Paper 1: Introduction to Markets and Market Failure · 8EC0/01
Edexcel A AS Paper 1, June 2019
All 14 written questions and 5 multiple choice questions from Edexcel A AS Paper 1 (June 2019), Introduction to Markets and Market Failure. Case studies: Health provision. 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)
The benefits of specialisation and division of labour are mostly associated with:
- AAdam Smith
- BFriedrich Hayek
- CJohn Maynard Keynes
- DKarl Marx
Show the answer
The answer is A.
Mark splitKnowledge 1
TopicNature of economics
Q1(b)
Explain one advantage of the division of labour in car production.
Mark splitKnowledge 1Application 1Analysis 1
TopicNature of economics
Q2(a)
Annotate the diagram to show the change in consumer surplus in the market for diesel vehicles, following the change in demand caused by the proposed 2025 ban in some city centres.
Mark splitApplication 2
TopicHow markets work
Q2(b)
A ban on diesel vehicles in city centres will reduce the demand for diesel fuel. This is because:
- Aconsumers are irrational
- Bconsumers expect the price of diesel to rise
- Cthe goods are complements
- Dthe goods are substitutes
Show the answer
The answer is C.
Mark splitKnowledge 1
TopicHow markets work
Q2(c)
Define the term ‘demand’.
Mark splitKnowledge 1
TopicHow markets work
Q3(a)
The most likely cross price elasticity of demand for close substitutes is:
- A– 2.1
- B– 0.1
- C+ 0.1
- D+ 2.1
Show the answer
The answer is D.
Mark splitApplication 1
TopicHow markets work
Q3(b)
Calculate the new total revenue if prices were raised by 3% in 2017 to £7.63, if everything else remained unchanged. You are advised to show your working.
Mark splitKnowledge 1Application 2
TopicHow markets work
Q4(a)
The amount of VAT paid per year from energy bills by an average household in 2016 was:
- A£53.50
- B£214.00
- C£1 019.00
- D£1 123.50
Show the answer
The answer is A.
Mark splitApplication 1
Q4(b)
On the diagram below annotate the effect of a rise in VAT on the market for household energy use.
Mark splitApplication 2
Q4(c)
Define the term ‘indirect tax’.
Mark splitKnowledge 1
Q5(a)
Calculate the percentage change in quantity demanded for Freddos between 2015 and 2017, ceteris paribus:
- A–0.8%
- B–2%
- C–2.5%
- D–25%
Show the answer
The answer is C.
Mark splitApplication 1
TopicNature of economics
Q5(b)
Explain one reason why the income elasticity of demand is significant to the producer of Freddos.
Mark splitKnowledge 1Application 1Analysis 1
TopicHow markets work
Section B
Case study
Health provision
Extracts: A: Hospitals already full · B: How health care is funded · C: Public parks are a public good
In the extracts: NHS, Parkrun, PHI, National Health Service, England, Public, General Practitioner, Parkrun Limited, Chancellor, Proponents
Q6(a)
With reference to Extract A and Figure 2, explain how the health care market in the UK illustrates the economic problem.
Mark splitKnowledge 1Application 2Analysis 2
TopicNature of economics
Examiner insight
- What to cover
- Use Extract A and Figure 2. Health care resources are scarce while wants are potentially unlimited, so choices must be made and health care is rationed, for example by waiting lists.
- Watch out
- Defining scarcity and opportunity cost in general terms without using the health care data provided.
Q6(b)
Explain how ‘asymmetric information’ (Extract B, line 30) can lead to market failure in health provision.
Mark splitKnowledge 2Application 2Analysis 2
TopicMarket failure
Examiner insight
- What to cover
- Doctors and insurers know more than patients. Patients cannot judge what treatment they need, so they may buy too much or too little and resources are misallocated away from the social optimum.
- Watch out
- Confusing asymmetric information with imperfect information that both sides share equally.
Q6(c)
‘Public parks are a public good’ (Extract C, line 1). Assess this statement.
Mark splitKnowledge 2Application 2Analysis 2Evaluation 4
TopicMarket failure
Examiner insight
- What to cover
- Test parks against non rivalry and non excludability using Extract C. Explain the free rider problem and why a private firm may not supply parks profitably.
- Evaluation
- Weigh the non excludability of an open park against crowding, which makes it rival, and fencing, which allows charging. Conclude it is a quasi public good.
- Watch out
- Calling parks a public good simply because the local council provides them free of charge.
Q6(d)
Calculate the annual revenue raised by charging £12 per GP visit. Assume there will be 450 million GP visits per year and 90% of these will not be charged. You are advised to show your working.
Mark splitKnowledge 2Application 2
Q6(e)
Discuss likely reasons why the prices of treatments in private sector hospitals are increasing. Draw a supply and demand diagram to support your answer.
Mark splitKnowledge 3Application 3Analysis 3Evaluation 6
Examiner insight
- What to cover
- Give reasons such as rising demand from long NHS waiting lists and rising costs of consultants and equipment. Show both pushing the price of private treatment up.
- Diagram
- Private treatment market with demand shifting right and supply shifting left, price rising from P1 to P2, and the quantity effect shown as uncertain.
- Evaluation
- Weigh which cause matters most, and note the price rise depends on how inelastic the short run supply of consultants and beds is. Judge with a time period.
- Watch out
- Shifting only one curve when the extracts point to both demand pressure and rising costs.
Q6(f)
Evaluate possible ways the government could intervene to reduce the excess demand for state-funded health care.
Mark splitKnowledge 4Application 4Analysis 6Evaluation 6
TopicHow markets work
Examiner insight
- What to cover
- Excess demand exists because the price to the patient is zero. Consider charges, higher funding to shift supply right, rationing by waiting list, and cutting demand through prevention.
- Diagram
- State health care with price fixed at zero below equilibrium, quantity demanded above quantity supplied, and the excess demand gap labelled.
- Evaluation
- Weigh the equity loss from charging against the efficiency gain of deterring low value demand. Consider funding opportunity cost and the years needed to train staff. Judge.
- Watch out
- Explaining the causes of excess demand at length and leaving no room to evaluate the policies.
Q6(g)
Evaluate the possible disadvantages of a free market approach to providing health care.
Mark splitKnowledge 4Application 4Analysis 6Evaluation 6
Examiner insight
- What to cover
- Explain under consumption of a merit good with external benefits, asymmetric information between doctor and patient, inequity because access depends on ability to pay, and monopoly power.
- Diagram
- Positive externality in consumption with MSB above MPB, free market output Q1 below social optimum Q*, and the welfare loss triangle labelled.
- Evaluation
- Set these failures against free market strengths such as choice, innovation and efficiency incentives, and against government failure in state systems. Judge which allocates health care better.
- Watch out
- Listing advantages of the NHS instead of analysing why the free market itself fails.
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.