Paper 1: Introduction to Markets and Market Failure · 8EC0/01
Edexcel A AS Paper 1, June 2018
All 16 written questions and 5 multiple choice questions from Edexcel A AS Paper 1 (June 2018), Introduction to Markets and Market Failure. Case studies: Energy markets. Each question shows its marks and topic, with an examiner insight on 6, and opens the question paper and mark scheme at the right page.
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 C.
TopicMarket failureGovernment intervention
Q1(b)
Cuba’s population is estimated to be 11 million. With reference to Statement 1 above, calculate the estimated number of doctors in Cuba. You are advised to show your working.
Mark splitApplication 2
TopicMarket failureGovernment intervention
Q1(c)
Define the term ‘command economy’.
Mark splitKnowledge 1
TopicNature of economics
Q2(a)
Ceteris paribus, calculate the price elasticity of demand for the Daily Mail newspaper over this period. You are advised to show your working.
Mark splitApplication 2
TopicHow markets workNature of economics
Q2(b)
Which one of the following is most likely to be a determinant of price elasticity of demand for the Daily Mail newspaper?
- AAvailability of rival newspapers
- BChange in population size
- CDecrease in the cost of producing the Daily Mail newspaper
- DExpected rise in the price of the Daily Mail newspaper
Show the answer
The answer is A.
TopicHow markets work
Q2(c)
Define the term ‘ceteris paribus’.
Mark splitKnowledge 1
TopicNature of economics
Q3(a)
Using the data above, which one of the following is a function of the price mechanism in the market for private dental care?
- AActing as a signal to dentists when deciding whether to provide
- BEliminating a shortage of private dentists by allowing the price of
- CEncouraging government intervention to set dental care targets
- DIncentivising private dentists to offer only NHS treatment
Show the answer
The answer is A.
TopicHow markets workGovernment intervention
Q3(b)
Explain one possible reason why the state provides NHS dental treatment.
Mark splitKnowledge 2
Q3(c)
Define the term ‘asymmetric information’.
Mark splitKnowledge 1
TopicMarket failure
Q4(a)
Which one of the following is the most accurate explanation of the term ‘median household income’?
- AThe difference between the highest level of household income and the
- BThe middle household income after placing all household incomes in
- CThe most frequently occurring level of household income
- DTotal household income divided by the number of households
Show the answer
The answer is B.
TopicHow markets work
Q4(b)
Using the data provided, explain whether bus travel is a normal good or an inferior good.
Mark splitKnowledge 1Application 1Analysis 1
TopicHow markets work
Q5(a)
Define the term ‘consumer surplus’.
Mark splitKnowledge 1
TopicHow markets work
Q5(b)
The diagram shows the production possibility frontier for the BBC. Assuming the BBC is at point W, annotate the diagram to show the opportunity cost of providing more educational programmes.
Mark splitApplication 2
TopicNature of economics
Q5(c)
BBC programmes are often referred to as being public goods. This is because:
- Aall BBC programmes are financed by the public sector
- Bthe BBC is the most popular broadcaster in the UK
- Cthe consumption of these programmes is non-rivalrous
- Dthere are external benefits from the consumption of many BBC
Show the answer
The answer is C.
TopicMarket failure
Section B
Case study
Energy markets
Extracts: A: Uranium: the unloved metal · B: Irrational consumers pay the price · C: The economics of climate change
In the extracts: Uranium, Include, Kazakhstan, Energy, Japan, Shortage Figures, Prime Minister, Hinkley Point, Jon Yeomans, Supporters
Q6(a)
With reference to Figure 1 and Extract A, explain why the price of uranium has ‘fallen to a 13-year low’ (Extract A, lines 2 and 3) in 2016. Include a supply and demand diagram in your answer.
Mark splitKnowledge 1Application 2Analysis 2
TopicHow markets workGovernment intervention
Examiner insight
- What to cover
- Use Figure 1 and Extract A. Demand for uranium fell as nuclear plants closed while supply from mines stayed high. Excess supply at the old price forces price down.
- Diagram
- Uranium market with demand shifting left from D1 to D2, price falling P1 to P2 and quantity falling, with the excess supply at P1 marked.
- Watch out
- Describing the price fall without shifting a curve, or shifting supply when the extract points to falling demand.
Q6(b)
With reference to Extract A and your own knowledge, assess whether the supply of uranium is likely to be price elastic or price inelastic.
Mark splitKnowledge 2Application 2Analysis 2Evaluation 4
TopicHow markets work
Examiner insight
- What to cover
- Uranium mining has long lead times, high sunk costs and little spare capacity, so supply is price inelastic in the short run. Support this with Extract A evidence on mine closures.
- Diagram
- Steep supply curve where a large price change produces a small quantity change, with price elasticity of supply below one.
- Evaluation
- Weigh short run inelasticity against greater long run elasticity as new mines open, and against stockpiles which make supply more responsive. Judge with a stated time period.
- Watch out
- Giving the determinants of price elasticity of demand instead of those of price elasticity of supply.
Q6(c)
With reference to Extract B, explain two likely reasons why many consumers of energy have not switched to suppliers offering lower prices.
Mark splitKnowledge 2Application 2Analysis 2
TopicHow markets workGovernment intervention
Examiner insight
- What to cover
- Use Extract B. Give two reasons such as imperfect information about tariffs, consumer inertia and the perceived time cost of switching. Explain why each blocks a rational response to lower prices.
- Watch out
- Naming two reasons without explaining why they stop consumers acting on the cheaper tariffs.
Q6(d)
Using examples from the information provided, explain what is meant by renewable and non-renewable energy.
Mark splitKnowledge 2Application 2
TopicNature of economics
Q6(e)
Discuss the likely microeconomic effects of this decision on energy producers and consumers. Include a supply and demand diagram in your answer.
Mark splitKnowledge 3Application 3Analysis 3Evaluation 6
TopicHow markets workGovernment intervention
Examiner insight
- What to cover
- Trace the decision through the energy market. Show the effect on supply, price and quantity, then on consumer bills and surplus, and on producer revenue, profit and employment.
- Diagram
- Energy market with supply shifting right from S1 to S2, price falling P1 to P2 and quantity rising, with consumer surplus shown before and after.
- Evaluation
- Weigh consumer gains against producer losses, and note the size depends on the price elasticity of demand for energy and on long construction lead times. Judge the net effect.
- Watch out
- Covering consumers only when the question names both energy producers and consumers.
Q6(f)
Using the concept of external costs, evaluate whether nuclear power is under-provided or over-provided in the energy market. Use an appropriate diagram in your answer.
Mark splitKnowledge 4Application 4Analysis 6Evaluation 6
TopicMarket failure
Examiner insight
- What to cover
- Identify external costs of nuclear power such as waste storage and accident risk, and the external benefit of displacing fossil fuels. Compare free market output with the social optimum.
- Diagram
- Externality diagram with MSC above MPC for over provision, or MSB above MPB for under provision, labelling Q1, Q* and the welfare loss triangle.
- Evaluation
- Weigh the size and probability of waste and accident costs against the carbon saved. Note these costs are hard to value over very long time periods. Judge.
- Watch out
- Asserting over or under provision without comparing market output to the social optimum on the diagram.
Q6(g)
Evaluate ways in which government intervention could be used to reduce carbon emissions. Use at least one appropriate diagram in your answer.
Mark splitKnowledge 4Application 4Analysis 6Evaluation 6
Examiner insight
- What to cover
- Take two or three of carbon tax, tradable permits, renewable subsidies and regulation. Show how each raises the private cost of emitting or lowers the cost of clean energy toward the social optimum.
- Diagram
- Carbon tax shifting supply left by the external cost so output falls from Q1 to Q*, or a permit market with vertical permit supply and the permit price set by demand.
- Evaluation
- Compare the certainty of regulation with the efficiency of a price signal. Demand for energy is inelastic, so a tax may cut emissions little and hit poorer households. Judge.
- Watch out
- Describing policies without linking them back to the socially optimum level of emissions.
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.