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

Explain what is meant by the ‘unintended consequence’ (Extract B, line 9) of the plastic tax.

1.4.2 Government Failure

With reference to Extract A and your own knowledge, assess the view that it is irrational to buy plastic carrier bags when shopping.

1.2.1 Rational Decision Making · 1.2.10 Alternative Views of Consumer Behaviour

With reference to Extract A, explain the likely numerical value for the income elasticity of demand for reusable cleaning products.

1.2.3 Elasticities of Demand

With reference to Extract C, explain how incentives to use reusable coffee cups may lead to a fall in demand for single‑use cups.

1.2.2 Demand · 1.4.1 Government Intervention in Markets

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

Discuss the likely private costs and external costs of the production of plastic.

1.3.2 Externalities

Evaluate the likely impact of a tax on plastic food-packaging. Use a diagram to support your answer.

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

1.2.9 Indirect Taxes and Subsidies

Evaluate methods of government intervention which could be used to reduce the market failure associated with plastic waste. Use a diagram to support your answer.

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

1.4.1 Government Intervention in Markets · 1.3.2 Externalities

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 Figure 1 and Extract A, explain the relationship between price elasticity of demand and total revenue.

1.2.3 Elasticities of Demand

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 Extract B, explain two external benefits associated with the consumption of ‘public service broadcasting’ (line 2).

1.3.2 Externalities

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

‘Television content is a public good’ (Extract B). Assess this statement.

1.3.3 Public Goods

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

1.3.2 Externalities

Using examples from the information provided, explain what is meant by both ‘substitutes’ and ‘complementary goods’.

1.2.3 Elasticities of Demand · 1.2.2 Demand

Discuss likely reasons why the market price of streaming television content is increasing. Draw a supply and demand diagram to support your answer.

1.2.6 Price Determination

Evaluate possible methods of government intervention to reduce the environmental damage caused by the consumption of television content.

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

1.4.1 Government Intervention in Markets · 1.3.2 Externalities

Evaluate the possible disadvantages of a free market approach to the provision of television content.

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

1.1.6 Types of Economies · 1.3.1 Types of Market Failure

The average UK household energy bill (gas and electric combined) rose 80% from £1 971 in 2021 to £3 549 in 2022. 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. 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

Explain the likely impact of the new 2020 TACs on the price of cod. Include a supply and demand diagram in your answer.

1.2.6 Price Determination · 1.4.1 Government Intervention in Markets

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

Assess whether it is rational for fishing companies to behave in this way.

1.2.1 Rational Decision Making

With reference to the information provided and your own knowledge, explain two characteristics of private ownership in a free market economy.

1.1.6 Types of Economies

With reference to the information provided, calculate the new quantity demanded of bags of chips from fish and chip shops, following a 2% increase in the price of fish. You are advised to show your working.

1.2.3 Elasticities of Demand

Discuss the likely impacts on an economy of specialising in the fishing industry. Use a production possibility frontier diagram in your answer.

1.1.5 Specialisation and the Division of Labour · 1.1.4 Production Possibility Frontiers

Some economists suggest that the market price of cod does not result in the socially optimum level of output. Evaluate the likely external costs from the over-fishing of cod. Use an appropriate diagram in your answer.

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

1.3.2 Externalities

Other than using a TAC, evaluate the policy options which could be used to reduce market failure resulting from over-fishing. Use at least one appropriate diagram in your answer.

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

1.4.1 Government Intervention in Markets · 1.3.2 Externalities

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

Explain why ‘the price elasticity of demand for higher education is about –0.5’ may be of relevance to English universities. Refer to Extract A in your answer.

1.2.3 Elasticities of Demand

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

1.2.2 Demand

Assess the likely impact of these drop-out rates on the allocation of resources within an economy.

1.2.7 The Price Mechanism · 1.1.3 The Economic Problem

With reference to Extract A, explain one likely private benefit to students and one likely external benefit of higher education.

1.3.2 Externalities

With reference to Figure 2, calculate the percentage increase in outstanding student loans from 2013 to 2018. You are advised to show your working.

1.4.1 Government Intervention in Markets

With reference to Figure 1 and Extract A, discuss the benefits of allowing universities to charge higher tuition fees for some degree courses.

1.2.6 Price Determination

Evaluate the possible advantages of a free market approach to providing services such as education.

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

1.1.6 Types of Economies · 1.3.1 Types of Market Failure

Evaluate whether government intervention is able to correct market failure in education.

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

1.4.1 Government Intervention in Markets · 1.4.2 Government Failure

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. 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 A and Figure 2, explain how the health care market in the UK illustrates the economic problem.

1.1.3 The Economic Problem

Explain how ‘asymmetric information’ (Extract B, line 30) can lead to market failure in health provision.

1.3.4 Information Gaps

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

‘Public parks are a public good’ (Extract C, line 1). Assess this statement.

1.3.3 Public Goods

Calculate the annual revenue raised by charging £12 per GP visit. Assume there will be 450 million GP visits per year and 90% of these will not be charged. You are advised to show your working.

1.4.1 Government Intervention in Markets

Discuss likely reasons why the prices of treatments in private sector hospitals are increasing. Draw a supply and demand diagram to support your answer.

1.2.6 Price Determination

Evaluate possible ways the government could intervene to reduce the excess demand for state-funded health care.

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

1.4.1 Government Intervention in Markets

Evaluate the possible disadvantages of a free market approach to providing health care.

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

1.1.6 Types of Economies · 1.3.1 Types of Market Failure

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 Figure 1 and Extract A, explain why the price of uranium has ‘fallen to a 13-year low’ (Extract A, lines 2 and 3) in 2016. Include a supply and demand diagram in your answer.

1.2.6 Price Determination

With reference to Extract A and your own knowledge, assess whether the supply of uranium is likely to be price elastic or price inelastic.

1.2.5 Price Elasticity of Supply

With reference to Extract B, explain two likely reasons why many consumers of energy have not switched to suppliers offering lower prices.

1.3.4 Information Gaps · 1.2.10 Alternative Views of Consumer Behaviour

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

Using examples from the information provided, explain what is meant by renewable and non-renewable energy.

1.1.3 The Economic Problem

Discuss the likely microeconomic effects of this decision on energy producers and consumers. Include a supply and demand diagram in your answer.

1.2.6 Price Determination

Using the concept of external costs, evaluate whether nuclear power is under-provided or over-provided in the energy market. Use an appropriate diagram in your answer.

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

1.3.2 Externalities

Evaluate ways in which government intervention could be used to reduce carbon emissions. Use at least one appropriate diagram in your answer.

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

1.4.1 Government Intervention in Markets · 1.3.2 Externalities

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

Explain why ‘bans on tobacco advertising’ (Extract A, line 7) may result in a decrease in the revenue of tobacco firms. Include a supply and demand diagram in your answer.

1.2.2 Demand · 1.4.1 Government Intervention in Markets

With reference to the information provided and your own knowledge, assess the view that tobacco consumers switching to e-cigarettes is an example of rational behaviour.

1.2.1 Rational Decision Making

Explain how changes in the price of tobacco cigarettes may affect the demand for e-cigarettes over time.

1.2.3 Elasticities of Demand

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

With reference to Extract A, lines 11–13, calculate the price elasticity of demand for tobacco cigarettes in high-income countries and in low-middle-income countries. You are advised to show your working.

1.2.3 Elasticities of Demand

With reference to Figure 1, assess the likely reasons for the difference in price elasticity of demand for tobacco cigarettes and e-cigarettes.

1.2.3 Elasticities of Demand

Evaluate the possible advantages of a free market approach to cigarette consumption.

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

1.1.6 Types of Economies · 1.3.1 Types of Market Failure

Evaluate the impact of government intervention in the cigarette market.

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

1.4.1 Government Intervention in Markets · 1.2.9 Indirect Taxes and Subsidies

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

With reference to Figure 1, explain one possible reason for the differences in price elasticity of supply of new housing between countries.

1.2.5 Price Elasticity of Supply

With reference to Extract A, assess the likely impact of the Help to Buy scheme on the market for rented properties in the UK.

1.4.1 Government Intervention in Markets · 1.2.6 Price Determination

Explain the likely impact on producer surplus of an increase in the demand for housing. Use a diagram to illustrate your answer.

1.2.8 Producer and Consumer Surplus

With reference to Figure 2, calculate the percentage change in house prices between the first quarter of 2009 and the first quarter of 2015. You are advised to show your working.

1.2.6 Price Determination

With reference to Figures 1 and 2 and your own knowledge, discuss the functions of the price mechanism in allocating housing.

1.2.7 The Price Mechanism

Evaluate the likely microeconomic effects of government intervention in the UK housing market.

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

1.4.1 Government Intervention in Markets

Evaluate the case for government provision of goods and services such as flood defence schemes or housing.

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

1.3.3 Public Goods · 1.4.1 Government Intervention in Markets