Using a production possibilities curve (PPC) diagram, explain why choices have to be made in all economies.

Discuss the view that governments should not intervene in housing markets.

Answers may include:

• definitions of scarcity, choice and the economic problem
• diagram to show a production possibility curve to illustrate choice
• explanation of the basic problem to identify why choice must be made
• examples of such choices being made in practice.

Marks should be allocated according to the Paper 1 markbands for May 2013 forward, part A.

Answers may include:

• definitions of government intervention, types of intervention (price ceilings, subsidies), free market
• diagrams to show a market and the impact of intervention in a market, such as through price controls and subsidies
• explanation of different forms of intervention and their impacts. Identification of the significance of social (community) surplus and its maximization in a free market
• examples of intervention in housing markets
• synthesis or evaluation (discuss).

N.B. Definitions, theory and examples that have already been given in part (a) and then referred to in part (b) should be rewarded.

Discussion may include: the advantages and disadvantages of intervention, different methods of intervention and a consideration of the case for a free market. Candidates may choose to focus on price controls or subsidies, which should be fully rewarded if they are able to satisfy the demands of the level descriptors.

Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.

Opinions or conclusions should be presented clearly and should be supported by appropriate examples.

Marks should be allocated according to the Paper 1 markbands for May 2013 forward, part B.

The highest achieving responses clearly focused on the question of scarcity at a country level using a two-good example to show how production of one good means foregoing the production of another. A definition and explanation of opportunity cost in this situation was a useful support to the answer. One disappointing aspect of some answers were poorly drawn and labelled PPC diagrams. It would be good to see future candidates using PPC diagrams more effectively to illustrate economic theory.

There were many effective answers that explained how maximum prices are applied in the rental market for housing and these were supported by clearly drawn graphical analysis. The discussion was developed by considering the problems of applying maximum prices (excess demand, parallel markets, reduced producer surplus) as reasons for non-intervention. The highest achieving responses also considered the advantages and disadvantages of alternative approaches such as housing subsidies. It was pleasing to see some candidates using effective real-world examples like tent controls in New York to illustrate their answers.