Paper 1: Markets and Business Behaviour · 9EC0/01
Edexcel A A-level Paper 1, June 2019
All 14 written questions and 5 multiple choice questions from Edexcel A A-level Paper 1 (June 2019), Markets and Business Behaviour. Case studies: Energy and telecommunication markets in the UK. 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)
With reference to the data provided, calculate the price elasticity of supply for new house builds between 2016 and 2017. You are advised to show your workings.
Mark splitApplication 2
TopicHow markets work
Q1(b)
A 2.5% increase in new build house prices in one region of the UK causes a 10% increase in the number of houses built. Ceteris paribus, this suggests that supply of new house builds is:
- Aperfectly price elastic
- Bperfectly price inelastic
- Crelatively price elastic
- Drelatively price inelastic
Show the answer
The answer is C.
Mark splitApplication 1
TopicNature of economicsHow markets work
Q1(c)
Explain one factor that is likely to determine the price elasticity of supply of new house builds.
Mark splitKnowledge 1Analysis 1
TopicHow markets work
Q2(a)
Draw a supply and demand diagramMR to show the likely microeconomic effects of the hurricane on the US oil market.
Mark splitKnowledge 2Application 2
Q2(b)
The diagrams show movements from position X to Y on production possibility
Show the answer
The answer is A. Open the question paper to read the options.
Mark splitAnalysis 1
TopicNature of economics
Q3(a)
The UK hair and beauty industry is an example of monopolistic competition because:
- Afirms spend nothing on advertising and research
- Bthe industry is dominated by a few large firms
- Cthe products are homogenous AR=D
- Dthere are low barriers to entry and exit Quantity
Show the answer
The answer is D.
Mark splitAnalysis 1
TopicMarket structuresRevenues, costs and profits
Q3(b)
Draw a cost and revenue diagram toMR show the long-run equilibrium of a firm in monopolistic competition.
Mark splitKnowledge 2Application 2
TopicMarket structures
Q4(a)
The most likely reason for this demerger was to:
- Abenefit from external economies of scale
- Bbenefit from internal economies of scale
- Cfocus more on its core business
- Dincrease its market share
Show the answer
The answer is C.
Mark splitAnalysis 1
TopicRevenues, costs and profitsBusiness growth
Q4(b)
Calculate, using the information provided, the total costs of GoCompare in 2016.
Mark splitKnowledge 2Application 2
Q5(a)
Explain how resources are allocated in a free market economy.
Mark splitKnowledge 1Analysis 1
TopicNature of economics
Q5(b)
Which one of the following statements is true?
- AFriedrich Hayek believed that the government should subsidise
- BFriedrich Hayek was a key advocate of command economies as a way
- CKarl Marx advocated allocating resources via the free market
- DKarl Marx criticised the private ownership of factors of production
Show the answer
The answer is D.
Mark splitKnowledge 1
TopicNature of economicsGovernment intervention
Q5(c)
Explain one advantage to a firm of using division of labour when organising its production process.
Mark splitKnowledge 1Analysis 1
TopicNature of economics
Section B
Case study
Energy and telecommunication markets in the UK
Extracts: A: Energy price cap to fix ‘broken’ market in UK · B: BT profit rises · C: BT to slash landline charges for 1 million customers
In the extracts: Ofcom, Ofgem, Copyright Guardian News, BT Openreach, Media Ltd, Wholesale, BT and EE, BT Group, Average, Energy
Q6(a)
With reference to Extract A, explain the difference between a positive statement and a normative statement.
Mark splitKnowledge 1Application 2Analysis 2
TopicNature of economics
Examiner insight
- What to cover
- Positive statements are objective and can be tested against evidence. Normative statements contain a value judgement, often signalled by should or ought. Quote one example of each from Extract A.
- Watch out
- Definitions alone miss the application marks; an example of each must be quoted from Extract A.
Q6(b)
With reference to Extract B, examine the likely benefits to consumers of the integration between BT and EE.
Mark splitKnowledge 2Application 2Analysis 2Evaluation 2
TopicGovernment intervention in marketsBusiness growth
Examiner insight
- What to cover
- Explain consumer benefits from the BT and EE integration using Extract B: economies of scale and synergies lowering costs and prices, bundled services, wider network coverage and more network investment.
- Evaluation
- Benefits depend on whether cost savings are passed on; less competition in telecoms could instead raise prices.
- Watch out
- The benefits must reach consumers, so treat firm gains only as a route to lower prices or better service.
Q6(c)
With reference to Extract C, assess possible reasons why many ‘landline-only’ customers do not switch to a cheaper telephone provider.
Mark splitKnowledge 2Application 2Analysis 2Evaluation 4
TopicGovernment intervention in marketsBusiness growth
Examiner insight
- What to cover
- Use Extract C to explain information gaps, search and switching costs, inertia and habit, loyalty, and the age profile of these customers. Weak switching makes demand inelastic so prices stay high.
- Evaluation
- Judge which reason matters most. Depends on whether information is the real barrier, on internet access among these customers, and on whether a price cap would help more than better information.
- Watch out
- Behavioural reasons must be linked to the market outcome, not just listed as consumer laziness.
Q6(d)
Discuss one likely reason for the rise in BT’s profit (Figure 2, Extracts B and C). Use a cost and revenue diagram to support your answer.
Mark splitKnowledge 2Application 2Analysis 4Evaluation 4
TopicGovernment intervention in marketsBusiness growth
Examiner insight
- What to cover
- Choose one reason, such as the EE takeover raising revenue and bringing economies of scale, or market power keeping price above average cost. Link it to profit as total revenue minus total cost, using Figure 2.
- Diagram
- Cost and revenue: AR, MR, AC and MC with either average cost falling or price rising. Label the enlarged supernormal profit rectangle.
- Evaluation
- Depends on whether the gain is cost based or revenue based, on Ofcom regulation, and on whether the higher profit lasts or reflects one-off factors.
- Watch out
- Only one reason is credited, and the supernormal profit rectangle must be clearly labelled.
Q6(e)
Discuss methods of government intervention to protect consumers within the utilities markets, such as energy and telecommunications.
Mark splitKnowledge 3Application 3Analysis 3Evaluation 6
Examiner insight
- What to cover
- Set out methods: price caps such as RPI-X, profit regulation, quality and performance standards, promoting switching and competition, and windfall taxes. Link each to lower bills and higher consumer surplus.
- Diagram
- Regulated natural monopoly: AR, MR, AC and MC with a maximum price below the profit maximising price. Label the higher output and lower price.
- Evaluation
- Weigh lower bills against weaker investment, regulatory capture and asymmetric information about costs. Depends on how tight the cap is and on the time period.
- Watch out
- Utilities are natural monopolies, so explain why competition alone may not protect consumers.
Section C
Q7
In July 2017 it was announced that only a third of the BBC’s 96 top earning presenters were women and that its seven highest-paid presenters were all men. According to the High Pay Centre, in 2018, UK chief executives can earn 120 times more than the average full-time worker earning £28 758. With reference to an industry of your choice, evaluate why wage differences exist within the UK labour market.
Mark splitKnowledge 4Application 4Analysis 8Evaluation 9
TopicLabour market
Examiner insight
- What to cover
- Explain wage differences using marginal revenue product, human capital and skills, elasticity of labour supply, trade union and monopsony power, discrimination, and non-monetary job factors. Apply to a named industry such as broadcasting.
- Diagram
- Two labour markets side by side: wage rate and quantity of labour. Show inelastic supply and high MRP in the skilled market against elastic supply in the unskilled market. Label both wages.
- Evaluation
- Judge which causes dominate. Depends on the industry chosen, on how far discrimination rather than productivity explains gaps, and on the time period. End with a supported judgement.
- Watch out
- Explain the mechanisms behind wage gaps rather than listing examples, and apply them to one named industry.
Q8
In October 2017 Scania, the Volkswagen-owned truck maker, was fined €880 million (£771 million) by the European Commission for colluding with five other truck manufacturers over a 14-year period. The firms had agreed to coordinate prices after experiencing additional costs of meeting emission regulations. With reference to an industry of your choice, evaluate why some firms engage in collusive behaviour.
Mark splitKnowledge 4Application 4Analysis 8Evaluation 9
Examiner insight
- What to cover
- Define collusion and use a named oligopoly such as the truck cartel. Explain interdependence and price rigidity, then how agreeing prices lifts joint profit towards the monopoly outcome, cuts uncertainty and avoids damaging price wars.
- Diagram
- Kinked demand curve with a discontinuous MR section, or a monopoly diagram showing the cartel price and output against the competitive level. Label P, Q, AC and the supernormal profit area.
- Evaluation
- Weigh the incentive to cheat and free ride, plus detection risk and fines, against the profit gain. Depends on the number of firms, barriers to entry, demand elasticity and how long the agreement holds.
- Watch out
- Listing the harm cartels do to consumers instead of explaining why firms themselves choose to collude.
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.