Guide to assessment of key skills: Advanced Level Economics

Key skills assessed at Advanced Level Economics are embedded in the assessment
objectives (AOs) of the specification; assessment objectives are set by Ofqual and
are the same for all exam boards.

The OCR specification (H460) includes the following information about how key skills
will be assessed in exam questioning. Demonstrating knowledge and understanding
(AO1), application of knowledge and understanding (AO2), providing economic
analysis in content (A03), and supported evaluation in context (AO4).

The table below is taken directly from the current OCR specification. Please note a question with a
command (directive) to ‘evaluate’, such as the 25-mark questions requiring extended written
responses, will require all four skills to be evident in the written response.

Mark schemes provided by an exam board are not written for students and do not
necessarily provide complete ‘correct’ answers for written responses.

Before providing examples of how key skills are demonstrated in written responses, it
is important to understand how marks are allocated between the key skills.
OCR Advanced Level – Assessment Weighting

All four assessment objectives (key skills) are equally weighted overall.

How the marks are allocated for each assessment objective, within specific questions,
is shown in each mark scheme. For example, as shown in the table provided in the
OCR mark scheme for H460/1 – microeconomics (2022), a 25-mark question (#2 or
#3, and #4 or #5) with the directive word to ‘evaluate’ will allocate marks evenly
between the key skills. In contrast, 8 mark and 12 mark ‘evaluate’ questions, 1(d)ii
and 1(e) will be weighted more to analysis and evaluation.

Please note, extended written responses to questions with the command word to
‘evaluate’ require a combination of good knowledge and application underpinning
the good/strong analysis and developed evaluation.
Knowledge (KN)

AO1: Demonstrate knowledge of terms/concepts and theories/models to show an

understanding of the behaviour of economic agents and how they are affected by and
respond to economic issues

The marker/examiner is looking for precise knowledge and understanding, often

provided by evidence of clear and precise definitions of economic terms/concepts and
theories/models in responses. The knowledge/understanding required depends on
the exact wording of the question.

Examples of demonstrating knowledge;

If a question in an economics exam paper directly refers to investment, clear
evidence of investment as spending on capital goods by firms in an economy
over a given period of time will be required to demonstrate knowledge.

If a question in an economics exam paper directly refers to public goods, a clear

indication that public goods are non-excludable and non-rival in consumption will
be required.

Any lack of clarity or confusion with other key terms will diminish the quality of
knowledge demonstrated in a written response; a marker/examiner will be required to
make a judgement on the quality of knowledge in the extended written responses.
Please see the table provided in the OCR mark scheme for H460/3 – Themes (2022);
there are more knowledge-based marks than any other skill, this is mainly due to the
weighting of assessing knowledge using multiple choice (MC) questions in section A.
Application (AP)

AO2: Apply knowledge and understanding to various economic contexts to show how
economic agents are affected by and respond to economic issues

The application of understanding required depends on the exact wording of the

question.

Examples of demonstrating application;

If a response to a question in an economics exam paper uses relevant information
provided to undertake a relevant calculation, or comparison, this will be awarded
application marks. For example, correct calculation using appropriate CPI data, from
a wider dataset, to calculate the rate of inflation in the UK in 2020 would be evidence
of application.

If a question in an economics exam paper directly refers to the use of a diagram,

selecting and drawing a correct diagram will be evidence of application of knowledge
and understanding.

If a question in an economics exam paper directly refers to investment, selecting and

using appropriate examples of investment, such as HS2 and Crossrail, will be
application of knowledge and understanding of spending on capital goods by firms in
the UK economy over a given period of time.

Analysis (AN)

AO3: Analyse issues within economics, showing an understanding of their impact on

economic agents.

The economic analysis required depends on the exact wording of the question.

Economic analysis requires complete explanations, with integrated chains of

reasoning, using appropriate economic terminology, concepts and theories, to provide
detailed investigation of the impact of issues on economic agents, in context.

A diagram is often useful, or often required/expected (with the use of a diagram/s) to

help formulate and support a detailed written explanation. The best analysis deals
directly with the main issue/s raised; the specific wording of the question must be
directly addressed. See examples of good/strong analysis in the exemplar below.
Evaluate (EV)

AO4: Evaluate economic arguments and use qualitative and quantitative evidence to
support informed judgements relating to economic issues.

The evaluation required depends on the precise wording of the question.

For example, making a judgement on the effectiveness of a particular intervention, or

policy decision, will be required if the focus of the question is to ‘evaluate the
effectiveness of…’ This can be achieved by assessing/judging how successful
(effective) the policy is likely to be in achieving the desired objective (again, read the
question for the specified objective).

The terms ‘more’ and ‘less’ will be useful in making a judgement on the extent to
which a policy is likely to be effective. A more developed judgement may be based on
which policy is likely to be ‘most’ effective – with development to explain why, relative
to an alternative.

The focus for all key skills is determined by precise wording of the question.
Each exam question is bespoke and will require a bespoke response (not a generic
response).

Examples of responses demonstrating good/strong key skills.

 Price ceilings have been used in a number of different markets, ranging
from rented housing in New York to food in Venezuela and the cap on
energy bills in the UK.
Evaluate, using an appropriate diagram(s), the impact a price ceiling may
have on the level of consumer and producer surplus in a market. [25]

Consumer surplus is the difference between the price buyers are willing and able
GKN to a pay and the price they actually pay for a good/service. Producer surplus is the
difference between the price a seller receives and the price the producer is willing
GKN and able to sell (supply) at. A price ceiling is a legally imposed maximum price for
a good or service; if the market price (P1) is above the price ceiling (P(max)), the
SKN maximum price comes in to effect and producers are not legally allowed to sell for
more than P(max).

GAP

For example, if the Venezuelan government imposes a maximum price, in a food

GAP market (1kg packs of pasta) in Venezuela, the quantity of pasta supplied by
producers reduces from Q1 to Q2, due to the contraction in supply as price falls;
there is a shortage of food, due to excess demand (Q3-Q2) at P(max). The producer
GAN surplus reduces from area P1BF to area P(max)CF. Consumer surplus may
increase, from P1AB to P(max)AGC, because some consumers are now able to buy
pasta at a lower price than P1 and they pay even less than they are willing and
GAN able to pay. The impact of the price ceiling (P(max)) shows how some of the
producer surplus has been converted to consumer surplus. However, a proportion
of the total surpluses (consumer + producer) is lost after the price ceiling is
SAN imposed, there is a deadweight loss of welfare (area: CGB). In a free market, with

no associated failures, this leads to an inefficient allocation of resources, as total

social welfare could be greater if the price ceiling was not imposed; the imposition
SAN of a price ceiling could indicate a significant government failure, due to a loss of
combined producer and consumer surplus due to the imposing of the price ceiling.
 GAP

The extent to which a price ceiling will have an effect on consumer surplus and
producer surplus will mainly depend on the how low the price ceiling is, but also
depends on the price elasticity of demand (PED) and price elasticity of supply
(PES) in the market. For example, a low maximum price for pasta is likely to lead
to a less significant loss of welfare (combined surplus), if both the PED and PES
GEV are likely to be relatively price inelastic, as shown by the shaded area of
deadweight loss.
The impact of a price ceiling on consumer and producer surplus depends on the
market in which it is imposed and the response of the government to market
REV shortages created. For example, in food markets, a maximum price may be more
sustainable if the government use rationing at supermarkets to ensure there is a
AP fair distribution of food and so that there is no hoarding. However, this is very
costly to enforce and may be difficult to police; the existence of many black
markets, selling by those who can buy food at the lower maximum price then sell
on to those consumers who can afford to pay a higher price for food (PBM), where
GAN
prices far exceed the price ceiling (P(max)). Clearly, if the objective was to reduce
food prices on the grounds of equity this indicates the policy is far less effective
than intended; again, loss of welfare indicates a loss of efficiency.

However, a price ceiling imposed in markets where there is monopoly power

(energy markets) may not lead to a welfare loss if it corrects market failure caused
by profit maximising behaviour of firms, where P>MC, because the price changed
will fall and the quantity supplied may not fall at all, there will be increasing
GANconsumer surplus and reducing producer surplus. If the profit maximising firm/s
increase output the policy may be more effective in increasing efficiency – as
consumer surplus will increase more than producer surplus falls. This is far more
likely under regulator price caps and threat of further interventions in energy
GEV markets than in markets where there are far more suppliers, such as food and
rented accommodation.

Overall, the use of a price ceiling in a market, such as rented housing in New York, is
far more likely to lead to less efficient outcomes in freely functioning markets,
 reducing combined consumer and producer surplus, a loss of community (social)
welfare, than if the government uses alternative interventions. The existence of
thriving black markets in New York, where renters are willing to pay significant sums
in illicit additional payments and/or sub-letting arrangements, provides enough
evidence to suggest the use of price ceilings often fail on efficiency grounds, with the
SEV accompanied reduction in the combined value of consumer surplus and producer
surplus overall.

Note – strong evaluation (SEV) can only be achieved if a developed evaluative

conclusion is provided, in addition to evaluative judgements throughout. this should
not be a summary.