The Operation of Markets and Market Failure · 7135/1

AQA AS Paper 1, June 2025

All 12 written questions and 20 multiple choice questions from AQA AS Paper 1 (June 2025), The Operation of Markets and Market Failure. Case studies: Flood defences and Coffee. 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

Flood defences

Extracts: Capital expenditure on flood defences, by region in · The rising cost of flooding · Who should pay for flood defences?

Q21Define3 marks

Define ‘opportunity cost’ Extract C (line 20).

TopicEconomic methodology and the economic problemOpportunity cost

Question paper p.13 Mark scheme p.6 Insert p.1 Open in the tool

Q22Calculate4 marks

Extract A shows the capital expenditure on flood defences by region in England, 2015 to 2021, split between ‘Local government levy’ and ‘Other’.
Calculate the difference between the mean and median amounts of capital expenditure paid for by the local government levy in the regions of England for the period 2015 to 2021.
Give your answer in £m to one decimal place.

TopicMarket failure and government interventionPublic goods

Question paper p.14 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 amount of capital expenditure on flood defences that is financed by the local government levy and the amount that is financed by other sources.

TopicMarket failure and government interventionPublic goods

Question paper p.15 Mark scheme p.8 Insert p.1 Open in the tool

Q24Draw4 marks

Extract C (lines 16–17) states: ‘With fewer restrictions on where houses can be built, some homes are being built where there are inadequate flood defences’.
Draw a supply and demand diagram showing the impact on the market for new houses if restrictions are removed on where houses can be built.

TopicPrice determination in a competitive marketDemand & supply

Question paper p.16 Mark scheme p.9 Insert p.1 Open in the tool Draw it: supply and demand diagram

Q25Explain10 marks

Extract C (lines 14–15) states: ‘The UK House Price Index was 152.6 in August 2023, up 52.6% since January 2015.’
Explain possible reasons why the price of houses has increased in recent years.

TopicPrice determination in a competitive marketDemand & supply

Examiner insight

What to cover: Reasons: low interest rates, rising incomes, population growth, limited supply and inelastic supply.
Diagram: Housing market diagram.
Watch out: Explain reasons clearly.

Question paper p.17 Mark scheme p.10 Insert p.1 Open in the tool

Q26Evaluate25 marks

Extract B (lines 7–8) states: ‘Between 2010 and 2015, the UK government spent over £1.7bn to protect about 250 000 homes, 28 000 business properties and 800 000 acres of farmland.’
Use the extracts and your knowledge of economics to evaluate whether government should be solely responsible for paying for flood defences.

TopicMarket failure and government interventionPublic goodsGovernment intervention (micro)Externalities

Examiner insight

What to cover: Flood defences are public goods (non-rival, non-excludable), so the market under-provides them.
Evaluation: Consider cost, fairness, and who benefits (homeowners, businesses). Judge between government and others.
Watch out: Use the extracts.

Question paper p.19 Mark scheme p.12 Insert p.1 Open in the tool

Context 2

Coffee

Extracts: Annual average coffee prices, forecast and actual ($/kg), · The rising popularity of coffee · Problems facing the coffee industry

Q27Define3 marks

Define ‘productivity’ Extract F (line 3).

TopicProduction, costs and revenueProductivity & efficiency

Question paper p.24 Mark scheme p.13 Insert p.1 Open in the tool

Q28Calculate4 marks

Extract E (lines 3–4) states: ‘in 2018, this increased to 95 million, with 65% of these consumed at home. The other 35% was split 5:2 between consumption at work and in shops respectively.’
Calculate the number of cups of coffee drunk at work in 2018. Give your answer to the nearest million cups.

TopicPrice determination in a competitive marketDemand & supply

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

Q29Identify4 marks

Use Extract D to identify two significant points of comparison between the forecast price and the actual price of coffee over the period shown.

TopicPrice determination in a competitive marketCommodity markets

Question paper p.25 Mark scheme p.15 Insert p.1 Open in the tool

Q30Draw4 marks

Extract E (lines 7–8) states: ‘with more people working from home, having your own coffee machine is now more common.’
Draw a diagram to show the impact on total revenue of a rise in the price of coffee machines if their demand is inelastic. The total revenue from the sale of coffee machines, both before and after the rise in price, should be labelled clearly.

TopicPrice determination in a competitive marketPrice elasticity of demandRevenue & profit

Question paper p.26 Mark scheme p.16 Insert p.1 Open in the tool Draw it: PED and revenue diagram

Q31Explain10 marks

Extract E (lines 10–11) states: ‘Similarly, the price of the capsules also affects the demand for the coffee machines.’
Explain how an increase in the price of coffee capsules is likely to affect the market for coffee machines to use at home.

TopicPrice determination in a competitive marketCross elasticityDemand & supply

Examiner insight

What to cover: Capsules and machines are complements. A higher capsule price reduces demand for machines.
Diagram: Machine market with demand shifting left.
Watch out: Explain complements clearly.

Question paper p.27 Mark scheme p.17 Insert p.1 Open in the tool Practise the supply and demand diagram Practise the YED and XED diagram

Q32Evaluate25 marks

Extract F (lines 1–2) states: ‘There are various markets for coffee at different stages of the production and consumption process, and at local and global levels.’
Use the extracts and your knowledge of economics to evaluate whether or not governments should intervene in the various markets for coffee.

TopicMarket failure and government interventionGovernment intervention (micro)Commodity markets

Examiner insight

What to cover: Coffee markets have price volatility, low farm incomes and possible market power.
Evaluation: Consider intervention costs and alternatives (Fairtrade). Judge using the data.
Watch out: Use the extracts.

Question paper p.29 Mark scheme p.18 Insert p.1 Open in the tool

Q11 mark

Which one of the following would not be classified by an economist as a factor of production?

ALabour temporarily out of work
BMoney in a firm’s bank account
CNon-agricultural land
DRisk-taking entrepreneurs

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

The central purpose of economic activity is the production of goods and services to satisfy needs and wants.
Which of the following is one of the three key decisions that has to be taken to achieve this?

AHow to achieve economies of scale
BWhat goods and services to produce
CWhere to locate businesses
DWhether to maximise profit or sales

Show the answer

The answer is B.

TopicEconomic methodology and the economic problemScarcity & choiceEconomic systems

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

Q31 mark

Figure 1 shows the market demand for electric cars.
Figure 1
The shift of the market demand curve from D1 to D2 would most likely be caused by

Aa fall in the price of electric cars.
Ba government subsidy to producers of electric cars.
Ca marketing campaign promoting electric cars.
Da reduction in the price of petrol and diesel fuels.

Show the answer

The answer is C.

TopicPrice determination in a competitive marketDemand & supply

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

Q41 mark

A firm hopes to increase its market share by setting its prices lower than most of its competitors.
What is the most likely reason for this strategy?

AThe firm has a licence that gives it a temporary monopoly
BThe firm is a price taker in a very competitive market
CThe firm is aiming to differentiate its products from its competitors
DThe firm is aiming to increase its long-run profits

Show the answer

The answer is D.

TopicMarket structuresContestability & barriersBusiness objectives & growth

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

Q51 mark

A firm allows customers to personalise a mug with a name of their choice, which it sells for £15. The firm pays £3 for each mug. The paint and labour cost an extra £7. The firm has fixed costs of £150 per month and in a typical month, it produces and sells 60 mugs.
What is the average cost of producing one personalised mug?

A£2.50
B£5
C£10
D£12.50

Show the answer

The answer is D.

TopicProduction, costs and revenueCosts & economies of scale

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

Q61 mark

One reason why merit goods, such as education and health care, can lead to market failure is that

Aindividuals are unwilling to pay for merit goods.
Bindividuals have incomplete information about merit goods.
Cmerit goods are generally provided free by the government.
Dmerit goods are subject to the free-rider problem.

Show the answer

The answer is B.

TopicMarket failure and government interventionMerit & demerit goods

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

Q71 mark

Figure 2 shows the market for a good. S1 shows the supply if only private costs are considered and S2 shows the supply if social costs are taken into account.
Figure 2
At the free market output, there is

Aa negative externality and overproduction of the good.
Ba negative externality and underproduction of the good.
Ca positive externality and overproduction of the good.
Da positive externality and underproduction of the good.

Show the answer

The answer is A.

TopicMarket failure and government interventionExternalities

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

Q81 mark

Microchips are used in a wide range of products, including mobile phones and traffic lights.
If demand increases for one of these products, this affects the price of other products that need microchips.
This is an example of

Acomplementary goods.
Bcomposite demand.
Cjoint supply.
Dsubstitute goods.

Show the answer

The answer is B.

TopicPrice determination in a competitive marketCross elasticity

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

Q91 mark

A firm uses a variety of strategies to improve its market position.
Which one of the following strategies is most likely to benefit consumers in the long run?

AAn advertising campaign that promotes the product’s image
BCharging low prices to drive rival firms out of the market
CInvesting in research and development to improve product quality
DMerging with a rival to reduce competition in the market

Show the answer

The answer is C.

TopicMarket structuresBusiness objectives & growthContestability & barriers

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

Q101 mark

Table 1 shows the percentage market share of firms in a particular industry in 2020 and 2023.
Table 1
Market share (%), 2020 Market share (%), 2023 Firm 1 28 Firm 2 24 Firm 3 20 Firm 4 18 Firm 5 3 All other firms 7 What was the change in the three-firm concentration ratio over the period 2020 to 2023?

AA fall of 6 percentage points
BA fall of 7 percentage points
CA rise of 4 percentage points
DA rise of 5 percentage points

Show the answer

The answer is C.

TopicMarket structuresOligopoly

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

Q111 mark

All other things being equal, which one of the following is most likely to result in a fall in the market price of rice?

AFarmers releasing less rice for sale
BGood weather conditions for growing rice
CMore wheat being planted instead of rice
DThe removal of a subsidy for growing rice

Show the answer

The answer is B.

TopicPrice determination in a competitive marketDemand & supply

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

Q121 mark

Which one of the following is most likely to influence the price elasticity of supply of a good or service?

AThe availability of spare capacity
BThe number of substitutes for the product
CThe percentage of income spent on the good
DThe price of complementary goods

Show the answer

The answer is A.

TopicPrice determination in a competitive marketPrice elasticity of supply

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

Q131 mark

In Figure 3, the curve XX shows the initial production possibility boundary (PPB) for a toy manufacturer producing trains and buses.
Figure 3
Which one of the following combinations is most likely to explain why the firm’s PPB has shifted from XX to YY?
Buses Trains

ADemand has increased for buses Demand has fallen for trains Fewer consumers are using Technical progress has increased
Bbuses the potential output of trains More resources have been Fewer resources have been
Callocated to producing buses allocated to producing trains Productivity has risen for the Productivity has fallen for the
Dmanufacture of buses manufacture of trains

Show the answer

The answer is D.

TopicEconomic methodology and the economic problemPPB / PPC

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

Q141 mark

Which one of the following is the best example of a situation where there is asymmetric information?

AA firm operating in perfect competition
BA seller knowing more than a buyer
CTwo buyers being equally informed
DTwo firms working together on a new product

Show the answer

The answer is B.

TopicIndividual economic decision makingImperfect information

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

Q151 mark

Table 2 shows the weekly demand for two products, apples and pears, before and after a change in the price of pears.
Table 2
Price of Price of Demand for Demand for apples (£/kg) pears (£/kg) apples (kg) pears (kg) Before the 1.60 2.50 5000 2000 price change After the 1.60 3.00 5500 1500 price change What is the cross elasticity of demand for apples following the change in the price of pears?

A–5.0
B–1.25
C+0.5
D+2.0

Show the answer

The answer is C.

TopicPrice determination in a competitive marketCross elasticity

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

Q161 mark

Developed economies, such as the UK, are characterised by high levels of specialisation which involve workers concentrating on a specific task or occupation.
This specialisation is possible because in such economies

Aan effective medium of exchange exists.
Bmarkets tend to have high levels of concentration.
Cproduction is concentrated in the service sector.
Dproduction tends to involve mainly unskilled labour.

Show the answer

The answer is A.

TopicEconomic methodology and the economic problemSpecialisation & division of labour

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

Q171 mark

Figure 4, shows the original demand (D1) and supply (S) in the market for jewellery.
D2 shows the demand after an increase in incomes.
Figure 4
After the increase in incomes, the market price of jewellery will rise due to

Aexcess demand at price P1.
Bexcess supply at price P1.
Cincreased average cost of producing jewellery.
Dincreased competition between sellers.

Show the answer

The answer is A.

TopicPrice determination in a competitive marketDemand & supplyCosts & economies of scale

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

Q181 mark

Following a period of unusually cold weather, growers find that many of their tomato plants have been destroyed, reducing the supply of tomatoes.
As a result of this

Athe price of tomatoes falls due to the signalling function of prices.
Bthe price of tomatoes rises due to the rationing function of prices.
Cthe quantity of tomatoes demanded rises due to the incentive function of prices.
Dthe supply of tomatoes will fall further due to the signalling function of prices.

Show the answer

The answer is B.

TopicPrice determination in a competitive marketDemand & supply

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

Q191 mark

Table 3 shows indices for the total revenue and total cost for a firm in the years 2021 to 2023, with 2022 set as the base year.
Table 3
Index of total revenue Index of total cost 2021 96 2022 100 100 2023 102 102.9 In 2021, the firm’s total revenue was £180 000 and its total cost was £160 000.
What was the firm’s total profit in 2023?

A£20 000
B£20 180
C£22 960
D£23 250

Show the answer

The answer is D.

TopicProduction, costs and revenueRevenue & profit

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

Q201 mark

Which one of the following is an example of government failure due to unintended consequences?

AA government target to increase police officers is missed due to a low number of applicants
BGovernment provision of a free flu vaccine for the over 60s has a low take-up
CThe government cancels a plan for a new railway line after an expensive planning enquiry
DThe government introduces a charge at a waste disposal site which leads to illegal dumping 20

Show the answer

The answer is D.

TopicMarket failure and government interventionGovernment failure

Question paper p.12 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.

Flood defences

Examiner insight

Examiner insight

Coffee

Examiner insight

Examiner insight

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