Paper 1: Markets and Business Behaviour · 9EC0/01
Edexcel A A-level Paper 1, November 2021
All 13 written questions and 5 multiple choice questions from Edexcel A A-level Paper 1 (November 2021), Markets and Business Behaviour. Case studies: The travel and tourism 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)
Which one of the following best describes the two statements above?
- ANormative Normative
- BNormative Positive
- CPositive Normative
- DPositive Positive
Show the answer
The answer is D.
Mark splitKnowledge 1
Q1(b)
Explain the likely impact of migration on the wage level of engineers in Poland.
Mark splitKnowledge 2Application 1Analysis 1
TopicLabour market
Q2(a)
With reference to the information provided, draw a supply and demand diagram to show why the price of cobalt fell between June 2018 and June 2019.
Mark splitKnowledge 2Application 2
TopicGovernment interventionHow markets work
Q2(b)
Between June 2018 and June 2019 the price of cobalt fell by:
- A25%
- B37.5%
- C62.5%
- D166.7%
Show the answer
The answer is C.
Mark splitKnowledge 1
TopicGovernment interventionHow markets work
Q3(a)
Complete the third-degree price discrimination diagram below. Draw the impact on each sub-market by showing the price and profit.
Mark splitKnowledge 2Application 2
TopicMarket structures
Q3(b)
Which one of the following is necessary for a firm to be able to practise price discrimination?
- AIt has some degree of market power
- BIt is able to store its product
- CIts product has different features in different markets
- DThe costs of supplying some customers are higher
Show the answer
The answer is A.
Mark splitAnalysis 1
TopicMarket structures
Q4(a)
Calculate the total revenue from ticket sales for ‘It’s a Wonderful Life’, assuming it is shown only five times, all at full capacity. You are advised to show your working.
Mark splitApplication 2
TopicRevenues, costs and profitsHow markets work
Q4(b)
Calculate the value of the government subsidy necessary for this production to cover all of its costs.
Mark splitApplication 2
Q4(c)
Which one of the following conditions is necessary for revenue maximisation to occur?
- AAverage revenue equals average cost
- BAverage revenue equals marginal cost
- CMarginal revenue equals average revenue
- DMarginal revenue equals zero
Show the answer
The answer is D.
Mark splitAnalysis 1
TopicRevenues, costs and profitsBusiness growth
Q5(a)
Draw diagrams showing the equilibrium positions for both the lemon market and a typical firm in the long run.
Mark splitKnowledge 2Application 2
Q5(b)
Which one of the following will exist in the short run if Chiara makes a loss?
- AAllocative efficiency and productive efficiency
- BAllocative efficiency and productive inefficiency
- CAllocative inefficiency and productive efficiency
- DAllocative inefficiency and productive inefficiency
Show the answer
The answer is B.
Mark splitAnalysis 1
TopicMarket structures
Section B
Case study
The travel and tourism industry
Extracts: A: Marginal productivity of cabin crew · B: Thomas Cook’s environmental impact · C: Why did Thomas Cook shut down?
In the extracts: Thomas Cook, ATOL, Thomas Cook Group, United Airlines, Premium Double, Bag Allowance, Adults, Nights, Jet2, Twin
Q6(a)
Explain the likely impact of diminishing marginal productivity of labour on cabin crew staffing levels. Refer to Extract A in your answer.
Mark splitKnowledge 1Application 2Analysis 2
TopicBusiness growth
Examiner insight
- What to cover
- Define diminishing marginal returns with the aircraft fixed in the short run. Each extra cabin crew member adds less extra output, so marginal cost rises and the airline stops adding crew, as Extract A suggests.
- Watch out
- Confusing diminishing marginal returns, a short run idea, with diseconomies of scale, which is long run.
Q6(b)
Examine the likely impact of Thomas Cook’s plan ‘to reduce their airline emissions’ (Extract B, line 6) on the social optimum position. Use an appropriate externalities diagram in your answer.
Mark splitKnowledge 2Application 2Analysis 2Evaluation 2
TopicMarket failure
Examiner insight
- What to cover
- Explain that cutting airline emissions reduces the external cost of flights, so marginal social cost falls towards marginal private cost. The market output moves closer to the social optimum and the welfare loss shrinks.
- Diagram
- Negative externality diagram. MSC above MPC, market equilibrium where MPC equals MPB, social optimum where MSC equals MSB. Show MSC shifting down and label the shrinking welfare loss triangle.
- Evaluation
- Note the cut may be small next to total aviation emissions, and cheaper flights could raise output. Depends on the size of the reduction and whether other airlines follow.
- Watch out
- Shifting the demand curve instead of moving the MSC curve, so the new social optimum is never shown.
Q6(c)
With reference to Extract C, assess whether Thomas Cook’s failure was caused by the principal-agent problem.
Mark splitKnowledge 2Application 2Analysis 2Evaluation 4
TopicBusiness growth
Examiner insight
- What to cover
- Define the principal agent problem and asymmetric information. Explain how Thomas Cook managers chasing bonuses, revenue growth and acquisitions rather than shareholder value could build up debt and costs that led to collapse.
- Evaluation
- Weigh against other causes in Extract C such as online competition, the weak pound, unusual weather and the debt taken on in earlier mergers. Judge which cause mattered most.
- Watch out
- Defining the principal agent problem without linking it to specific evidence in Extract C.
Q6(d)
With reference to Extract C, discuss the proposed government subsidy to prevent Thomas Cook from reaching its shut-down point.
Mark splitKnowledge 2Application 2Analysis 4Evaluation 4
TopicGovernment interventionRevenues, costs and profits
Examiner insight
- What to cover
- Define the short run shut down point, where price falls below average variable cost. Explain how a subsidy lowers average variable cost or raises revenue so Thomas Cook keeps trading, protecting jobs and stranded customers.
- Diagram
- Cost and revenue diagram for the firm. Show AVC, ATC and MC with price below AVC, then AVC shifting down after the subsidy so price sits above it. Label the shut down point.
- Evaluation
- Weigh jobs saved against the opportunity cost of public money, moral hazard and propping up an inefficient firm. Depends on whether the losses are temporary or structural, and on the subsidy size.
- Watch out
- Confusing the short run shut down point with the long run break even point where price equals average total cost.
Q6(e)
With reference to the information provided, discuss the decision by Jet2 to increase its package holiday prices.
Mark splitKnowledge 3Application 3Analysis 3Evaluation 6
TopicBusiness growth
Examiner insight
- What to cover
- Link the price rise to price elasticity of demand and market structure. Thomas Cook's exit cut competition and raised Jet2's market power, and if demand is inelastic higher prices raise revenue and cover rising costs.
- Evaluation
- Weigh higher revenue against customers lost to TUI and online operators. Depends on elasticity, brand loyalty, real incomes and whether rivals follow. Conclude with the likely net effect on profit.
- Watch out
- Assuming a price rise always raises revenue without judging the price elasticity of demand for package holidays.
Section C
Q7
The national living wage, the minimum wage for 25-year-olds and over, is expected to rise to more than £10.50 an hour in 2024 compared with £8.72 in 2020. The wage does not apply to the UK’s self-employed and ‘gig economy’ workers. Some economists said the increase was ambitious. Business groups warned that employers in sectors such as social care could be hit hard. In large parts of the north of England the living wage has already reached two-thirds of local median earnings, said Professor Shackleton. (Source adapted from: https://www.theguardian.com/uk-news/2020/mar/11/budget-2020- national-living-wage-national-insurance) Evaluate the disadvantages of a significant increase in the national living wage on a specific labour market, such as that for social care workers.
Mark splitKnowledge 4Application 4Analysis 8Evaluation 9
TopicLabour market
Examiner insight
- What to cover
- Set the national living wage above the social care equilibrium wage. Explain excess supply and unemployment, higher costs for providers with capped local authority funding, closures, and substitution of hours or capital for workers.
- Diagram
- Competitive labour market with a minimum wage above equilibrium. Label the wage floor, the contraction of labour demand, the extension of labour supply, and the excess supply as unemployment.
- Evaluation
- Weigh against monopsony power in social care, where a wage floor can raise pay and employment together. Depends on elasticity of labour demand, the size of the rise and whether costs are passed to users.
- Watch out
- Listing the advantages of the living wage when the question asks only for disadvantages.
Q8
In many industries, such as banking, health insurance, internet search engines, pharmaceuticals, social media and telecommunications, there have been increases in market concentration. Evaluate the possible consequences for business decision making of increased market concentration. Refer to industries of your choice in your answer.
Mark splitKnowledge 4Application 4Analysis 8Evaluation 9
Examiner insight
- What to cover
- Explain how higher concentration raises interdependence. Firms in banking or telecoms may set price above marginal cost, collude tacitly, shift spending into branding and non price competition, and fund research from retained profit.
- Diagram
- Monopoly or kinked demand diagram. Show price above marginal cost with supernormal profit, or the rigid price where the MR curve is discontinuous. Label P, Q and the profit area.
- Evaluation
- Weigh higher prices and weaker allocative efficiency against dynamic efficiency and economies of scale. Depends on contestability, CMA regulation and whether firms fear entry. Reach a supported judgement.
- Watch out
- Writing about consequences for consumers instead of consequences for business decision making.
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.