Exemplar for internal assessment resource Economics 1.2A for Achievement Standard 90984

Exemplar for Internal Assessment Resource

Economics Level 1

Resource title: Taking a Look at McDonald’s Restaurants (NZ) Ltd

This exemplar supports assessment against:

Achievement Standard 90984

Demonstrate Understanding of Decisions a Producer Makes About Production

Expected responses

The moderators have developed expected student response from a wide variety of sources.

Date version published by Ministry of Education

December 2010 To support internal assessment from 2011

© Crown 2010

Exemplar for internal assessment resource Classics for Achievement Standard 90250

© Crown 2010

Grade Boundary: Low Excellence

1. Overall, the student has demonstrated a comprehensive understanding of decisions a producer makes about production. The student has integrated supporting data (figures from the table and from Resource A) into detailed explanations of producer decisions in relation to production and productivity.

The student has linked the production decision of training staff to improve productivity via specialisation and division of labour to the positive consequence to the producer and explained a negative consequence to society of the producer decision to cut staff numbers.

The student has fully explained production increases and decreases from a macro viewpoint, using appropriate economic language, and has linked these explanations to consequences to the producer and explained some of the flow-on effects to society.

The commercial goals are not fully explained and have no examples incorporated into the explanations. However, the student has explained the non-commercial goals and production decisions of using price and non-price strategies in detail using examples from gathered information, and linked these back to the relevant commercial goals and explained the consequences to the producer.

Production decisions have been linked to explanations of negative consequences to society, but detailed explanations would include the positive social consequences as well. "McDonalds supports local producers and businesses by ordering ingredients from them, competition in the takeaways industry often leads to cheaper prices for consumers, and the healthy options added to the menu list means better quality ingredients are being used. The community service and expenditure on local charities is of huge assistance to organisations that may otherwise not be able to afford to continue offering their services. The business growth through franchising means greater employment, and the expenditure and profit means greater growth for the NZ economy."

TASK 2

Productivity Table Year Production of Top 8

burgers Percentage

Change Labour Productivity (Burgers/Workers)

2007 46,241,971 5780.2 2008 47,915,640 3.62% 5989.5 2009 46,965,170 -1.98% 5870.6 Productivity Productivity is looking at output/inputs to see how efficiently the production process is working. McDonalds is very good at reviewing all parts of the process and finding ways to make it more efficient so they can cut costs of production, so increase profit and control safety and quality management. They know down to the second how long each stage should take, for instance their time management in production for cooking; the beef patties are cooked for just the right amount of time – that's a minimum of 36 seconds for a regular patty and a minimum of 101 seconds for a Quarter Pounder patty. If the staff levels remained the same (approx. 8000) between 2007 and 2008 then productivity of labour has improved by 209.3 annually or weekly 4 per worker. This could be due to improved training by McDonalds to improve specialisation and division of labour has been applied to the production tasks. The resulting gain in productivity means the production process has become more profitable for the producer. The decrease in productivity of labour between 2008 and 2009 is only true if staff numbers stayed the same, but in reality McDonalds may have reduced staff numbers or reduced their hours to part-time to cut the cost of labour, because of the reduced demand by consumers in 2009, which has resulted in decreased production of the Top 8 burgers, this means less income for workers as they have reduced hours or they have become unemployed. Production Production is the process of transforming inputs into output (goods or services), or in this case resources like raw ingredients, capital goods and labour. Workers then cook using capital goods like ovens and change these raw ingredients into burgers, and serve them to customers. Production of the Top 8 burgers increased by 3.62% from 2007 to 2008, this increase in consumer demand could have been due to a successful advertising campaign that promoted their burgers, and consumers had more disposable income to spend, maybe due to tax cuts or the economy was stronger. The producer has increased production of burgers to meet this increased demand, so has increased supply, this will result in increased revenue for the producer and for the mainly New Zealand suppliers of the ingredients. But from 2008 to 2009 production worsened with negative growth

of -1.98%, this was about the same time as the global recession started, so demand for takeaways decreased because this is a luxury good and when income decreases consumers focus on buying only the necessities like groceries. The producer will have taken a loss in revenue and most likely profit as well because they may have purchased more capital goods or hired more staff to meet the increased production needs of the previous year. This decreased revenue and profit also has negative consequences to society as well because workers may be laid off which reduces their income, the NZ suppliers who rely on McDonalds demand for their goods receive less revenue as well, and the government will receive less tax revenue from all these firms and households and also will have to pay out more in benefits to those unemployed. 

TASK 3

Commercial Goals McDonalds goals are profit maximisation, sales maximisation, increased market share of the takeaways industry, and business expansion through selling more franchises, setting up more McDonalds outlets throughout New Zealand. Non-Commercial Goals Some of the non-commercial goals are corporate responsibility (purchasing from mainly NZ suppliers). One of the positive benefits of McDonalds purchasing off NZ suppliers is the income this provides for other businesses in the NZ economy and for the consumers who work in these businesses. Community goals include helping to set up the Ronald McDonald House charities, and supporting Variety-The children’s Charity. Environmental goals include the 3Rs-reduce, re-use, and recycle and supporting Clean up NZ week. The franchising arrangement means many local business people run the restaurants and help out local junior sports teams and at other community events. The AUT scholarships assist Māori from Northland to attain tertiary qualifications. Special Christmas parties are organised for disadvantaged and disabled children around NZ. The environmental goals encourage reducing waste and support the clean-up of NZ campaign in September every year. Price Strategies McDonalds reduces prices to try and increase sales like their six lunch deals from $5.90, value picks – 6 items under $3 each, combo deals, limited time specials, and cheap burger coupons (on the back of supermarket till receipts). These strategies are designed to increase sales; once the consumers come in for the cheap items they may buy other items as well, so increasing revenue and profit for the producer. Non-Price Strategies McDonalds promotes sales without changing price like product variation (actual different products) including a Breakfast menu, M selections range, and McCafe to appeal to different tastes and preferences and income brackets, and healthy alternatives (fruit bags) to try to attract the more health conscious consumers. Non-price strategies also include product differentiation (products that appear different) including community sponsorship, branding, promotions, location, packaging, advertising campaigns (Weight Watchers approved meals), service, and Happy Meal which includes a free toy, catering for children’s birthday parties, and promoting free range eggs being used in Christchurch and Dunedin restaurants. These strategies are designed to increase market share by taking business off other takeaway firms, reducing competition, and so ultimately increasing profit for McDonalds. Consequences to society McDonalds price and non‐price strategies are designed to meet their commercial goals of increasing sales and market share to increase revenue and ultimately profit. Even the non‐commercial goals are designed to improve public perception through 

their community service and therefore hopefully attract more people to purchase their food items. The consequences for some members of society is eating more fast food than they should or making poor food choices (choosing food with little nutritional value). Childhood obesity is a consequence as the value‐picks pricing makes it easier for students to afford the products, and the combo deals appeal to many consumers who perceive they are getting more value for money. Perhaps because of this negative publicity McDonalds made the production decision to add more healthy alternatives to their menu list. Other smaller takeaway businesses may close down with the tough competition and their staff will lose their jobs adding to the unemployed needing government benefits, which is bad for the economy. 

Exemplar for internal assessment resource Economics 1.2A for Achievement Standard 90984

Grade Boundary: High Merit

2. Starts with a correct observation about better staff training leading to greater productivity – this is a good example of an in depth explanation. The link between decreasing demand and cutting output is another example of the detail required at this level. The consequences to society are well explained with the necessary amount of detail. An example is that the social consequences are balanced (negative and positive) although they are certainly not linked with the relevant decisions, which is requirement for Excellence. The information on commercial and non-commercial goals is generally accurate and detailed although arguably is not really integrated with the supporting data. On balance a very strong Merit.

© Crown 2010

Exemplar for internal assessment resource Economics 1.2A for Achievement Standard 90984

Grade Boundary: Low Merit

3. There is adequate detail in the data. Her reason as to why McDonalds increased production is a bit scrambled and her explanation as to why productivity was increased has some reasonable ideas but the explanation lacks clarity. Her answers that describe the effect of decisions to use price and non-price strategies are brief but sound and are certainly at Merit level. The section on social consequences is well explained but arguably a detailed explanation would include negative as well as positive effects.

© Crown 2010

Exemplar for internal assessment resource Economics 1.2A for Achievement Standard 90984

Grade Boundary: High Achieved

4. Relevant data has been produced and the commentary is certainly adequate to show a basic understanding. The first section under Task 3 is basically an unrelated list although enough has been done to relate some of the points, for example the first two Commercial Goals are dealt with adequately enough to confirm that this section deserves an Achieved grade. However, the level of detail is not enough for this to be an example of Merit. The last section is, however, very well done and in itself could well be considered for Merit but on balance the evidence is an example of a High Achieved.

© Crown 2010

Exemplar for internal assessment resource Economics 1.2A for Achievement Standard 90984

Grade Boundary: Low Achieved

5. The learner has produced relevant data and has used it to make an attempt to explain production decisions although the answer is barely of the standard to demonstrate an understanding. The material that covers the Commercial and Non Commercial Goals and Price and Non Price strategies is basically just a list, which is not related to production decisions. Conversely the material on Consequences to Society is of a very high standard. She certainly deserves to achieve but the deficiencies in explaining production decisions would confine the learner to Low Achieved.

© Crown 2010

Exemplar for internal assessment resource Economics 1.2A for Achievement Standard 90984

Grade Boundary: High Not Achieved

6. The learner has not gone far enough in presenting data relevant to producer decisions. The explanation is not adequate to demonstrate an understanding. The last paragraph under Task 2 makes little sense. However the evidence offered in Task 3 is of a better standard and although simplistic probably does conform to the required ‘explanation’. On balance though not enough valid evidence is offered for this learner to Achieve.

© Crown 2010