Markets and Market Failure · 7136/1
AQA A-level Paper 1, June 2017
All 14 written questions from AQA A-level Paper 1 (June 2017), Markets and Market Failure. Case studies: Privatisation of Royal Mail and The gender pay gap. Each question shows its marks and topic, with an examiner insight on 10, and opens the question paper and mark scheme at the right page.
Context 1
Privatisation of Royal Mail
Extracts: UK parcels delivery market · The privatisation of Royal Mail · Technological innovation in the postal market
Q1
Using the data in Extract A (Figure 1), calculate the three-firm concentration ratio in the UK parcels delivery market. Give your answer, as a percentage, to one decimal place.
TopicMarket structuresOligopoly
Q2
Explain how the data in Extract A (Figure 2) show that the UK parcels delivery market is displaying dynamic efficiency.
TopicProduction, costs and revenueProductivity & efficiency
Q3
Extract B (lines 12–14) states that ‘The Universal Postal Service obligations require Royal Mail to deliver letters and parcels to all parts of the country six days a week’.
With the help of a monopoly diagram, explain how the Universal Postal Service obligations are likely to affect Royal Mail’s costs and profits.
With the help of a monopoly diagram, explain how the Universal Postal Service obligations are likely to affect Royal Mail’s costs and profits.
TopicMarket structuresMonopoly & market power
Examiner insight
- What to cover
- The universal service obligation raises costs, especially to rural areas. Show higher average costs reducing supernormal profit.
- Diagram
- Monopoly diagram with the AC curve shifting up, reducing the profit rectangle.
- Watch out
- Label the profit area before and after. Many answers change the curves but never show the profit effect.
Q4
Extract C (line 2) states that ‘Many competitors are using digital technology to drive innovation’.
Use the extracts and your knowledge of economics to assess whether the benefits outweigh the costs when the Government privatises organisations such as Royal Mail and opens up the market to competition.
Use the extracts and your knowledge of economics to assess whether the benefits outweigh the costs when the Government privatises organisations such as Royal Mail and opens up the market to competition.
TopicMarket structuresCompetition policy & regulation
Examiner insight
- What to cover
- Benefits of privatisation: efficiency, innovation, lower prices through competition, revenue for the government. Costs: loss of universal service, private monopoly power, job cuts.
- Diagram
- A monopoly versus competition diagram is useful but not required.
- Evaluation
- Judge by the level of competition after privatisation, the strength of regulation and the time period. Use the extracts on digital innovation.
- Watch out
- The question asks about benefits against costs. End with a clear judgement.
Context 2
The gender pay gap
Extracts: Causes of the gender pay gap · Tackling the gender pay gap
Q5
Using the data in Extract D (Figure 3), calculate the mean female labour force participation rate for the five countries listed. Give your answer to one decimal place.
TopicThe labour marketDiscrimination & pay gaps
Q6
Explain how the data in Extract D (Figure 4) show that the degree of inequality between the pay of male and female workers is falling.
TopicThe labour marketDiscrimination & pay gaps
Q7
Extract E (lines 22–23) states that ‘The tendency for women to participate in low-productivity sectors is now a bigger factor in their low pay than discrimination’.
With the help of a diagram, explain how the difference between the marginal revenue product of male and female workers might account for the lower average earnings of women.
With the help of a diagram, explain how the difference between the marginal revenue product of male and female workers might account for the lower average earnings of women.
TopicThe labour marketLabour demand & supplyDiscrimination & pay gaps
Examiner insight
- What to cover
- Wages in a competitive market are set where MRP meets supply. Lower productivity sectors give a lower MRP and lower pay.
- Diagram
- Two labour market diagrams, with the lower MRP curve giving a lower wage.
- Watch out
- Define MRP as MPP multiplied by MR. Link the diagram to women in low-productivity sectors.
Q8
Extract F (lines 19–20) notes that ‘The UK Government recognises the need to raise aspirations and attainment for girls’.
Use the extracts and your knowledge of economics to evaluate the policies that government might use to reduce the gender pay gap.
Use the extracts and your knowledge of economics to evaluate the policies that government might use to reduce the gender pay gap.
TopicThe labour marketDiscrimination & pay gaps
Examiner insight
- What to cover
- Assess policies: equal pay law, affordable childcare, shared parental leave, education and careers guidance, pay transparency.
- Evaluation
- Judge by cause of the gap (discrimination or occupational choice), cost, time lag and enforcement. Use the extracts.
- Watch out
- Match each policy to a cause. A list of policies with no link to causes stays in the middle levels.
Q9Essay 1
Explain how price and output are determined for a firm in a monopolistically competitive market, in both the short run and the long run.
Essay stimulus. Roughly £18bn is forecast to be spent in the UK on advertising in 2017. Much of this will be spent by monopolistically competitive firms or oligopolies seeking to differentiate the products they sell to consumers.
TopicMarket structuresMonopolistic competition
Examiner insight
- What to cover
- Short run: profit-maximising at MC = MR, possible supernormal profit. Long run: new entry shifts demand left until AR is tangent to AC, giving normal profit.
- Diagram
- Short-run and long-run monopolistic competition diagrams.
- Watch out
- The tangency point in the long run is the key mark. Draw AR tangent to AC, not crossing it.
Q10Essay 1
Evaluate the view that government regulation of monopolistically competitive markets is unnecessary, and that polices to encourage competition and prevent the abuse of monopoly power should focus entirely on oligopolies and monopolies.
Essay stimulus. Roughly £18bn is forecast to be spent in the UK on advertising in 2017. Much of this will be spent by monopolistically competitive firms or oligopolies seeking to differentiate the products they sell to consumers.
TopicMarket structuresMonopoly & market powerOligopolyMonopolistic competitionCompetition policy & regulation
Examiner insight
- What to cover
- Monopolistic competition has many firms, low barriers and normal profit in the long run, so the case for regulation is weaker.
- Diagram
- Long-run monopolistic competition diagram showing excess capacity.
- Evaluation
- Consider consumer protection, false advertising, and the fact that oligopoly and monopoly have more market power. Judge by the size of the welfare loss.
- Watch out
- Do not argue that monopolistic competition is perfectly efficient. It is neither productively nor allocatively efficient.
Q11Essay 2
Explain the main causes of poverty in the UK.
Essay stimulus. Attempts by governments to equalise incomes are well-intentioned but counter-productive. They destroy incentives for people to lift themselves out of poverty.
TopicDistribution of income and wealthInequality & poverty
Examiner insight
- What to cover
- Explain several causes and link each to low household income: unemployment and inactivity, low pay and low skills, part-time or insecure work, benefit levels, high housing costs, single-parent households, ill health and disability, regional decline.
- Watch out
- Define relative and absolute poverty first. Explain how each cause lowers income, rather than listing causes.
Q12Essay 2
To what extent can the problem of poverty in the UK be solved through the operation of market forces? Justify your answer.
Essay stimulus. Attempts by governments to equalise incomes are well-intentioned but counter-productive. They destroy incentives for people to lift themselves out of poverty.
TopicDistribution of income and wealthInequality & poverty
Examiner insight
- What to cover
- Market forces: growth, job creation, rising wages, incentives to work and train.
- Evaluation
- Markets can leave people behind: low pay, inequality, immobility, market failure in education. Judge the role of government alongside markets.
- Watch out
- Give a judgement on "to what extent". Pure description of causes will not reach the top levels.
Q13Essay 3
Explain why, in a free market, sugary drinks may be overconsumed.
Essay stimulus. In 2018, the UK Government will impose a new tax on sugary drinks, aimed at tackling obesity. Behavioural economists believe that taxation alone is unlikely to be very effective in reducing consumption. By 2050, obesity is predicted to affect 60% of adult men, 50% of adult women and 25% of children. It is associated with a range of health problems including type 2 diabetes, cardiovascular disease and cancer.
TopicMarket failure and government interventionMerit & demerit goodsMarket failure (general)Behavioural economics
Examiner insight
- What to cover
- Sugary drinks are demerit goods with negative consumption externalities and imperfect information, so consumption exceeds the social optimum.
- Diagram
- Demerit good diagram with MPB above MSB.
- Watch out
- Use the right curves: in consumption the gap is between private and social benefit, not cost.
Q14Essay 3
Evaluate the view that imposing a tax is the most effective government policy for reducing the market failures arising from overconsumption of unhealthy food and drink.
Essay stimulus. In 2018, the UK Government will impose a new tax on sugary drinks, aimed at tackling obesity. Behavioural economists believe that taxation alone is unlikely to be very effective in reducing consumption. By 2050, obesity is predicted to affect 60% of adult men, 50% of adult women and 25% of children. It is associated with a range of health problems including type 2 diabetes, cardiovascular disease and cancer.
TopicMarket failure and government interventionIndirect taxes & subsidiesMerit & demerit goodsMarket failure (general)
Examiner insight
- What to cover
- A tax raises price and reduces consumption towards the social optimum.
- Diagram
- Tax on a demerit good, using price elasticity of demand.
- Evaluation
- Compare with regulation, labelling, education and nudges. Consider inelastic demand, regressive effect and product reformulation (as with the sugar levy).
- Watch out
- Show that tax effectiveness depends on price elasticity of demand.
Question text is quoted from the question papers, © AQA, for students’ private study. Open the official papers and mark schemes from the links on each question. Examiner insights are written with AI assistance and moderated by Finn.