.
  • Ensured that their response fully explained the recommended policy, incorporating relevant theory, using appropriate terminology throughout the response and using data provided to support the recommendation and offer a balanced synthesis/evaluation.

Responses were able to achieve full marks with a fairly concise answer which met these requirements. Diagrams (although not expected/required) were often used effectively to support the theory/explanation. However, many "price ceiling" diagrams used were often accompanied by generic notes on the stakeholder effects rather than the mechanism and possible limitations of the policy in the context provided.

Candidates who did not score highly tended to demonstrate some of the following weaknesses:

  • Listing/outlining several policies instead of recommending and explaining one policy.
  • Summarising the data provided instead of using it to support the recommendation.
  • Neglecting to provide a balanced synthesis. Many answers simply explained without any balance.
  • Misreading the data provided and making unrealistic assumptions.
  • Neglecting to provide details of the suggested policy. Weaker responses cited deregulation (without any details), fines (without details of the associated infringement), anti-monopoly legislation (without details), supply-side policies (without details) or "encourage foreign firms" (without stating how this could be achieved).

Some weaker policy suggestions included:

  • Indirect taxation on groceries.
  • Policies to prevent mergers.
  • A percentage tax based on market share.
  • Privatisation.
  • Minimum price legislation.

Some responses also tended to stray into LRAS analysis while many of those who suggested a maximum price argued that "the shortage would leave room for new entrants" without discussing the lack of attractiveness of a price-controlled industry to new entrants. Most candidates who suggested subsidies or price controls drew a perfectly competitive market diagram and referred to one product only.

It appears that many students were more focused on explaining theory rather than thinking as a policymaker addressing a real-world issue.

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