Markets and Market Failure · 7136/1
AQA A-level Paper 1, June 2023
All 14 written questions from AQA A-level Paper 1 (June 2023), Markets and Market Failure. Case studies: Electric cars and battery production and In-work poverty in the United Kingdom. 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
Electric cars and battery production
Extracts: The electric vehicle revolution · Are electric vehicles as green as claimed?
Q1
Using the data in Extract A (Table 1), calculate the index of total car sales in 2021 if, in the base year, total car sales were 1.25 million.
Give your answer to two decimal places.
Give your answer to two decimal places.
TopicMarket failure and government interventionExternalities
Q2
Explain how the data in Extract A (Table 1 and Figure 1) show that developments in the car market are the main reason for the changing demand for lithium-ion batteries in the UK.
TopicPrice determination in a competitive marketDemand & supply
Q3
Extract C (lines 3–4) states that ‘the mining, manufacturing and disposal process for batteries could soon become an environmental disaster.’
With the help of a diagram, explain why the production and sale of lithium-ion batteries might lead to market failure.
With the help of a diagram, explain why the production and sale of lithium-ion batteries might lead to market failure.
TopicMarket failure and government interventionExternalitiesMarket failure (general)
Examiner insight
- What to cover
- Battery mining, manufacturing and disposal create pollution and health damage for third parties. These external costs are not paid by producers or consumers, so output is above the social optimum.
- Diagram
- Negative production externality diagram with the welfare loss.
- Watch out
- Use the extract's examples of cobalt mining and disposal.
Q4
Extract B (lines 20–21) states that ‘all vehicle owners should be forced to pay the full costs of their driving. This would incentivise people to consider using public transport, cycling or walking.’
Evaluate policies that could be used to reduce the environmental impact of all types of car.
Evaluate policies that could be used to reduce the environmental impact of all types of car.
TopicMarket failure and government interventionExternalities
Examiner insight
- What to cover
- Policies: fuel duty, road pricing, vehicle tax by emissions, regulation of emissions, subsidies for public transport, charging zones, battery recycling rules.
- Diagram
- Negative externality diagram with a tax equal to the external cost.
- Evaluation
- Judge by price elasticity of demand for driving, equity for rural and low-income drivers, cost, and how well the policy covers all car types.
- Watch out
- The question covers all cars, not only electric cars.
Context 2
In-work poverty in the United Kingdom
Extracts: In-work poverty is on the rise in the UK · Solutions to the problem of in-work poverty
Q5
Use the data in Extract D (Figure 2) to calculate the difference between the mean and median rate of growth of working households’ real pre-tax earnings, over the period 1994–2017.
TopicDistribution of income and wealthInequality & poverty
Q6
Explain how the data in Extract D (Figure 3) show that employment is an increasingly ineffective protection against poverty.
TopicDistribution of income and wealthInequality & poverty
Q7
Extract E (lines 19–20) states that ‘Some out-of-work benefits have not kept up with inflation, putting downward pressure on wages, contributing to the rise in in-work poverty.’
With the help of a diagram, explain how a reduction in out-of-work benefits may lead to lower wages in some labour markets.
With the help of a diagram, explain how a reduction in out-of-work benefits may lead to lower wages in some labour markets.
TopicThe labour marketLabour demand & supplyInequality & poverty
Examiner insight
- What to cover
- Lower out-of-work benefits make unemployment less attractive, so more people look for work. Labour supply shifts right and the wage falls in low-paid markets.
- Diagram
- Labour market with supply shifting right and the wage falling.
- Watch out
- Link benefits to the incentive to work, then to labour supply, then to wages.
Q8
Extract F (lines 1–2) states that ‘Charities and think tanks have called for action to reduce job insecurity, lower housing costs and increase earnings for low-paid workers.’
Using the extracts and your knowledge of economics, evaluate policies that could be used to reduce in-work poverty in the UK.
Using the extracts and your knowledge of economics, evaluate policies that could be used to reduce in-work poverty in the UK.
TopicDistribution of income and wealthInequality & poverty
Examiner insight
- What to cover
- Policies: higher minimum wage, in-work benefits, childcare support, more social housing, training, action on insecure contracts.
- Diagram
- Minimum wage diagram is useful.
- Evaluation
- Judge by cost, effect on employment and incentives, time lags, and the extract evidence on food banks and Universal Credit.
- Watch out
- Use the extracts. Link each policy to a cause of in-work poverty.
Q9Essay 1
Explain why, in long-run equilibrium, monopolistically competitive markets are neither productively nor allocatively efficient.
Essay stimulus. Some believe that government intervention in markets is undesirable because market forces promote creativity, innovation and efficiency. Others believe that competition policy is needed to prevent firms abusing their market power.
TopicMarket structuresMonopolistic competition
Examiner insight
- What to cover
- In long-run equilibrium, price is above MC, so the firm is not allocatively efficient. The AR curve is tangent to AC on its falling part, so output is below minimum AC and the firm is not productively efficient (excess capacity).
- Diagram
- Long-run monopolistic competition diagram showing tangency and excess capacity.
- Watch out
- Show both conditions on the diagram and name excess capacity.
Q10Essay 1
Assess the view that competition policy is likely to lead to markets becoming less efficient in the long run.
Essay stimulus. Some believe that government intervention in markets is undesirable because market forces promote creativity, innovation and efficiency. Others believe that competition policy is needed to prevent firms abusing their market power.
TopicMarket structuresCompetition policy & regulationProductivity & efficiency
Examiner insight
- What to cover
- Competition policy aims to raise static and dynamic efficiency by blocking mergers and stopping abuse.
- Evaluation
- It may reduce efficiency if it prevents economies of scale, weakens the reward for innovation, or regulators lack information. Judge by market and time period.
- Watch out
- Define the types of efficiency first, then evaluate against each.
Q11Essay 2
Explain the determinants of the supply of labour to an industry.
Essay stimulus. Since the 1980s, politicians have been freeing up one side of the labour market by reducing the power of trade unions and their influence over the supply of labour. Meanwhile, they have been doing very little about the monopsony power of employers.
TopicThe labour marketLabour demand & supply
Examiner insight
- What to cover
- Supply of labour to an industry depends on the wage, non-wage benefits (conditions, flexibility, job security), required skills and training time, labour mobility, the working population and migration, and wages in other industries.
- Watch out
- Separate a movement along supply (wage changes) from shifts (other factors).
Q12Essay 2
Evaluate the view that labour markets work best when strong monopsony power is balanced by trade union power.
Essay stimulus. Since the 1980s, politicians have been freeing up one side of the labour market by reducing the power of trade unions and their influence over the supply of labour. Meanwhile, they have been doing very little about the monopsony power of employers.
TopicThe labour marketLabour demand & supplyTrade unions & monopsony
Examiner insight
- What to cover
- A monopsony alone pays below the competitive wage. A strong union facing a monopsony creates bilateral monopoly, and the outcome lies between the two positions.
- Diagram
- Bilateral monopoly diagram showing the range of possible wages.
- Evaluation
- The outcome depends on bargaining power, the elasticity of demand for labour and the risk of strikes. Judge whether this is better than a competitive market.
- Watch out
- The bilateral monopoly diagram is the key skill.
Q13Essay 3
Explain how market contestability affects the performance of an industry.
Essay stimulus. Some argue that privatisation of government-owned industries is necessary to improve efficiency. However, there are several cases where privatisation has simply transferred a monopoly from the state to the private sector. Nevertheless, such private monopolies are vulnerable to the threat of new entrants challenging their dominance.
TopicMarket structuresContestability & barriers
Examiner insight
- What to cover
- In a contestable market, barriers to entry and exit are low, so incumbents fear hit-and-run entry. They keep prices close to average cost, make normal profit and act efficiently, even if there are few firms.
- Diagram
- Contestable market diagram with price set at AC.
- Watch out
- Explain the role of sunk costs and hit-and-run competition.
Q14Essay 3
Discuss the view that privatisation is always beneficial because it leads to improvements in efficiency.
Essay stimulus. Some argue that privatisation of government-owned industries is necessary to improve efficiency. However, there are several cases where privatisation has simply transferred a monopoly from the state to the private sector. Nevertheless, such private monopolies are vulnerable to the threat of new entrants challenging their dominance.
TopicMarket structuresCompetition policy & regulation
Examiner insight
- What to cover
- Privatisation can raise efficiency through the profit motive, competition and access to private finance.
- Evaluation
- Natural monopolies, weak regulation, short-termism and underinvestment (water, rail) can reduce efficiency. Judge by industry and regulation.
- Watch out
- "Always" invites counter-examples.
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.