The Operation of Markets and Market Failure · 7135/1

AQA AS Paper 1, June 2018

All 12 written questions and 20 multiple choice questions from AQA AS Paper 1 (June 2018), The Operation of Markets and Market Failure. Case studies: Libraries and Agriculture. Each question shows its marks and topic, with an examiner insight on 4, and opens the question paper and mark scheme at the right page.

Question paper Mark scheme Insert

Context 1

Libraries

Extracts: Percentage of people aged 16–24, 25–44 and 75+ who · What has happened to the local library? · Who should provide libraries?

Q21Define3 marks

Define ‘public good’ Extract C (line 18).

TopicMarket failure and government interventionPublic goods

Question paper p.12 Mark scheme p.6 Insert p.1 Open in the tool

Q22Calculate4 marks

Extract C (lines 11–13) states: ‘A relatively small amount ... was spent on libraries in England in 2014/15.’
If the population of England in 2014/15 was 54.5 million, calculate, to the nearest pound, the amount spent on libraries per person.

TopicMarket failure and government interventionPublic goods

Question paper p.13 Mark scheme p.7 Insert p.1 Open in the tool

Q23Identify4 marks

Use Extract A to identify two significant points of comparison between the percentage of people aged 16–24 and those aged 75+ who visited a library in England over the period shown.

TopicPrice determination in a competitive marketDemand & supply

Question paper p.14 Mark scheme p.8 Insert p.1 Open in the tool

Q24Draw4 marks

A local authority has a limited sum of money to spend on two services, libraries and other local government services.
Draw a production possibility diagram showing the potential provision of these two services and assuming resources are fully employed, label a point X where no resources are used for libraries.

TopicEconomic methodology and the economic problemPPB / PPC

Question paper p.15 Mark scheme p.9 Insert p.1 Open in the tool Draw it: PPF diagram

Q25Explain10 marks

Extract B (lines 2–3) states: ‘a recent survey found that only a third of adults had used a library in the previous year, a significant fall since data collection began in 2005’.
Explain two reasons why the demand for library services has fallen.

TopicPrice determination in a competitive marketDemand & supply

Examiner insight

What to cover: Reasons: internet access and e-books (substitutes), changing tastes, fewer libraries and shorter opening hours, and lower awareness.
Watch out: Explain two reasons clearly and link them to demand.

Question paper p.16 Mark scheme p.10 Insert p.1 Open in the tool

Q26Assess25 marks

Extract C (line 10) states: ‘Faced with funding cuts, local authorities have to make difficult choices’.
Use the extracts and your knowledge of economics to assess whether local authorities should continue to provide public libraries.

TopicMarket failure and government interventionPublic goodsMerit & demerit goodsGovernment intervention (micro)

Examiner insight

What to cover: Libraries are quasi-public and merit goods with external benefits (literacy, community).
Diagram: Merit good diagram.
Evaluation: Consider funding cuts, opportunity cost, falling demand and alternatives such as volunteers or digital services. Judge using the data.
Watch out: Use the extracts on funding cuts.

Question paper p.18 Mark scheme p.11 Insert p.1 Open in the tool

Context 2

Agriculture

Extracts: UK agriculture, forestry and fishing – employment, · UK agriculture in crisis? · Crisis? What crisis?

Q27Define3 marks

Define ‘minimum price’ Extract E (line 6).

TopicMarket failure and government interventionPrice controls

Question paper p.23 Mark scheme p.12 Insert p.1 Open in the tool

Q28Calculate4 marks

Extract E (lines 8–9) states: ‘One prediction was that 20% of dairy farms would close in 2016’.
If there were 9633 dairy farms in England and Wales in January 2016, calculate, to the nearest whole number, how many dairy farms there would be in January 2017 if the prediction for the percentage of dairy farms closing in 2016 is correct.

TopicPrice determination in a competitive marketCommodity markets

Question paper p.23 Mark scheme p.13 Insert p.1 Open in the tool

Q29Identify4 marks

Use Extract D to identify two significant points of comparison between the changes in employment and output in agriculture, forestry and fishing in the UK over the period shown.

TopicPrice determination in a competitive marketCommodity markets

Question paper p.24 Mark scheme p.14 Insert p.1 Open in the tool

Q30Draw4 marks

Agricultural production can be divided into genetically modified (GM) food and non-GM food.
Draw a production possibility diagram showing the production of genetically modified (GM) food and non-GM food and, on the same diagram, draw a new production possibility curve to show the effect of increased productivity in GM food but no change in non-GM food.

TopicEconomic methodology and the economic problemPPB / PPCCommodity marketsProductivity & efficiency

Question paper p.25 Mark scheme p.15 Insert p.1 Open in the tool Draw it: PPF diagram

Q31Explain10 marks

Extract F (lines 2–3) states: ‘Dairy prices are expected to rise in 2017’.
Explain two factors that could increase the price of milk.

TopicPrice determination in a competitive marketCommodity markets

Examiner insight

What to cover: Factors: lower supply (fewer dairy farms, poor weather, higher feed costs), higher demand (exports, population), or a weaker pound.
Diagram: Demand or supply shift in the milk market.
Watch out: Explain two factors clearly with a diagram.

Question paper p.26 Mark scheme p.16 Insert p.1 Open in the tool

Q32To what extent25 marks

Extract F (lines 18–19) states: ‘Should the UK government take an active role in agriculture, and if so, what policies should it implement?’
Use the extracts and your knowledge of economics to assess to what extent, if at all, the UK government should intervene in the agricultural sector.

TopicMarket failure and government interventionGovernment intervention (micro)Commodity markets

Examiner insight

What to cover: Agriculture has volatile prices, inelastic supply and demand, and external costs and benefits.
Diagram: Buffer stock or subsidy diagram.
Evaluation: Consider cost to taxpayers, inefficiency, overproduction and effects on farm incomes. Judge using the data.
Watch out: Use the extracts on UK agriculture.

Question paper p.28 Mark scheme p.17 Insert p.1 Open in the tool

Q11 mark

The central purpose of the production of goods and services is to

Aachieve more technological innovation.
Bmaximise exports.
Cmaximise profits.
Dsatisfy consumer wants.

Show the answer

The answer is D.

TopicEconomic methodology and the economic problemScarcity & choice

Question paper p.2 Mark scheme p.3 Open in the tool

Q21 mark

In an economy, competitive firms supply electricity that is generated using coal-fired power stations.
If the government tries to reduce pollution by imposing an indirect tax on the firms, this would

Ashift the market demand curve to the left.
Bshift the market demand curve to the right.
Cshift the market supply curve to the left.
Dshift the market supply curve to the right.

Show the answer

The answer is C.

TopicMarket failure and government interventionIndirect taxes & subsidiesExternalities

Question paper p.2 Mark scheme p.3 Open in the tool

Q31 mark

The price elasticity of demand (PED) for petrol used by car drivers in an economy is estimated to be –0.2.
Which one of the following is the most likely reason for the low PED?

AA tax on petrol
BCycle lanes on many roads
CFew bus and rail services
DLow household incomes

Show the answer

The answer is C.

TopicPrice determination in a competitive marketPrice elasticity of demand

Question paper p.3 Mark scheme p.3 Open in the tool

Q41 mark

The diagram below shows the demand curve (D) and the supply curve (S) in the market for tomatoes.
Which one of the following would result in a higher quantity consumed and a lower price charged for tomatoes?

AA fall in the price of the fertiliser used to grow tomatoes
BA hot summer causes consumers to eat more tomato salad
CThe minimum wage for farm workers is increased
DThe price of cucumbers falls

Show the answer

The answer is A.

TopicPrice determination in a competitive marketDemand & supply

Question paper p.3 Mark scheme p.3 Open in the tool Practise the supply and demand diagram

Q51 mark

Ben owns a small business that makes hand-made guitars.
One year he sells 160 guitars, his total revenue is £78 400, and his total costs are £59 200.
The average profit that Ben earns on each guitar is

A£120
B£370
C£490
D£860

Show the answer

The answer is A.

TopicProduction, costs and revenueRevenue & profit

Question paper p.4 Mark scheme p.3 Open in the tool

Q61 mark

Which one of the following is most likely to reduce the benefits of specialisation?

AA reduction in government regulations
BAn increase in competition
CTaxes on pollution
DTrade conducted by bartering

Show the answer

The answer is D.

TopicEconomic methodology and the economic problemSpecialisation & division of labour

Question paper p.4 Mark scheme p.3 Open in the tool

Q71 mark

Smoking cigarettes generates negative consumption externalities.
This means that

Athe private benefit from smoking includes the consumption externalities.
Bthe social benefit from smoking is less than the private benefit.
Cthe social benefit from smoking is negative.
Dthe social optimum level of smoking is zero.

Show the answer

The answer is B.

TopicMarket failure and government interventionExternalities

Question paper p.4 Mark scheme p.3 Open in the tool

Q81 mark

Which one of the following is an example of the economic resource capital?

AA bank loan to a small business
BA scientific research laboratory
CGovernment subsidies for wind power
DMoney in a savings account

Show the answer

The answer is B.

TopicEconomic methodology and the economic problemScarcity & choice

Question paper p.5 Mark scheme p.3 Open in the tool

Q91 mark

Training provided by firms in a free market economy may be underprovided because some of the benefits from training may be captured by other firms when the workers change jobs. Which one of the following best describes this situation?

AA negative production externality and a missing market
BA negative production externality and partial market failure
CA positive production externality and a missing market
DA positive production externality and partial market failure

Show the answer

The answer is D.

TopicMarket failure and government interventionExternalitiesMarket failure (general)

Question paper p.5 Mark scheme p.3 Open in the tool

Q101 mark

The income elasticity of demand for baked beans is –0.4.
Weekly sales of baked beans are 73 000 tins.
If household incomes fall by 5%, then the new weekly sales of baked bean tins would be

A63 875
B71 540
C74 460
D82 125

Show the answer

The answer is C.

TopicPrice determination in a competitive marketIncome elasticity

Question paper p.5 Mark scheme p.3 Open in the tool

Q111 mark

There is a large increase in the number of different models of bicycles produced by the bicycle industry.
The most likely impact of this would be

Aa decrease in advertising expenditure by bicycle firms.
Ba fall in the price elasticity of demand for any one model of bicycle.
Can increase in barriers to entry to the bicycle industry.
Dan increase in productivity of manufacturing bicycles.

Show the answer

The answer is C.

TopicPrice determination in a competitive marketPrice elasticity of demand

Question paper p.6 Mark scheme p.3 Open in the tool

Q121 mark

In the following diagram D1 shows the market demand for smoke alarms when consumers have imperfect information about the benefits of installing a smoke alarm. If consumers had full information, the market demand for smoke alarms would be D2.
Which one of the following policies is most likely to ensure that consumption and production of smoke alarms are at the social optimum level?

AA maximum price set at P0
BA maximum price set at P2
CA subsidy per unit equal to P1 – P0
DA subsidy per unit equal to P2 – P0

Show the answer

The answer is D.

TopicMarket failure and government interventionMerit & demerit goodsIndirect taxes & subsidiesExternalities

Question paper p.7 Mark scheme p.3 Open in the tool Practise the positive externality diagram

Q131 mark

In an economy hit by a recession, the owner of a small firm decides to continue to operate despite making losses.
This decision suggests that

Afirms may have objectives other than profit maximisation.
Bmonopoly power is widespread in the economy.
Csome small firms produce merit goods.
Dthe firm’s average revenue is greater than its average cost.

Show the answer

The answer is A.

TopicMarket structuresBusiness objectives & growth

Question paper p.7 Mark scheme p.3 Open in the tool

Q141 mark

The table below shows the relationship between a firm’s output and its production costs.
Average variable Output Average total costs (£) costs (£) 10 50 20 40 30 35 When the firm increases its output from

A10 to 20 units, average fixed costs do not change.
B10 to 20 units, average fixed costs fall by £15.
C20 to 30 units, average fixed costs fall by £10.
D20 to 30 units, average fixed costs fall by £15.

Show the answer

The answer is B.

TopicProduction, costs and revenueCosts & economies of scale

Question paper p.8 Mark scheme p.3 Open in the tool

Q151 mark

The diagrams below show the impact of an increase in demand for good G and the resulting change in the related market for good H.
These changes imply that goods G and H are in

Acomposite demand.
Bderived demand.
Cjoint demand.
Djoint supply.

Show the answer

The answer is D.

TopicPrice determination in a competitive marketDemand & supply

Question paper p.9 Mark scheme p.3 Open in the tool Practise the YED and XED diagram Practise the supply and demand diagram

Q161 mark

Which one of the following statements about the distribution of income must be correct?

AAn unequal distribution of income has to be inequitable
B‘The distribution of income is equitable’ is a positive statement
CThe distribution of income is equitable when everyone has the same income
DWhether the distribution of income is equitable is a value judgement

Show the answer

The answer is D.

TopicDistribution of income and wealthInequality & poverty

Question paper p.9 Mark scheme p.3 Open in the tool

Q171 mark

Which one of the following would generate a short-run disequilibrium with excess supply in the market for Cornish pasties?

AA minimum price for Cornish pasties is set above the current market price
BHigher meat prices increase the cost of producing Cornish pasties
CMore advertising increases the demand for Cornish pasties
DThe government levies a new indirect tax on Cornish pasties

Show the answer

The answer is A.

TopicMarket failure and government interventionIndirect taxes & subsidiesPrice controls

Question paper p.10 Mark scheme p.3 Open in the tool

Q181 mark

One way to allocate road space in a congested city would be to charge drivers to use the roads.
One reason why this policy is likely to result in a more efficient allocation of resources is because

Aincentives to build new roads would be higher.
Bonly higher income drivers would choose to use the roads.
Croad use would be rationed to drivers who benefit from it the most.
Dthe government would raise a large amount of revenue from drivers.

Show the answer

The answer is C.

TopicMarket failure and government interventionExternalitiesGovernment intervention (micro)

Question paper p.10 Mark scheme p.3 Open in the tool

Q191 mark

Firms in an industry with a high concentration ratio will typically experience

Aa large amount of competition.
Ba large degree of monopoly power.
Cfew economies of scale.
Dlow prices and profits.

Show the answer

The answer is B.

TopicMarket structuresOligopoly

Question paper p.10 Mark scheme p.3 Open in the tool

Q201 mark

Online clothes retailers invest in new warehouses to enable them to hold larger stocks of clothes.
Other things remaining the same, this is most likely to result in

Aa higher price elasticity of supply of clothes sold online.
Ban increase in demand for clothes sold online.
Cdiseconomies of scale in the online clothes industry.
Dlower barriers to entry to the online clothes industry.

Show the answer

The answer is A.

TopicPrice determination in a competitive marketPrice elasticity of supplyCosts & economies of scaleContestability & barriers

Question paper p.11 Mark scheme p.3 Open in the tool

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.

Libraries

Examiner insight

Examiner insight

Agriculture

Examiner insight

Examiner insight

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