Markets and Market Failure · 7136/1
AQA A-level Paper 1, November 2020
All 14 written questions from AQA A-level Paper 1 (November 2020), Markets and Market Failure. Case studies: The circular economy and The adult social care market. 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.
Summer exams were cancelled, so this paper was sat in the autumn series. The paper itself is headed June.
Context 1
The circular economy
Extracts: The global economy needs to become more circular · China bans imports of waste
Q1
Using the data in Extract A (Figure 1) calculate the percentage of all plastics produced in the period 1950–2015 which have either been sent to landfill or incinerated. Give your answer to one decimal place.
TopicMarket failure and government interventionExternalities
Q2
Explain how the data in Extract A (Figure 2) show that higher living standards lead to greater volumes of waste per capita being produced.
TopicMarket failure and government interventionExternalities
Q3
Extract B (lines 8–10) states: ‘many companies intentionally make it difficult to repair their products in order to increase sales. This is both economically inefficient and environmentally foolish; it imposes costs on the environment even though it may make sense for individual companies.’
With the help of a diagram, explain how the production of goods which are designed not to last long may result in market failure.
With the help of a diagram, explain how the production of goods which are designed not to last long may result in market failure.
TopicMarket failure and government interventionMarket failure (general)
Examiner insight
- What to cover
- Goods built to fail create more waste. Landfill, pollution and resource use are external costs that producers do not pay, so output of short-life goods is above the social optimum. Consumers also lack information about product life.
- Diagram
- Negative production externality: MSC above MPC, with the welfare loss triangle between Qm and Q*.
- Watch out
- Name the external cost precisely and show the welfare loss. Imperfect information is a useful second strand.
Q4
Extract C (lines 17–19) states: ‘Many environmental economists suggest that making firms pay for the costs of landfill associated with their products, or taxing raw material inputs, will be necessary to ensure a sustainable future for all.’
Using the extracts and your knowledge of economics, evaluate policies, if any, that governments in developed countries should pursue to reduce waste and encourage the recycling of waste products.
Using the extracts and your knowledge of economics, evaluate policies, if any, that governments in developed countries should pursue to reduce waste and encourage the recycling of waste products.
TopicMarket failure and government interventionExternalities
Examiner insight
- What to cover
- Policies: landfill tax, deposit return schemes, regulation, extended producer responsibility, subsidies for recycling.
- Diagram
- Negative externality diagram with a tax.
- Evaluation
- Judge by cost, enforcement, effect on firms and consumers.
- Watch out
- Use the extracts. Make a clear judgement about which policy is best.
Context 2
The adult social care market
Extracts: Problems in the social care market · Social care work is undervalued
Q5
Using the data in Extract D (Figure 3), calculate how much the median care worker earns for every pound earned by the median worker in the whole economy. Give your answer to the nearest penny.
TopicThe labour marketLabour demand & supply
Q6
Explain how the data in Extract D (Figure 4) show that there is likely to be substantial upward pressure on the wages of care workers by 2041.
TopicThe labour marketLabour demand & supply
Q7
Extract E (lines 5–7) states: ‘Until the 1990s, almost all workers in the care sector were employed by the government, which acted as a monopsonist by keeping wages low.’
With the help of a diagram, explain how a monopsonistic public sector can lead to low pay for social care work.
With the help of a diagram, explain how a monopsonistic public sector can lead to low pay for social care work.
TopicThe labour marketTrade unions & monopsony
Examiner insight
- What to cover
- A monopsony employer pays a wage below MRP and employs fewer workers than a competitive market.
- Diagram
- Monopsony diagram: MC of labour above supply, wage set on the supply curve.
- Watch out
- Draw the MCL curve correctly and read the wage from the supply curve.
Q8
Extract F (lines 1–3) states: ‘There are aspects of market failure in the social care sector, though some argue that inappropriate government intervention and a lack of funding are the main reasons why the system is failing to deliver high quality care.’
Using the extracts and your knowledge of economics, assess policies that might be used to improve the provision of social care in the UK.
Using the extracts and your knowledge of economics, assess policies that might be used to improve the provision of social care in the UK.
TopicMarket failure and government interventionMarket failure (general)Government intervention (micro)
Examiner insight
- What to cover
- Market failures in social care: merit good, imperfect information, monopsony pay, low profit margins. Policies: more public funding, higher pay for care workers, regulation of quality, integration with the NHS, insurance schemes.
- Evaluation
- Judge each policy by cost to taxpayers, effect on staff shortages, quality, and the risk of government failure. Use the extract data on pay and future demand.
- Watch out
- Link every policy to a named failure, and use the extract on inappropriate intervention.
Q9Essay 1
Explain how the imposition of a tax on a good or service affects both consumer surplus and producer surplus.
Essay stimulus. Critics of the world’s five most valuable multinational technology firms (Google, Amazon, Apple, Facebook and Microsoft) argue that there ought to be greater government intervention to protect consumers’ interests. Several European governments are considering imposing new taxes on the revenues of such firms, rather than their profits.
TopicMarket failure and government interventionIndirect taxes & subsidies
Examiner insight
- What to cover
- A tax raises price for consumers and lowers price received by producers. Both surpluses fall and there is deadweight loss.
- Diagram
- Supply and demand with a tax, labelling consumer surplus, producer surplus, tax revenue and deadweight loss.
- Watch out
- Label all the areas. This question is mainly diagram skill.
Q10Essay 1
Discuss whether governments should consider increasing the regulation and taxation of technology firms which have acquired significant global monopoly power.
Essay stimulus. Critics of the world’s five most valuable multinational technology firms (Google, Amazon, Apple, Facebook and Microsoft) argue that there ought to be greater government intervention to protect consumers’ interests. Several European governments are considering imposing new taxes on the revenues of such firms, rather than their profits.
TopicMarket structuresMonopoly & market powerCompetition policy & regulationTechnological change
Examiner insight
- What to cover
- Tech firms have monopoly power, data advantages and network effects.
- Diagram
- Monopoly diagram with deadweight loss.
- Evaluation
- Consider innovation, economies of scale, global competition and the difficulty of taxing international firms.
- Watch out
- Consider both regulation and taxation.
Q11Essay 2
Explain how a production possibility diagram can be used to illustrate some features of the fundamental economic problem.
Essay stimulus. The economist Greg Mankiw has written that ‘society faces a trade-off between efficiency and equity. Efficiency means that society is getting the maximum benefits from its scarce resources. Equity means that those benefits are distributed fairly among society’s members. Often, when government policies are designed, these two goals conflict.’
TopicEconomic methodology and the economic problemPPB / PPCScarcity & choice
Examiner insight
- What to cover
- A production possibility diagram shows scarcity (the frontier limits output), choice (points on the frontier), opportunity cost (the slope, and the output given up when moving along it), unemployment (points inside) and growth (the frontier shifts out).
- Diagram
- PPD with points inside, on and outside the frontier, and an outward shift.
- Watch out
- Explain opportunity cost with numbers from your own diagram. Several features are needed for the top level.
Q12Essay 2
Evaluate the view that government intervention to reduce inequality will lead to an improvement in economic welfare.
Essay stimulus. The economist Greg Mankiw has written that ‘society faces a trade-off between efficiency and equity. Efficiency means that society is getting the maximum benefits from its scarce resources. Equity means that those benefits are distributed fairly among society’s members. Often, when government policies are designed, these two goals conflict.’
TopicDistribution of income and wealthInequality & povertyGovernment intervention (micro)
Examiner insight
- What to cover
- Intervention can raise welfare through diminishing marginal utility of income and less poverty.
- Diagram
- Lorenz curve to show the effect.
- Evaluation
- Consider incentives, government failure and cost. Judge by type of intervention.
- Watch out
- Define economic welfare early.
Q13Essay 3
Explain why imperfect information can lead to market failure.
Essay stimulus. In December 2018, the Competition and Markets Authority (CMA) announced a range of policies to prevent firms charging existing customers more than new customers. Firms supplying financial services, mobile phones and broadband are no longer allowed to discriminate against loyal customers renewing their contracts.
TopicIndividual economic decision makingImperfect informationMarket failure (general)
Examiner insight
- What to cover
- Consumers or producers without full information make choices that do not maximise welfare. Examples: under-consumption of merit goods such as education, over-consumption of demerit goods, adverse selection and moral hazard in insurance, asymmetric information in second-hand cars.
- Diagram
- A merit good diagram showing under-consumption is a strong addition.
- Watch out
- Explain why the market fails as a result: resources are misallocated because demand does not reflect true benefit.
Q14Essay 3
Assess the view that price discrimination is always damaging.
Essay stimulus. In December 2018, the Competition and Markets Authority (CMA) announced a range of policies to prevent firms charging existing customers more than new customers. Firms supplying financial services, mobile phones and broadband are no longer allowed to discriminate against loyal customers renewing their contracts.
TopicMarket structuresMonopoly & market powerDiscrimination & pay gaps
Examiner insight
- What to cover
- Price discrimination can raise supplier profit and reduce consumer surplus.
- Diagram
- Price discrimination diagram.
- Evaluation
- Benefits: lower prices for some, higher output, cross-subsidy. Judge by market and use of profit.
- Watch out
- "Always" in the question invites clear 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.