Paper 1: Markets and Business Behaviour · 9EC0/01
Edexcel A A-level Paper 1, June 2018
All 16 written questions and 5 multiple choice questions from Edexcel A A-level Paper 1 (June 2018), Markets and Business Behaviour. Case studies: The UK energy market. 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 original and the new opportunity cost of producing 50 capital goods. You are advised to show your working.
Mark splitApplication 2
TopicNature of economics
Q1(b)
Which one of the following was the most likely cause of the movement in the production possibility frontier from XY to XZ?
- AA reduction in unemployment in consumer goods industries
- BA rise in the cost of producing consumer goods
- CAn increase in demand for consumer goods
- DA technological improvement in the production of consumer goods
Show the answer
The answer is D.
TopicNature of economicsHow markets work
Q1(c)
Explain one characteristic of the economy at position W.
Mark splitKnowledge 1Analysis 1
TopicNature of economics
Q2(a)
Calculate the weekly revenue received by Camelot after paying the tax to the government. You are advised to show your working.
Mark splitApplication 2
Q2(b)
Explain the likely impact of the price increase of national lottery tickets on the demand for using gaming machines.
Mark splitKnowledge 1Analysis 1
TopicHow markets work
Q2(c)
The most likely reason for this grant is to ensure the:
- Aexclusivity of Broomhill Sands
- Bprovision of a private good
- Cprovision of a public good
- Drivalry of Broomhill Sands
Show the answer
The answer is C.
TopicMarket failure
Q3(a)
Assume the selling fee is 1.3%. Calculate the payment received by an estate agent on a property sold for £489 000. You are advised to show your working.
Mark splitApplication 2
Q3(b)
The ratio of the average house price in London to the average house price in the North East of England is:
- A0.26
- B3.62
- C3.85
- D7.40
Show the answer
The answer is C.
Q3(c)
Explain one likely reason for the difference in average house prices between London and the North East of England.
Mark splitKnowledge 1Analysis 1
Q4(a)
Calculate the change in total supernormal profit if Emily changes her objective from profit maximisation to revenue maximisation. You are advised to show your working.
Mark splitKnowledge 2Application 2
TopicRevenues, costs and profitsBusiness growth
Q4(b)
Emily now decides to change her objective from revenue maximisation to sales maximisation. This change will lead to:
- Aa decrease in the number of customers
- Ba decrease in the price of treatments
- Can increase in productive efficiency
- Dan increase in the level of profit
Show the answer
The answer is B.
TopicBusiness growthMarket structures
Q5(a)
The percentage decrease in sales of PCs between 2011 and 2015 is:
- A21.5
- B27.3
- C31.5
- D75.7
Show the answer
The answer is A.
Q5(b)
Explain one likely reason for the decrease in sales of PCs.
Mark splitKnowledge 1Analysis 1
Q5(c)
Calculate the five-firm concentration ratio. You are advised to show your working.
Mark splitApplication 2
TopicMarket structures
Section B
Case study
The UK energy market
Extracts: A: Competition and Markets Authority (CMA) report into the UK energy market · B: Proposals to regulate profits in the UK energy market · C: Skills shortages in the UK energy sector
In the extracts: CMA, Competition and Markets Authority, Scottish Power, Skills, UK Commission for Employment, Energy Market Investigation, Company Electricity Gas, Chinese and French, Robin Pagnamenta, Gas Electricity
Q6(a)
With reference to Figure 1, explain one likely reason for the overall trend in the real price of gas and electricity.
Mark splitKnowledge 1Application 1Analysis 3
TopicGovernment intervention in marketsRevenues, costs and profitsLabour market
Examiner insight
- What to cover
- Give one developed reason for the trend in Figure 1, such as rising wholesale gas costs, environmental levies, network investment costs, or limited competition between the large suppliers.
- Watch out
- Real prices are adjusted for inflation, so state the trend in Figure 1 before explaining it.
Q6(b)
With reference to Extract A, discuss the likely effectiveness of ‘measures to open up and increase competition’ in the UK energy market.
Mark splitKnowledge 2Application 2Analysis 4Evaluation 4
TopicGovernment intervention in marketsRevenues, costs and profitsLabour market
Examiner insight
- What to cover
- Explain measures from Extract A such as easier switching, price comparison and helping new entrants. Lower barriers to entry push prices down toward average cost and raise efficiency.
- Diagram
- Cost and revenue for a supplier: AR, MR, AC and MC with supernormal profit, then price falling toward average cost as entry increases. Label the profit area.
- Evaluation
- Depends on consumer inertia and information gaps, on the size of the switching gain, and on whether small entrants survive. Network infrastructure remains a natural barrier.
- Watch out
- More suppliers does not mean effective competition if consumers do not actually switch.
Q6(c)
With reference to Extract B, assess how the regulation of energy suppliers’ profits is likely to affect consumers and suppliers in the energy market.
Mark splitKnowledge 2Application 2Analysis 2Evaluation 4
Examiner insight
- What to cover
- Profit or price regulation such as RPI-X caps supernormal profit. Consumers gain lower bills and more consumer surplus, while suppliers face thinner margins and weaker investment. Use Extract B.
- Diagram
- Regulated monopoly: AR, MR, AC and MC with a maximum price set below the profit maximising price. Label the higher output and the loss of supernormal profit.
- Evaluation
- Weigh lower bills now against less investment and innovation later, plus regulatory capture and asymmetric information. Depends on how tight the cap is and on the time period.
- Watch out
- Both consumers and suppliers must be covered, and regulators cap prices or profits rather than costs.
Q6(d)
With reference to Extract A and your own knowledge, examine two possible reasons for the change in price elasticity of demand for electricity over time.
Mark splitKnowledge 2Application 2Analysis 2Evaluation 2
TopicHow markets work
Examiner insight
- What to cover
- Give two developed reasons using Extract A, such as more substitutes from solar panels and insulation, a longer time period allowing adjustment, smart meters improving information, or a changing share of income.
- Evaluation
- Electricity is a necessity with few close substitutes, so demand stays fairly inelastic even after these changes.
- Watch out
- A change in elasticity is not the same as a change in demand, so keep the two apart.
Q6(e)
With reference to Extract C and your own knowledge, discuss policies businesses and government might implement to reduce labour immobility to benefit the energy sector.
Mark splitKnowledge 3Application 3Analysis 3Evaluation 6
TopicGovernment intervention in marketsRevenues, costs and profitsLabour market
Examiner insight
- What to cover
- Split immobility into occupational and geographical. Explain training, apprenticeships and employer links for skills, and relocation help, housing and transport for movement. Show labour supply to the energy sector rising. Use Extract C.
- Diagram
- Labour market for the energy sector: supply of labour shifts right. Axes wage rate and quantity of labour. Label the lower wage and higher employment.
- Evaluation
- Weigh cost, long time lags and the risk that trained workers leave the sector. Depends on whether the shortage is occupational or geographical and on the time period.
- Watch out
- Separate occupational from geographical immobility and cover both business and government measures.
Section C
Q7
In September 2016 the government approved the building of an £18 billion nuclear power station, Hinkley Point C, which will supply 7% of UK electricity for up to 60 years. The power station is funded by Chinese and French investment. Evaluate the likely private costs and external costs involved in such major power station construction projects. Use an appropriate externalities diagram in your answer.
Mark splitKnowledge 4Application 4Analysis 8Evaluation 9
TopicMarket failure
Examiner insight
- What to cover
- Private costs are the construction, financing, labour and material costs borne by the investors. External costs are disruption, habitat loss, radioactive waste and long term decommissioning risk falling on third parties.
- Diagram
- Negative production externality: MPC below MSC with demand as MSB. Label the external cost gap, the free market output, the social optimum and the welfare loss triangle.
- Evaluation
- Weigh the external benefits of low carbon electricity and security of supply. Depends on the difficulty of valuing waste and risk, on the 60 year horizon and on the discount rate. Judge overall.
- Watch out
- Private costs fall on the firm and external costs on third parties, so do not merge the two categories.
Q8
In July 2016 Apple’s share of the UK market for smartphones was 38%. Evaluate whether such a high market share for one company is in the consumer interest. Use appropriate diagrammatic analysis in your answer.
Mark splitKnowledge 4Application 4Analysis 8Evaluation 9
Examiner insight
- What to cover
- A 38% share brings market power, so price can sit above marginal cost with lower output. Set this against economies of scale, dynamic efficiency and the heavy R&D spending that funds new products.
- Diagram
- Monopoly cost and revenue: AR, MR, AC and MC. Label the profit maximising price and output, the supernormal profit area and the deadweight welfare loss.
- Evaluation
- Depends on barriers to entry and on contestability from Samsung and Android rivals. Weigh higher prices against innovation and quality, then give a supported judgement on consumer interest.
- Watch out
- A 38% share is not a pure monopoly, so judge market power and contestability rather than assuming abuse.
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.