Paper 1: Markets and Business Behaviour · 9EC0/01
Edexcel A A-level Paper 1, June 2025
All 12 written questions and 5 multiple choice questions from Edexcel A A-level Paper 1 (June 2025), Markets and Business Behaviour. Case studies: Digital markets. 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 change in total supernormal profit if the restaurant changes its objective from revenue maximisation to profit maximisation. You are advised to show your working.
Mark splitKnowledge 2Application 2
TopicRevenues, costs and profitsBusiness growth
Q1(b)
Refer to the previous diagram. There is a reduction in the demand for pizza. Ceteris paribus, which one of the following will happen to the restaurant’s average revenue and marginal revenue as a result of this change?
- AAverage revenue and marginal revenue both fall
- BAverage revenue and marginal revenue stay the same
- CAverage revenue falls and marginal revenue increases
- DAverage revenue increases and marginal revenue falls
Show the answer
The answer is A.
TopicRevenues, costs and profitsNature of economicsHow markets work
Q2(a)
With reference to the data above, explain the likely numerical value of the price elasticity of supply for oil.
Mark splitKnowledge 2Application 1Analysis 1
TopicHow markets work
Q2(b)
The cross elasticity of demand for petrol cars with respect to the price of diesel cars is estimated to be +0.64. Which one of the following is the most likely impact if the price of diesel cars falls by 10%?
- AThe price of petrol cars falls by 6.4%
- BThe price of petrol cars rises by 64%
- CThe quantity demanded of petrol cars falls by 6.4%
- DThe quantity demanded of petrol cars rises by 64%
Show the answer
The answer is C.
TopicHow markets work
Q3(a)
Which one of the following applies to the dental practice’s equilibrium at point E? The dental practice is:
Show the answer
The answer is A. Open the question paper to read the options.
TopicRevenues, costs and profitsMarket structures
Q3(b)
The government subsidises dental care in the UK through the National Health Service (NHS). There has been a large decrease in the work carried out by NHS dentists. Up to 90% of practices are not accepting new NHS patients. (Source: adapted from https://www.theguardian.com/society/2023/jul/14/ mps-demand-urgent-reform-nhs-dental-services-report) Draw an externalities diagram to identify the welfare gain area from the consumption of dental care in the UK.
Mark splitKnowledge 2Application 2
TopicMarket failureGovernment intervention
Q4(a)
With reference to the data above, explain how imperfect market information may lead to a misallocation of resources in the used-car market.
Mark splitKnowledge 3Application 1
TopicNature of economics
Q4(b)
In September 2022, the online retailer, Amazon, increased the price of its Prime service from £7.99 a month to £8.99. As a result, almost 600 000 people cancelled their subscriptions. (Source: adapted from https://www.telegraph.co.uk/business/2022/08/17/ hundreds-thousands-uk-households-ditch-amazon-prime/) Which one of the following is the most likely explanation of this behaviour? These consumers:
- Aaim to maximise profits
- Baim to maximise utility
- Cdemonstrate habitual behaviour
- Ddemonstrate weakness at computation
Show the answer
The answer is B.
Q5(a)
Draw a labour market diagram to show the likely impact of the increase in the National Minimum Wage for hospitality employees.
Mark splitKnowledge 2Application 1Analysis 1
TopicLabour market
Q5(b)
There has been a significant decrease in the supply of agricultural workers in the UK. Which one of the following is the most likely cause of this decrease?
- AIncreased demand for UK-grown strawberries
- BIncreased job security for qualified workers in the industry
- CIncreased productivity of workers in the industry
- DIncreased wages in the retail industry
Show the answer
The answer is D.
TopicHow markets work
Section B
Case study
Digital markets
Extracts: A: Digital markets · B: Addictive video games · C: The growth of automation
In the extracts: Microsoft, Digital, Automation, Game, FIFA, Sony, Microsoft-Activision, Minecraft Microsoft, Nintendo and Sony, MW II Activision
Q6(a)
With reference to Extract A, explain one likely impact of the growth of digital markets on allocative efficiency.
Mark splitKnowledge 1Application 2Analysis 2
TopicMarket structures
Examiner insight
- What to cover
- Define allocative efficiency as price equal to marginal cost. Explain that digital markets cut search costs and improve price information, so competition pushes price nearer marginal cost and resources match consumer preferences better.
- Watch out
- Explaining productive or dynamic efficiency instead of allocative efficiency, which needs price equal to marginal cost.
Q6(b)
With reference to Extract C, examine two effects of increased ‘automation’ on the demand for labour.
Mark splitKnowledge 2Application 2Analysis 2Evaluation 2
TopicLabour marketHow markets work
Examiner insight
- What to cover
- Demand for labour is derived. Explain capital substituting for routine workers, shifting labour demand left. Then explain the complementary effect, where higher productivity and output raise demand for skilled technical workers.
- Diagram
- Labour market diagram with demand for labour shifting left for routine workers and right for skilled workers. Label the wage and employment change in each case.
- Evaluation
- Judge the net effect on total labour demand. Depends on whether workers can retrain, the relative cost of capital and labour, and the time period, since new roles appear only in the long run.
- Watch out
- Treating automation as only destroying jobs and ignoring the rise in demand for complementary skilled labour.
Q6(c)
With reference to the information provided, discuss whether the price elasticity of demand for video games is elastic or inelastic.
Mark splitKnowledge 2Application 2Analysis 4Evaluation 4
TopicHow markets work
Examiner insight
- What to cover
- State the price elasticity formula and its determinants. Argue video games are a luxury with many substitutes and time to shop around, so demand is elastic, then argue franchise loyalty makes demand inelastic.
- Diagram
- Two demand curves for a video game, one shallow and elastic, one steep and inelastic. Show the same price change giving very different quantity changes and revenue effects.
- Evaluation
- Weigh both sides using the evidence given. Depends on whether the title is a new release or an older one, on income levels, the time period, and on subscription services as substitutes.
- Watch out
- Stating elastic or inelastic without using evidence from the extracts or figures to support the value.
Q6(d)
With reference to the information provided, assess whether the market for video game development is contestable.
Mark splitKnowledge 2Application 2Analysis 2Evaluation 4
Examiner insight
- What to cover
- Define contestability by entry and exit barriers and sunk costs. Argue digital distribution and cheap game engines cut entry costs, so independent developers can enter and threaten incumbents with hit and run competition.
- Evaluation
- Weigh against the very large sunk costs of major title development, marketing budgets, exclusive platform deals and console licensing. Depends on which segment of the market you judge, and on cost recovery on exit.
- Watch out
- Ignoring sunk costs, which are the key test of contestability rather than entry costs alone.
Q6(e)
Discuss the likely benefits of mergers for firms such as Microsoft.
Mark splitKnowledge 3Application 3Analysis 3Evaluation 6
TopicBusiness growth
Examiner insight
- What to cover
- Identify the merger type. Explain economies of scale lowering long run average cost, greater market power allowing higher prices, access to exclusive content or technology, and reduced risk through diversification.
- Diagram
- Long run average cost curve showing the merged firm moving down towards minimum efficient scale. Or a monopoly diagram with price above marginal cost and a larger supernormal profit area.
- Evaluation
- Weigh against diseconomies of scale, integration and culture problems, the price paid, and competition authority intervention. Depends on the merger type and whether synergies are actually achieved. Reach a judgement.
- Watch out
- Writing about benefits to consumers when the question asks about benefits for the firms.
Section C
Q7
High Speed 2 (HS2) was a £100 billion UK government rail project designed to expand the existing network. The journey time between London and Manchester would take just 1 hour and 11 minutes, 54 minutes quicker than today’s fastest time. Almost 900 homes, 1 000 businesses and around 60 ancient woodlands would be destroyed by its construction. (Source: adapted from https://www.independent.co.uk/climate-change/news/ hs2-railway-route-houses-demolish-woodland-destroy-environment- impact-london-birmingham-manchester-a8582316.html) Evaluate the likely microeconomic effects of building major infrastructure projects.
Mark splitKnowledge 4Application 4Analysis 8Evaluation 9
Examiner insight
- What to cover
- Focus on individual markets and resources. Explain derived demand for construction labour and materials, positive externalities from faster journeys, negative externalities from lost homes and ancient woodland, and the opportunity cost of land and funds.
- Diagram
- Negative externality diagram for construction, with MSC above MPC and the welfare loss triangle. Or a labour market diagram showing derived demand for construction workers shifting right. Label the key areas.
- Evaluation
- Weigh external benefits against the external cost of 900 homes and 60 ancient woodlands, plus cost overruns and opportunity cost. Depends on valuing non market goods, the discount rate and the time horizon.
- Watch out
- Writing a macroeconomic answer on multiplier effects and growth when the question asks for microeconomic effects.
Q8
In 2023, the UK prime minister Rishi Sunak said that he wanted to see all students in England study some form of mathematics until they reach the age of 18 to ‘ensure that they leave school better equipped for the jobs of the future’. This would require additional spending on education. Just half of all 16 to 19 year-olds study mathematics. Yet in a world where data is everywhere and statistics are vital in every job, the workforce will require more analytical skills than ever before. (Source: adapted from https://educationhub.blog.gov.uk/2023/01/04/ studying-maths-to-18-what-you-need-to-know/) Evaluate the likely microeconomic effects of increased spending on education.
Mark splitKnowledge 4Application 4Analysis 8Evaluation 9
Examiner insight
- What to cover
- Education is a merit good with positive externalities. Explain higher human capital raising marginal revenue product and wages, improving occupational mobility, and moving consumption of education nearer the social optimum.
- Diagram
- Positive externality diagram with MSB above MPB and underconsumption at the free market output. Add a subsidy shifting supply right to reach the social optimum, and label the welfare gain.
- Evaluation
- Weigh gains against the opportunity cost of government funds, the long lag before benefits appear, and whether compulsory maths to 18 actually raises productivity. Depends on teaching quality and teacher supply.
- Watch out
- Answering with macroeconomic effects on growth and the deficit when the question asks for microeconomic effects.
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.