The Operation of Markets and Market Failure · 7135/1

AQA AS Paper 1, June 2022

All 12 written questions and 20 multiple choice questions from AQA AS Paper 1 (June 2022), The Operation of Markets and Market Failure. Case studies: Water and Alcohol. 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

Water

Extracts: Average annual water usage, in cubic metres, with and · Water, water, everywhere? · How should water be paid for?

Q21Define3 marks

Define ‘profit’ Extract B (line 9).

TopicProduction, costs and revenueRevenue & profit

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

Q22Calculate4 marks

Extract C (line 11) states: ‘a bath may use 80 litres of water but a shower half as much’.
If a litre of water costs 0.4p, calculate how much money would be saved in a week if a family of four each had a shower every day instead of a bath.

TopicProduction, costs and revenueCosts & economies of scale

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 average annual water usage of households with and without a water meter.

TopicPrice determination in a competitive marketDemand & supply

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

Q24Draw4 marks

Extract C (line 20) states: ‘Perhaps a maximum price should be set for water’.
Draw a diagram to show the impact on the market for water of setting a maximum price below the equilibrium.

TopicMarket failure and government interventionPrice controls

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

Q25Explain10 marks

Extract B (lines 13–14) states: ‘Most water (and sewerage) services are not provided by competitive markets... Only businesses can choose their water supplier’.
Explain how firms in the water industry could compete to attract businesses or other customers.

TopicMarket structuresCompetition policy & regulation

Examiner insight

What to cover: Firms can compete on price, customer service, water-saving advice, billing and contract terms for business customers.
Watch out: Explain two ways clearly.

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

Q26Assess25 marks

Extract C (line 9) states: ‘When people pay according to quantity used, they are less likely to be wasteful’.
Use the extracts and your knowledge of economics to assess whether all households should pay according to the amount of water they use.

TopicMarket failure and government interventionMerit & demerit goodsGovernment intervention (micro)Price elasticity of demand

Examiner insight

What to cover: Metering means people pay for what they use, so waste falls.
Diagram: Demand for water with a price per unit.
Evaluation: Consider fairness for large families, installation costs, and water as a merit good. Judge using the data.
Watch out: Use the extracts on metered and unmetered use.

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

Context 2

Alcohol

Extracts: Affordability of alcohol index, UK, 2008–2017 (1980 = 100) · Minimum unit pricing for alcohol in Scotland · Early indications of success?

Q27Define3 marks

Define ‘income’ Extract F (line 10).

TopicPrice determination in a competitive marketIncome elasticity

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

Q28Calculate4 marks

According to Extract E (lines 6–7), the price of a standard bottle of whisky had to rise from £10 to £14 in a discount supermarket, as a result of minimum unit pricing (MUP).
If the demand for whisky fell by 6.3% in the first year as a result of the price change, calculate the price elasticity of demand for whisky, to two decimal places.

TopicPrice determination in a competitive marketPrice elasticity of demandPrice controls

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

Q29Identify4 marks

Use Extract D to identify two significant features of the affordability of alcohol index for the UK, over the period shown.

TopicPrice determination in a competitive marketDemand & supplyMerit & demerit goods

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

Q30Draw4 marks

Extract E (lines 2–3) states: ‘The minimum age for buying alcohol is 18, although in some countries, such as the US, the minimum age is 21’.
Draw a diagram to show the impact on the market for alcohol of raising the age for buying alcohol in the UK from 18 to 21.

TopicMarket failure and government interventionGovernment intervention (micro)Merit & demerit goods

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

Q31Explain10 marks

Extract E (lines 1–2) states: ‘alcohol has traditionally been viewed as a demerit good, subject to high indirect taxes’.
Explain the likely effects of imposing indirect taxes on alcohol.

TopicMarket failure and government interventionIndirect taxes & subsidiesMerit & demerit goods

Examiner insight

What to cover: A tax raises the price of alcohol, so consumption falls. Demand is price inelastic, so revenue is high but the fall in consumption is small.
Diagram: Tax diagram with inelastic demand.
Watch out: Use price elasticity of demand.

Question paper p.26 Mark scheme p.16 Insert p.1 Open in the tool Practise the indirect tax diagram

Q32Assess25 marks

Extract F (lines 20–21) states: ‘Cheap alcohol is wrecking lives and livelihoods in England as well as Scotland’.
Use the extracts and your knowledge of economics to assess whether a minimum price for alcohol should be introduced in England and Northern Ireland.

TopicMarket failure and government interventionPrice controlsMerit & demerit goods

Examiner insight

What to cover: A minimum unit price raises the price of cheap alcohol, reducing consumption by heavy drinkers.
Diagram: Minimum price diagram.
Evaluation: Consider the effect on moderate drinkers, revenue to retailers not government, and the evidence from Scotland. Judge using the data.
Watch out: Use the extracts on Scotland.

Question paper p.28 Mark scheme p.17 Insert p.1 Open in the tool Practise the minimum price diagram

Q11 mark

Choice is central to the economic problem because

Aincomes are unequally distributed.
Bmost resources are scarce.
Cpeople’s wants are greater than their needs.
Dpeople’s wants are limited.

Show the answer

The answer is B.

TopicEconomic methodology and the economic problemScarcity & choice

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

Q21 mark

A fast food restaurant is willing to supply 3000 burgers a week at a market price of £5 a burger. The price elasticity of supply of burgers is 2. If the market price falls to £4 a burger, the number of burgers that the restaurant will be willing to supply will be

A1800
B2700
C3300
D4200

Show the answer

The answer is A.

TopicPrice determination in a competitive marketPrice elasticity of supply

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

Q31 mark

Figure 1 shows the long-run average cost curve (LRAC) for a firm.
Figure 1
Which one of the following movements along the curve shows a reduction in diseconomies of scale?

AV to W
BX to W
CX to Y
DZ to Y

Show the answer

The answer is D.

TopicProduction, costs and revenueCosts & economies of scale

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

Q41 mark

A government decides to increase its subsidy to rail services to encourage more people to travel by rail. The subsidy is most likely to be successful if rail travel has a

Ademand that is elastic with respect to price.
Bdemand that is inelastic with respect to price.
Chigh positive income elasticity of demand.
Dnegative cross elasticity of demand with respect to car travel.

Show the answer

The answer is A.

TopicMarket failure and government interventionIndirect taxes & subsidies

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

Q51 mark

A public good always has the characteristic that

Aconsumption by one person does not reduce availability to others.
Bit is provided free of charge by the government to all citizens.
Cits consumption gives rise to positive externalities for others.
Dthe supply is funded from a government’s tax revenue.

Show the answer

The answer is A.

TopicMarket failure and government interventionPublic goods

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

Q61 mark

Which one of the following best describes the market conditions for a firm in a perfectly competitive market?

ALimited consumer information and no product differentiation
BLow entry barriers and some product differentiation
CNo entry barriers and low price-setting power
DNo price-setting power and unlimited consumer information

Show the answer

The answer is D.

TopicMarket structuresPerfect competition

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

Q71 mark

Weekly sales of doughnuts are 20 000 and the market price is £1.20 per doughnut.
The government introduces a new indirect tax of 15p per doughnut. Sales fall to 16 000 a week and the price rises to £1.30 per doughnut.
The share of the total weekly tax that is borne by doughnut producers is

A£800
B£1000
C£1600
D£2400

Show the answer

The answer is A.

TopicMarket failure and government interventionIndirect taxes & subsidies

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

Q81 mark

An economist puts forward a hypothesis, collects evidence to test it, and then accepts, modifies, or rejects the hypothesis.
This is an example of

Aa positive policy statement.
Beconomic methodology.
Chow value judgements influence economic decisions.
Dnormative economics.

Show the answer

The answer is B.

TopicEconomic methodology and the economic problemPositive & normative

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

Q91 mark

A government plans to plant a new forest to provide a recreation facility and help combat climate change.
Estimates of the costs and benefits are shown in Table 1.
Table 1
Private Social Private costs Social costs benefits benefits £ million 13 9 14 From the figures in Table 1, it can be concluded that the forest project will have

Anegative production externalities of £9 million.
Bpositive consumption externalities of £16 million.
Cpositive production externalities of £4 million.
Dtotal externalities of £25 million.

Show the answer

The answer is C.

TopicMarket failure and government interventionExternalities

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

Q101 mark

The demand for cocoa is derived from the demand for chocolate. When the demand for chocolate falls, the most likely result is a

Amovement along the demand curve for cocoa.
Bmovement along the supply curve for cocoa.
Cshift left of the supply curve for cocoa.
Dshift right of the demand curve for cocoa.

Show the answer

The answer is B.

TopicPrice determination in a competitive marketDemand & supply

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

Q111 mark

Table 2 shows the total output of a small firm and the numbers of workers employed in each of four months.
Table 2
Month Workers Total output January 12 2400 February 11 2300 March 14 2700 April 13 2500 Which one of the following is a true statement about production and labour productivity during this period?

ABoth production and labour productivity rose between February and March
BBoth production and labour productivity were higher in April than January
CLabour productivity rose but production fell between January and February
DMarch had both the highest production and the highest labour productivity

Show the answer

The answer is C.

TopicProduction, costs and revenueProductivity & efficiency

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

Q121 mark

Figure 2 shows supply and demand in the market for beef. D1 shows the initial demand and S1 the initial supply curve.
Figure 2
Which one of the following combinations of events would be most likely to cause demand to shift from D1 to D2 and supply from S1 to S2?

AA fall in the price of chicken and an increase in the price of animal feed
BA fall in workers’ wages and a shift in preferences towards vegetarian food
CHigher disposable incomes and a fall in farm productivity
DHigher rents for farmland and health warnings about eating red meat

Show the answer

The answer is B.

TopicPrice determination in a competitive marketDemand & supply

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

Q131 mark

A firm normally has some fixed and variable costs in the short run. However, in the long run

Aall costs become fixed.
Bfixed costs become variable.
Cfixed costs become very small.
Dvariable costs become fixed.

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

Q141 mark

The price mechanism allocates resources by

Aallowing prices to rise and ration demand when there is a surplus in the production of a good.
Bpreventing firms with monopoly power from exploiting consumers and charging a price above the competitive price.
Csetting prices to ensure that the opportunity cost of producing a good is less than its social cost.
Dsetting relative prices to determine the quantity of factors of production used in producing each good.

Show the answer

The answer is D.

TopicEconomic methodology and the economic problemEconomic systems

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

Q151 mark

A firm manufactures and sells fresh fruit drinks. The firm sells 200 bottles of fruit drink each week; its weekly total costs are £540, which includes £300 of fixed costs. The drink is sold at £4 a bottle.
A rival firm drops out of the market and sales increase to 250 bottles a week. Other things remaining the same, profit per week increases by

A£65
B£125
C£140
D£400

Show the answer

The answer is C.

TopicProduction, costs and revenueCosts & economies of scale

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

Q161 mark

Which one of the following is most likely to increase barriers to firms wishing to enter a market?

AGovernment subsidies to small firms
BHigher labour mobility between different industries
CNew technology that increases the scope for economies of scale
DReduced spending on advertising by firms already in the market

Show the answer

The answer is C.

TopicMarket structuresContestability & barriers

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

Q171 mark

The cross elasticity of demand for chips with respect to the price of rice is positive. It can be concluded that chips and rice are

Ainferior goods.
Bjointly demanded.
Cnormal goods.
Dsubstitute goods.

Show the answer

The answer is D.

TopicPrice determination in a competitive marketCross elasticity

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

Q181 mark

A firm that is a pure monopoly can result in market failure because

Aconsumers lack information on alternative suppliers.
Bproducts will be identical.
Cthe firm does not experience economies of scale.
Dthe firm’s output is too low.

Show the answer

The answer is D.

TopicMarket structuresMonopoly & market powerMarket failure (general)

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

Q191 mark

A shift left in the supply curve causes a market to be in disequilibrium at the original market price because

Aconsumers cannot buy as much as they would like.
Bconsumers no longer wish to buy the same quantity.
Cfirms are willing to supply more of the good.
Dfirms experience an increase in their stocks of the good.

Show the answer

The answer is A.

TopicPrice determination in a competitive marketDemand & supply

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

Q201 mark

Many goods are sold in plastic packaging that has harmful effects on the environment.
In Figure 3, D1 and S1 are the free market demand for and supply of plastic packaged goods. S2 would be the supply if firms took account of the cost to the environment of plastic packaging.
Figure 3
The government decides to implement a policy that would result in production moving from the free market level at Q1 to the social optimum at Q2. Which one of the following policies is most likely to achieve the government’s objective?

AA subsidy at the rate P1 P3
BA subsidy at the rate P2 P3
CA tax at the rate P2 P1
DA tax at the rate P2 P3 20

Show the answer

The answer is D.

TopicMarket failure and government interventionExternalities

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.

Water

Examiner insight

Examiner insight

Alcohol

Examiner insight

Examiner insight

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