Edexcel Theme 1: Introduction to Markets and Market Failure — Past Paper Questions

With reference to Extract A, explain the likely reasons for the change in price of electronic devices. Include a supply and demand diagram in your answer.

1.2.6 Price Determination

With reference to Extract D, discuss possible methods of government intervention to reduce electronic waste.

1.3.2 Externalities · 1.4.1 Government Intervention in Markets

With reference to Figure 1 and Extract A, explain what is meant by ‘price inelastic demand’ (line 8).

1.2.3 Elasticities of Demand

Examine one likely externality that arises when a producer generates electricity by burning gas. Use a diagram to show the external costs of production.

1.3.2 Externalities

With reference to the information provided, assess whether Netflix subscribers behave rationally.

1.2.10 Alternative Views of Consumer Behaviour · 1.2.1 Rational Decision Making

With reference to the information provided, examine the likely numerical value of the cross elasticity of demand between UK online streaming services.

1.2.3 Elasticities of Demand

With reference to Extract C, discuss the likely private and external benefits of viewing educational websites and TV programmes.

1.3.2 Externalities

The average UK household energy bill (gas and electric combined) rose 80% from £1 971 in 2021 to £3 549 in 2022. (Source adapted from: https://www.telegraph.co.uk/money/consumer-affairs/energy-price-cap-rise-october-2022-what-happen-household-bills/) Evaluate possible methods of government intervention to control household energy bills in the UK.

One of two options in Section C — candidates answered this or the other.

1.4.1 Government Intervention in Markets · 3.6.1 Government Intervention

Using 2021 estimates of carbon emissions, it is estimated that a petrol car journey from London to Glasgow emits approximately 3.3 times more carbon dioxide per passenger than the equivalent journey by train. (Source adapted from: https://www.gov.uk/government/statistics/transport-and-environment-statistics-autumn-2021/transport-and-environment-statistics-autumn-2021) Evaluate possible methods of government intervention to reduce carbon emissions caused by road transport in the UK.

One of two options in Section C — candidates answered this or the other.

1.3.2 Externalities · 1.4.1 Government Intervention in Markets

Explain the difference between a positive and a normative statement, using an example of each from Extract A.

1.1.2 Positive and Normative Statements

With reference to Figure 2 and your understanding of price elasticity, examine two factors that may cause significant changes in the international price of coffee beans.

1.2.5 Price Elasticity of Supply · 1.2.6 Price Determination

Using the information provided, explain one externality that arises in the food delivery market.

1.3.2 Externalities

With reference to Extract B, examine whether the demand for delivered food is price inelastic and income elastic.

1.2.3 Elasticities of Demand

Examine the likely impact of Thomas Cook’s plan ‘to reduce their airline emissions’ (Extract B, line 6) on the social optimum position. Use an appropriate externalities diagram in your answer.

1.3.2 Externalities

With reference to Extract C, assess whether Thomas Cook’s failure was caused by the principal-agent problem.

3.2.1 Business Objectives · 1.3.4 Information Gaps

With reference to Extract C, discuss the proposed government subsidy to prevent Thomas Cook from reaching its shut-down point.

3.3.4 Profits and Losses · 1.2.9 Indirect Taxes and Subsidies

With reference to the information provided, discuss the decision by Jet2 to increase its package holiday prices.

3.3.1 Revenue · 1.2.3 Elasticities of Demand

Examine two reasons why the demand for HCWs increases during a period when consumer ‘incomes fail to keep up with inflation’ (Extract A line 8).

1.2.3 Elasticities of Demand

Refer to Figure 1. Explain the likely effect of the change in subsidy levels between 2017 and 2018 on rail fares. Include a supply and demand diagram in your answer.

1.2.9 Indirect Taxes and Subsidies

With reference to Figure 2, examine two possible factors which may have influenced demand for rail travel since 2008.

1.2.2 Demand

The International Energy Agency has predicted that oil use by cars will peak in 2025 because of the increasing number of drivers switching to electric vehicles. (Source adapted from: https://www.thetimes.co.uk) Evaluate the likely microeconomic consequences of consumers shifting from vehicles powered by fuel obtained from oil to electric‑powered vehicles.

One of two options in Section C — candidates answered this or the other.

1.2.6 Price Determination · 1.3.2 Externalities

Examine two ways, apart from Fairtrade schemes, in which cocoa farmers could boost their incomes despite the falling price of cocoa.

4.3.3 Development Strategies · 1.2.5 Price Elasticity of Supply

Discuss the likely success of policies to reduce the consumption of single‑use plastic bags in cities such as Istanbul.

1.4.1 Government Intervention in Markets · 1.3.2 Externalities

With reference to Extract A, explain the difference between a positive statement and a normative statement.

1.1.2 Positive and Normative Statements

With reference to Extract C, assess possible reasons why many ‘landline-only’ customers do not switch to a cheaper telephone provider.

1.3.4 Information Gaps · 1.2.10 Alternative Views of Consumer Behaviour

Evaluate the microeconomic and macroeconomic effects of increased government spending on education to promote healthy eating in the UK.

One of two options in Section A — candidates answered this or the other.

2.2.4 Government Expenditure · 1.3.2 Externalities

Evaluate the likely microeconomic and macroeconomic effects of imposing a tax on HFSS foods.

One of two options in Section A — candidates answered this or the other.

1.2.9 Indirect Taxes and Subsidies · 1.3.2 Externalities

With reference to Extract D line 21, explain why ‘opportunity cost’ is a problem for governments of developing countries when servicing debt.

1.1.3 The Economic Problem · 4.3.3 Development Strategies

With reference to Figure 1, explain one likely reason for the overall trend in the real price of gas and electricity.

1.2.6 Price Determination

With reference to Extract A and your own knowledge, examine two possible reasons for the change in price elasticity of demand for electricity over time.

1.2.3 Elasticities of Demand

In September 2016 the government approved the building of an £18 billion nuclear power station, Hinkley Point C, which will supply 7% of UK electricity for up to 60 years. The power station is funded by Chinese and French investment. Evaluate the likely private costs and external costs involved in such major power station construction projects. Use an appropriate externalities diagram in your answer.

One of two options in Section C — candidates answered this or the other.

1.3.2 Externalities · 1.3.1 Types of Market Failure

Examine the advantages of using an indirect tax as a means of reducing the use of disposable coffee cups.

1.2.9 Indirect Taxes and Subsidies · 1.3.2 Externalities

With reference to the information provided and your own knowledge, evaluate the microeconomic and macroeconomic effects of increased UK demand for coffee at branded coffee shops.

One of two options in Section A — candidates answered this or the other.

1.2.2 Demand · 2.2.1 Aggregate Demand

With reference to the information provided and your own knowledge, evaluate the microeconomic and macroeconomic effects on Indonesia of the volatility of prices of commodities such as coal.

One of two options in Section B — candidates answered this or the other.

4.1.3 Pattern of Trade · 1.2.5 Price Elasticity of Supply

Assess the extent to which ‘information gaps’ (Extract B, lines 5 and 6) and ‘irrational behaviour’ (Extract B, line 11) are the main causes of food waste in the UK.

1.3.4 Information Gaps · 1.2.10 Alternative Views of Consumer Behaviour

In 2015 a report by Public Health England recommended the imposition of a 20% tax on the sale of soft drinks that contain high levels of sugar. Evaluate the likely microeconomic effects of such a tax.

One of two options in Section C — candidates answered this or the other.

1.2.9 Indirect Taxes and Subsidies · 1.3.2 Externalities · 1.4.1 Government Intervention in Markets

Examine the likely impact of externalities of copper mining on firms and communities within Chile.

1.3.2 Externalities