Paper 1: Markets and Business Behaviour · 9EC0/01
Edexcel A A-level Paper 1, June 2017
All 15 written questions and 5 multiple choice questions from Edexcel A A-level Paper 1 (June 2017), Markets and Business Behaviour. Case studies: Supermarket price war, food waste and possible mergers. Each question shows its marks and topic, with an examiner insight on 7, and opens the question paper and mark scheme at the right page.
Section A
Q1(a)
Calculate the new equilibrium price and quantity following the successful advertising campaign and the fall in production costs. Use the last two columns for your working.
Mark splitKnowledge 2Application 2
TopicHow markets work
Q1(b)
Research conducted in New Zealand in 2014 estimated the cross elasticity of demand for e-cigarettes to be 0.16 in response to changes in the price of tobacco. This implies that a 5% increase in the price of tobacco will cause the percentage change in demand for e-cigarettes to be:
- A-31.25
- B-0.16
- C0.8
- D31.25
Show the answer
The answer is C.
TopicHow markets work
Q2(a)
Assume that the change in the quantity of tea purchased was only caused by the change in the price of tea. Calculate the price elasticity of demand for tea in response to the rise in its price. You are advised to show your working.
Mark splitApplication 2
TopicHow markets work
Q2(b)
Calculate the change in total sales revenue for UK tea retailers between 2010 and 2015. You are advised to show your working.
Mark splitKnowledge 1Analysis 1
Q2(c)
Estimates for the demand for black tea in the UK suggest that it is an inferior good. This implies it has a negative:
- Across elasticity of demand
- Bincome elasticity of demand
- Cprice elasticity of demand
- Dprice elasticity of supply
Show the answer
The answer is B.
TopicHow markets work
Q3(a)
Calculate the total domestic cooking gas subsidy paid daily by the Indian government. You are advised to show your working.
Mark splitApplication 2
Q3(b)
Calculate the percentage share of the total subsidy received by: consumers producers
Mark splitApplication 2
Q3(c)
One effect of the subsidy is to increase:
- Aconsumer surplus
- Bmarket failure
- Cpublic good provision
- Dtax revenue
TopicMarket failureHow markets workGovernment intervention
Q4(a)
Draw a cost and revenue diagram to show the likely impact of a reduction in sales of construction equipment on JCB’s profits.
Mark splitKnowledge 2Application 2
Q4(b)
In India JCB has a strong brand image and a 50% share of the market for construction equipment. This means the construction equipment market in India is likely to have a low level of:
- Aconcentration
- Bcontestability
- Cprivate ownership
- Dspecialisation
TopicNature of economics
Q5(a)
Which one of the following is a fixed cost to Starbucks?
- ACoffee
- BMilk
- CPackaging
- DRent
Show the answer
The answer is D.
Q5(b)
Explain the difference between fixed costs and variable costs.
Mark splitKnowledge 1Analysis 1
Q5(c)
With reference to Figure 1, calculate the profit (in pence) for a cappuccino drink. You are advised to show your working.
Mark splitApplication 2
Section B
Case study
Supermarket price war, food waste and possible mergers
Extracts: A: Supermarket price war puts pressure on their food suppliers · B: Food waste in the supply chain · C: Proposed merger activity in the supermarket sector
In the extracts: Tesco, Groceries Code of Conduct, Sainsbury and Morrisons, Aldi and Lidl, Supermarket, Asda, GCA, Could-Britains-supermarkets-be-about-to-merge, Competition and Markets Authority, Tesco-burys-and-AS-Morrisons
Q6(a)
With reference to Figure 1 and Extract A, explain one likely reason for the change in the four-firm concentration ratio of the supermarket sector between 2010 and
Mark splitKnowledge 1Application 1Analysis 3
TopicMarket structures
Examiner insight
- What to cover
- Give one developed reason using Figure 1 and Extract A, such as the growth of discounters Aldi and Lidl taking share, which lowers the combined share of the largest four supermarkets.
- Watch out
- Define the four-firm concentration ratio and state the direction of change shown in Figure 1.
Q6(b)
With reference to Figure 2 and Extract A, discuss the possible impact of supermarket monopsony power on both food suppliers and consumers.
Mark splitKnowledge 2Application 2Analysis 4Evaluation 4
TopicMarket structures
Examiner insight
- What to cover
- Supermarkets as dominant buyers force supplier prices down, cutting supplier profit, investment and quality. Some of the saving may pass to consumers as lower shop prices. Use Figure 2 and Extract A.
- Diagram
- Monopsony: supply as the average cost of purchase with marginal cost above it and MRP as demand. Label the lower price paid and lower quantity bought than under competition.
- Evaluation
- Depends on whether savings reach consumers, on supplier bargaining power and alternative buyers, and on the long run risk that suppliers exit. Consider quality and food waste effects.
- Watch out
- Monopsony is buying power, so do not slip into monopoly pricing analysis of consumers.
Q6(c)
Examine measures the government might use to restrict the monopsony power of supermarkets.
Mark splitKnowledge 2Application 2Analysis 2Evaluation 2
TopicMarket structuresGovernment intervention
Examiner insight
- What to cover
- Explain measures such as a groceries code with an adjudicator, fines for late payment or unfair contract changes, blocking mergers, and supporting supplier co-operatives to raise supplier prices.
- Evaluation
- Regulation costs money and needs enforcement; firms may work around the rules, and higher supplier prices may be passed on to shoppers.
- Watch out
- Measures must target buying power over suppliers, not the prices supermarkets charge shoppers.
Q6(d)
Assess the extent to which ‘information gaps’ (Extract B, lines 5 and 6) and ‘irrational behaviour’ (Extract B, line 11) are the main causes of food waste in the UK.
Mark splitKnowledge 2Application 2Analysis 2Evaluation 4
TopicHow markets workMarket failure
Examiner insight
- What to cover
- Use Extract B to show how confusing date labels and poor information cause over-buying, and how bulk offers, habit and present bias lead to irrational over-purchase and waste.
- Diagram
- Information gap: demand based on perceived private benefit lies above true private benefit. Label the market quantity, the optimum quantity and the welfare loss.
- Evaluation
- Compare other causes such as promotions, low real food prices, cosmetic standards and supply chain rules. Depends on which stage of the chain is being judged and on the evidence quality.
- Watch out
- The question is about the extent these are the main causes, so other causes must be compared, not ignored.
Q6(e)
Discuss the likely problems for Sainsbury’s and Morrisons if the suggested merger between them goes ahead. Refer to Figure 1, Extract C and your own knowledge in your answer.
Mark splitKnowledge 3Application 3Analysis 3Evaluation 6
TopicBusiness growth
Examiner insight
- What to cover
- Set out problems for the two firms: diseconomies of scale, clashing cultures and IT systems, integration cost, a CMA investigation with forced store disposals, and reputational damage. Use Figure 1 and Extract C.
- Diagram
- Cost curve: long run average cost rising beyond minimum efficient scale. Label diseconomies of scale, output and average cost.
- Evaluation
- Weigh against likely gains such as buying power, economies of scale and lower prices. Depends on how well integration is managed and on whether the CMA imposes remedies.
- Watch out
- The problems asked for are those facing Sainsbury's and Morrisons, not those facing consumers or suppliers.
Section C
Q7
In 2015 a report by Public Health England recommended the imposition of a 20% tax on the sale of soft drinks that contain high levels of sugar. Evaluate the likely microeconomic effects of such a tax.
Mark splitKnowledge 4Application 4Analysis 8Evaluation 9
Examiner insight
- What to cover
- A 20% indirect tax raises production costs and shifts supply left, raising price and cutting quantity, internalising the external costs of sugar. Cover consumers, producers, revenue and reformulation.
- Diagram
- Indirect tax on supply and demand: supply shifts left by the tax. Label price paid, price received, the tax revenue and the consumer and producer incidence.
- Evaluation
- Microeconomic effects only. Depends on price elasticity of demand, likely inelastic, so quantity falls little and consumers bear most of the burden. Weigh regressiveness, substitutes and reformulation, then judge.
- Watch out
- Keep to microeconomic effects; macro points on inflation or growth earn nothing here.
Q8
‘Revenue maximisation is a more realistic business objective than profit maximisation for many businesses.’ To what extent do you agree with this statement? Refer to an industry of your choice in your answer.
Mark splitKnowledge 4Application 4Analysis 8Evaluation 9
TopicBusiness growthRevenues, costs and profits
Examiner insight
- What to cover
- Contrast profit maximisation where MC equals MR with revenue maximisation where MR is zero. Explain the divorce of ownership from control, manager incentives and market share aims, applied to a named industry.
- Diagram
- Cost and revenue: AR, MR, AC and MC. Label the profit maximising output where MC equals MR and the revenue maximising output where MR equals zero.
- Evaluation
- Weigh sales maximisation, satisficing and profit satisficing as rivals. Depends on market structure, shareholder pressure and the short or long run. Reach a supported judgement on the named industry.
- Watch out
- Revenue maximisation is where marginal revenue is zero, not where profit is greatest, and a named industry is required.
Question text is quoted from the question papers, © Pearson Edexcel, 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.