Paper 1: Markets and Business Behaviour · 9EC0/01
Edexcel A A-level Paper 1, November 2020
All 14 written questions and 5 multiple choice questions from Edexcel A A-level Paper 1 (November 2020), Markets and Business Behaviour. Case studies: The UK Rail Industry. 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.
Summer exams were cancelled, so this paper was sat in the autumn series. The paper itself is headed with the original May date.
Section A
Q1(a)
Draw a supply and demand diagram to show the incidence of a specific petrol tax on consumers and producers.
Mark splitKnowledge 2Application 2
Q1(b)
The indirect tax on fuel is increased in a market in which the price elasticity of demand is −0.1. Which one of the following is the most likely effect on consumer and producer surplus?
- AConsumer surplus and producer surplus both decrease
- BConsumer surplus and producer surplus both increase
- CConsumer surplus decreases and producer surplus increases
- DConsumer surplus increases and producer surplus decreases
Show the answer
The answer is A.
Mark splitAnalysis 1
TopicHow markets workGovernment intervention
Q2(a)
Draw an externalities diagram to show the likely impact of the consumption of higher education.
Mark splitKnowledge 2Application 2
TopicMarket failure
Q2(b)
On average, in the UK, a working-age graduate earns approximately £10 000 more per year than a non-graduate. (Source adapted from: https://assets.publishing.service.gov.uk/government/uploads/ system/uploads/attachment_data/file/701720/GLMS_2017.pdf ) This suggests a university degree provides a substantial
- Aexternal benefit
- Bexternal cost
- Cprivate benefit
- Dsocial cost
Show the answer
The answer is C.
Mark splitAnalysis 1
TopicMarket failure
Q3(a)
Explain one likely effect of reducing the number of tradable pollution permits.
Mark splitKnowledge 2Application 1Analysis 1
Q3(b)
Regulation of firms that pollute is likely to be a problem because it
- Aallows firms to use price signals
- Bcreates unintended consequences
- Cfills information gaps for businesses
- Dmeans lower administrative costs
Show the answer
The answer is B.
Mark splitAnalysis 1
TopicGovernment interventionMarket failure
Q4(a)
Explain what happens to total cost at output levels greater than Z.
Mark splitKnowledge 1Analysis 1
Q4(b)
At output levels greater than Z, which one of the following correctly identifies what will happen to the cost?
- AFalls Falls Rises
- BFalls Rises Rises
- CRises Rises Falls
- DRises Rises Rises
Show the answer
The answer is B.
Mark splitApplication 1
Q4(c)
For a luxury doughnut producer the average selling price is £2. The average variable cost is 40% of the selling price and its fixed cost per day is £300. Calculate total costs per day assuming it produces 400 doughnuts per day.
Mark splitApplication 2
Q5(a)
Explain one likely reason why this business has remained small.
Mark splitKnowledge 1Analysis 1
Q5(b)
Explain why the previous expansion of this business could be described as ‘organic growth’.
Mark splitKnowledge 2
TopicBusiness growth
Q5(c)
Assume ‘Bettys’ merges with a major tea leaf supplier. Which one of the following is most likely to be an advantage as a result of this merger?
- AExternal economies of scale will increase efficiency
- BGreater control to lower prices of tea
- CIndustrial diversification increases risks
- DLower monopoly power in the café market
Show the answer
The answer is B.
Mark splitApplication 1
TopicBusiness growthRevenues, costs and profitsMarket structures
Section B
Case study
The UK Rail Industry
Extracts: A: The case for nationalisation · B: Southern Rail boss paid £495 000
In the extracts: Southern Rail, Privatisation, Include, Amazon, International Energy, Adult Young Persons, Northern England, Chief Executive, British Rail, Network Rail
Q6(a)
Refer to Figure 1. Explain the likely effect of the change in subsidy levels between 2017 and 2018 on rail fares. Include a supply and demand diagram in your answer.
Mark splitKnowledge 1Application 1Analysis 3
Examiner insight
- What to cover
- Read the direction of the subsidy change from Figure 1. A smaller subsidy raises train operating costs, so supply shifts left and rail fares rise. Link the size of the fare change to the size of the subsidy cut.
- Diagram
- Supply and demand for rail travel. Show supply shifting left as the subsidy falls, with the vertical gap between the curves equal to the subsidy per journey. Label P1 to P2 and Q1 to Q2.
- Watch out
- Shifting demand rather than supply, or drawing the diagram without stating the new fare and quantity.
Q6(b)
With reference to Figure 2, examine two possible factors which may have influenced demand for rail travel since 2008.
Mark splitKnowledge 2Application 2Analysis 2Evaluation 2
TopicHow markets work
Examiner insight
- What to cover
- Pick two demand determinants and tie each to Figure 2. Real incomes with rail travel as a normal good, and the price of substitutes such as petrol, car use or coach travel. Explain each shift in demand.
- Evaluation
- Judge which factor explains more of the movement in Figure 2. Note fares, service quality and commuting patterns could explain the same trend, so the link is not certain.
- Watch out
- Describing the trend in Figure 2 without explaining why demand shifted.
Q6(c)
Assess whether complete nationalisation of the rail industry might protect employees.
Mark splitKnowledge 2Application 2Analysis 2Evaluation 4
TopicGovernment intervention in markets
Examiner insight
- What to cover
- Define nationalisation. Explain the chain: state ownership removes the profit motive, so cost cutting and redundancies are less likely, union bargaining power rises, and pay and job security for rail employees may improve.
- Evaluation
- Weigh this against the taxpayer cost, the opportunity cost of subsidy and X inefficiency. Government may still cut jobs to control spending. Depends on budget pressure, union strength and the time period.
- Watch out
- Writing about passengers and fares instead of keeping the whole answer on employees.
Q6(d)
With reference to Extract A, paragraph 3, discuss whether the rail network can be considered to be a natural monopoly.
Mark splitKnowledge 2Application 2Analysis 4Evaluation 4
TopicMarket structures
Examiner insight
- What to cover
- Define natural monopoly as one firm supplying the whole market at lower average cost. Apply to the track network: huge fixed costs mean long run average cost keeps falling, so duplicating track would waste resources.
- Diagram
- Natural monopoly diagram. Falling LRAC cutting demand where AR lies below AC, with MC below AC throughout. Label the loss made at the allocatively efficient output where AR equals MC.
- Evaluation
- Weigh the track against train operating services, where franchising allows competition for the market. Depends on whether average cost is still falling at current demand, and on regulation to stop monopoly pricing.
- Watch out
- Treating the whole rail industry as one natural monopoly instead of separating infrastructure from train operations.
Q6(e)
Discuss the likely benefits of price discrimination to rail passengers. Use a diagram to support your answer.
Mark splitKnowledge 3Application 3Analysis 3Evaluation 6
TopicMarket structures
Examiner insight
- What to cover
- Define third degree price discrimination and the conditions needed. Explain how off peak passengers with elastic demand pay lower fares, how spare capacity gets used, and how extra profit can fund network investment.
- Diagram
- Two market third degree diagram. Elastic off peak market with a lower price, inelastic peak market with a higher price, same MC in both. Label each P and Q and the consumer surplus transferred.
- Evaluation
- Weigh cheaper off peak travel against higher peak fares paid by commuters with inelastic demand. Depends on whether profit is reinvested, and whether passengers can actually switch travel times.
- Watch out
- Explaining the benefits to the train operator when the question asks about benefits to passengers.
Section C
Q7
The International Energy Agency has predicted that oil use by cars will peak in 2025 because of the increasing number of drivers switching to electric vehicles. (Source adapted from: https://www.thetimes.co.uk) Evaluate the likely microeconomic consequences of consumers shifting from vehicles powered by fuel obtained from oil to electric‐powered vehicles.
Mark splitKnowledge 4Application 4Analysis 8Evaluation 9
Examiner insight
- What to cover
- Trace the effects through linked markets. Demand for oil and petrol cars falls, prices and jobs there fall, demand for lithium, batteries and charging points rises, and negative externalities from tailpipe emissions shrink.
- Diagram
- Negative consumption externality diagram for petrol cars, showing MSB below MPB and the welfare loss triangle shrinking. Alternatively supply and demand for oil with demand shifting left. Label P, Q and the welfare area.
- Evaluation
- Weigh cleaner air against battery mining externalities, emissions from electricity generation and structural unemployment in oil regions. Depends on the speed of switching, elasticity of demand for cars and the energy mix.
- Watch out
- Drifting into macroeconomic effects such as growth and the balance of payments when the question says microeconomic.
Q8
‘Amazon.com, the giant online retailer, has too much power.’ It uses its market power to put a squeeze on publishers, in effect driving down the prices it pays for books. If a publisher refuses, Amazon may take action by ‘delaying their delivery, raising their prices, and steering customers to other publishers’. (Source adapted from: https://www.nytimes.com) Evaluate the likely costs of a monopsony operating in a market such as book retailing.
Mark splitKnowledge 4Application 4Analysis 8Evaluation 9
TopicMarket structures
Examiner insight
- What to cover
- Define monopsony as a single dominant buyer. Explain how Amazon restricts the quantity it buys and pays publishers below the competitive price, cutting publisher profit, author royalties, the range of titles and publishing jobs.
- Diagram
- Monopsony input market diagram. Supply as the average cost of the input, marginal cost curve above it, buyer choosing where MC equals MRP. Label the lower price and quantity against the competitive outcome.
- Evaluation
- Weigh against lower book prices for consumers if cost savings are passed on, and countervailing power from large publishers. Depends on how contestable book retailing is and on regulation. Judge over the long run.
- Watch out
- Describing monopoly selling power instead of monopsony buying power.
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.