Paper 1: Markets and Business Behaviour · 9EC0/01
Edexcel A A-level Paper 1, June 2022
All 14 written questions and 5 multiple choice questions from Edexcel A A-level Paper 1 (June 2022), Markets and Business Behaviour. Case studies: UK branded coffee shop chains 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)
Ceteris paribus, the most likely consequence of the above data is that Disney+ will experience an increase in its:
- Afixed costs
- Bincome elasticity of demand
- Cprice elasticity of demand
- Drevenue
Show the answer
The answer is D.
Mark splitAnalysis 1
TopicHow markets workNature of economicsRevenues, costs and profits
Q1(b)
Draw a supply and demand diagram to show the likely effect of the change in the number of subscribers on the market equilibrium for Disney+ services.
Mark splitKnowledge 2Application 2
Q2(a)
The price of sweetened drinks increases by 5%. Ceteris paribus, calculate the percentage change in the quantity demanded for sweetened drinks. You are advised to show your working.
Mark splitApplication 2
TopicNature of economics
Q2(b)
The price of sweetened drinks increases by 5%. Ceteris paribus, calculate the percentage change in the quantity demanded for bottled water. You are advised to show your working.
Mark splitApplication 2
TopicNature of economics
Q2(c)
Using the data on page 4, which one of the following is most likely?
- Adecrease in the price of
- BDecrease Substitutes
- CIncrease Complements
- DIncrease Substitutes
Show the answer
The answer is D.
Mark splitKnowledge 1
TopicHow markets work
Q3(a)
Draw an externalities diagram to show the likely impact of the sewage discharge on the local tourist industry.
Mark splitKnowledge 2Application 2
TopicMarket failure
Q3(b)
Which one of the following is the most likely effect of the £180 000 fine?
- Aincrease market failure
- Bincrease profits for the water company
- Creduce external costs
- Dreduce government failure
Show the answer
The answer is C.
Mark splitAnalysis 1
TopicMarket failureGovernment intervention
Q4(a)
Draw a simple two firm/two outcome game theory model to show why the chicken suppliers may have colluded.
Mark splitKnowledge 2Application 2
TopicMarket structures
Q4(b)
Which one of the following is most closely associated with tacit collusion?
- AOvert sharing of information
- BPredatory pricing
- CPrice wars
- DUnspoken agreements
Show the answer
The answer is D.
Mark splitAnalysis 1
TopicMarket structures
Q5(a)
Which one of the following best describes the merger of the makers of Fiat cars and Vauxhall cars?
- ABackward vertical integration
- BForward vertical integration
- CHorizontal integration
- DOrganic growth
Show the answer
The answer is C.
Mark splitKnowledge 1
TopicBusiness growth
Q5(b)
Explain one type of internal economies of scale that the newly merged car company may achieve.
Mark splitKnowledge 1Analysis 1
Q5(c)
Explain one likely concern the EU competition authorities may have had about the merger.
Mark splitKnowledge 1Analysis 1
TopicBusiness growth
Section B
Case study
UK branded coffee shop chains market
Extracts: A: Tough market conditions for coffee shops – but coffee quality is king · B: Greggs aiming for ‘coffee shop experience’
In the extracts: Greggs, Starbucks, Costa Coffee, Independent, Coca-Cola, National Minimum Wage, Month Price Change, Coffee Republic, International, United States
Q6(a)
With reference to Figure 1, calculate the three-firm concentration ratio for branded coffee shop chains.
Mark splitKnowledge 1Application 2Analysis 2
TopicMarket structures
Examiner insight
- What to cover
- Add the market shares of the three largest chains in Figure 1 and express the total as a percentage of the market. Show the addition, give the answer with a percentage sign, and comment on concentration.
- Watch out
- Choosing three firms that are not the largest three, or giving an answer with no working shown.
Q6(b)
With reference to Figure 2 and your understanding of price elasticity, examine two factors that may cause significant changes in the international price of coffee beans.
Mark splitKnowledge 2Application 2Analysis 2Evaluation 2
TopicHow markets work
Examiner insight
- What to cover
- Pick two factors, such as weather or disease hitting the harvest and a change in world demand. Explain that with inelastic supply and inelastic demand for a primary commodity, small shifts cause large price swings.
- Diagram
- Supply and demand for coffee beans with steep, inelastic curves. Show the supply shift causing a large price change and only a small quantity change. Label P1 to P2.
- Evaluation
- Judge which factor explains more of the movement in Figure 2. Depends on how inelastic supply is in the short run, since new coffee trees take several years to bear fruit.
- Watch out
- Ignoring elasticity when the question asks you to use it to explain the size of the price change.
Q6(c)
Profit maximisation is assumed to be the business objective of most firms. With reference to Extract A, assess whether this is the case for coffee shop owners.
Mark splitKnowledge 2Application 2Analysis 2Evaluation 4
TopicRevenues, costs and profits
Examiner insight
- What to cover
- State profit maximisation at MC equals MR. Use Extract A to argue coffee shop owners may instead pursue sales revenue maximisation, market share, survival or satisficing, since many independents value lifestyle and reputation.
- Diagram
- Cost and revenue diagram showing profit maximising output where MC equals MR against revenue maximising output where MR equals zero. Label both prices and outputs.
- Evaluation
- Weigh short run objectives against long run profit maximisation. Chains such as Costa face shareholder pressure while independents may satisfice. Depends on ownership, information available and market conditions.
- Watch out
- Asserting the objective without using evidence from Extract A about coffee shop owners.
Q6(d)
Using a cost and revenue diagram, discuss the likely impact of ‘rising costs’ for coffee shops on their profitability (Extract A, line 2).
Mark splitKnowledge 2Application 2Analysis 4Evaluation 4
TopicBusiness growthLabour market
Examiner insight
- What to cover
- Rising wages, rent and bean prices raise average and marginal cost. Explain that unless firms pass costs on, the profit maximising output falls and supernormal profit shrinks, so coffee shop profitability falls.
- Diagram
- Cost and revenue diagram for the firm. Show AC and MC shifting up, output falling where MC equals MR, and the profit rectangle between AR and AC shrinking or turning into a loss.
- Evaluation
- Weigh against the ability to raise prices if demand is inelastic and brand loyalty is strong. Depends on elasticity, whether cost rises are temporary, and whether rivals face the same costs.
- Watch out
- Drawing only a supply and demand diagram when the question asks for a cost and revenue diagram of the firm.
Q6(e)
With reference to the information provided, discuss whether the coffee shop market is contestable.
Mark splitKnowledge 3Application 3Analysis 3Evaluation 6
TopicBusiness growthLabour market
Examiner insight
- What to cover
- Define contestability as low barriers to entry and exit with low sunk costs. Apply to coffee shops: premises can be leased, equipment resold and independents enter easily, so hit and run entry is possible.
- Evaluation
- Weigh against brand loyalty, the buying power and scale of Costa and Starbucks, and fit out and prime site costs that are sunk. Judge how contestable the market really is.
- Watch out
- Judging contestability by the number of firms already trading rather than by freedom of entry and exit.
Section C
Q7
Tesla held an 82% market share of the electric vehicle market in the United States during the first half of 2020. (Source: adapted from https://electrek.co/2020/08/21/ tesla-holds-us-ev-market-losing-federal-tax-credit/) Evaluate whether a monopoly is likely to operate efficiently. Refer to at least one monopoly of your choice.
Mark splitKnowledge 4Application 4Analysis 8Evaluation 9
TopicMarket structures
Examiner insight
- What to cover
- Define allocative, productive, dynamic and X efficiency. Explain that a monopoly such as Tesla restricts output and sets price above marginal cost, and without competitive pressure may produce above minimum average cost.
- Diagram
- Monopoly diagram. Show output where MC equals MR, price read off AR above MC, the allocatively efficient output where price equals MC, and the deadweight welfare loss triangle.
- Evaluation
- Weigh against dynamic efficiency, as supernormal profit funds research, and economies of scale lowering average cost. Depends on contestability, regulation and the time period. End with a supported judgement.
- Watch out
- Covering only allocative efficiency and ignoring dynamic and productive efficiency, where the monopoly case is strongest.
Q8
Some occupations in the UK are facing large labour shortages. Hard-to-fill vacancies include qualified chefs, software engineers, construction workers and qualified nurses. (Source: adapted from https://www.ft.com/content/ 36baacce-ddd0-11e8-9f04-38d397e6661c) Evaluate the factors that might influence the supply of labour in an occupation of your choice.
Mark splitKnowledge 4Application 4Analysis 8Evaluation 9
TopicLabour marketHow markets work
Examiner insight
- What to cover
- Choose one occupation, such as nursing. Explain wage rates and net advantages, the qualifications and training time required, barriers to entry, migration rules, working conditions, and pay in substitute occupations.
- Diagram
- Labour market diagram for the chosen occupation. Show the labour supply curve shifting, with the wage and employment change labelled, and a steep supply curve where training takes years.
- Evaluation
- Judge which factor matters most and note supply is very wage inelastic in the short run because training takes years. Depends on the time period and on non wage factors.
- Watch out
- Drifting into demand for labour or minimum wage policy instead of staying on the supply of labour.
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.