Paper 1: Introduction to Markets and Market Failure · 8EC0/01
Edexcel A AS Paper 1, June 2022
All 13 written questions and 5 multiple choice questions from Edexcel A AS Paper 1 (June 2022), Introduction to Markets and Market Failure. Case studies: The market for fish. 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)
What are the characteristics of a private good?
- ANon-rivalrous and excludable
- BNon-rivalrous and non-excludable
- CRivalrous and excludable
- DRivalrous and non-excludable
Show the answer
The answer is C.
TopicMarket failure
Q1(b)
Explain why flood defences such as those in the Calder Valley are usually provided by the public sector.
Mark splitKnowledge 1Application 1Analysis 1
TopicMarket failureGovernment intervention
Q2(a)
Define the term ‘minimum price’.
Mark splitKnowledge 1
Q2(b)
In achieving a price of P2, the amount spent on intervention buying by the EU would be
- AHKL
- BJHQ2Q3
- CLKJH
- DQ1Q2LK
Show the answer
The answer is B.
Q2(c)
Explain one likely problem for the EU of maintaining prices at P2.
Mark splitKnowledge 2
Q3(a)
Which one of the following would be most likely to cause a country’s currency to no longer be acceptable as a medium of exchange?
- AIt becomes harder to counterfeit
- BIt becomes unlimited in supply
- CIt is issued in smaller denominations
- DIt is more long lasting
Show the answer
The answer is B.
TopicNature of economics
Q3(b)
Explain how Bitcoin fulfils one function of money, apart from as a medium of exchange.
Mark splitKnowledge 1Application 2
TopicNature of economics
Q4(a)
With reference to the statement above, explain the difference between positive and normative statements.
Mark splitKnowledge 1Application 1Analysis 1
TopicNature of economics
Q4(b)
Which one of the following explains how market failure might occur in a free market economy?
- AA net welfare loss results from intervention by the government
- BFirms enter the market in response to higher prices
- CGoods with positive externalities are underprovided
- DPrices rise when there is excess demand
Show the answer
The answer is C.
TopicMarket failureNature of economicsHow markets work
Q5(a)
Explain one reason why flour producers might find it difficult to increase quantity supplied in the short run.
Mark splitKnowledge 1Application 1Analysis 1
TopicHow markets work
Q5(b)
A manufacturer has estimated that the price elasticity of supply of ice cream is +1.5. If the demand for ice cream rises and the price increases by 10%, which one of the following is the resulting percentage change in supply?
- A0.15%
- B1.5%
- C6.67%
- D15%
Show the answer
The answer is D.
TopicHow markets work
Section B
Case study
The market for fish
Extracts: A: Total allowable catches of North Sea cod halved in response to falling stocks · B: The tragedy of the commons
In the extracts: North Sea, Scotland, CARs, TAC, According, Currently, Atlantic, TACs, Fish, Common Fisheries Policy
Q6(a)
Explain the likely impact of the new 2020 TACs on the price of cod. Include a supply and demand diagram in your answer.
Mark splitKnowledge 1Application 2Analysis 2
TopicMarket failure
Examiner insight
- What to cover
- A total allowable catch is a quota that caps the quantity of cod landed. Supply is restricted below the free market quantity, so there is a shortage at the old price and price rises.
- Diagram
- Cod market with supply shifting left from S1 to S2, or a vertical quota line at the TAC, price rising P1 to P2 and quantity falling to the quota level.
- Watch out
- Shifting demand, or forgetting that capping quantity is what forces the price up.
Q6(b)
Assess whether it is rational for fishing companies to behave in this way.
Mark splitKnowledge 2Application 2Analysis 2Evaluation 4
TopicHow markets work
Examiner insight
- What to cover
- Firms aim to maximise profit and the ocean is a common access resource with no property rights. Each firm keeps all the revenue but bears only part of the depletion cost, so over fishing is individually rational.
- Evaluation
- Weigh short run profit against the long run collapse of stocks and lost future revenue. Consider quotas, fines and reputation. Judge whether it stays rational over the long run.
- Watch out
- Calling the behaviour irrational simply because it damages the marine environment.
Q6(c)
With reference to the information provided and your own knowledge, explain two characteristics of private ownership in a free market economy.
Mark splitKnowledge 2Application 2Analysis 2
TopicNature of economics
Examiner insight
- What to cover
- Give two features, such as private property rights over boats and quota, and the profit motive guiding what firms produce. Link each to the fishing companies in the extracts.
- Watch out
- Describing the whole free market system rather than two specific features of private ownership.
Q6(d)
With reference to the information provided, calculate the new quantity demanded of bags of chips from fish and chip shops, following a 2% increase in the price of fish. You are advised to show your working.
Mark splitKnowledge 2Application 2
TopicMarket failure
Q6(e)
Discuss the likely impacts on an economy of specialising in the fishing industry. Use a production possibility frontier diagram in your answer.
Mark splitKnowledge 3Application 3Analysis 3Evaluation 6
TopicNature of economics
Examiner insight
- What to cover
- Specialisation in fishing raises output and productivity through division of labour and allows trade gains, shifting the frontier out. Also explain the risk of depending on one industry.
- Diagram
- Production possibility frontier with fish on one axis and other goods on the other, showing movement along the curve into fishing and an outward shift from higher productivity.
- Evaluation
- Weigh higher output and export earnings against over dependence, depleted stocks, structural unemployment if demand falls, and the opportunity cost of other industries. Judge over the long run.
- Watch out
- Drawing the frontier but never using it to show opportunity cost or the outward shift.
Q6(f)
Some economists suggest that the market price of cod does not result in the socially optimum level of output. Evaluate the likely external costs from the over-fishing of cod. Use an appropriate diagram in your answer.
Mark splitKnowledge 4Application 4Analysis 6Evaluation 6
TopicMarket failure
Examiner insight
- What to cover
- Identify external costs such as depleted stocks for future fishers, damage to the marine ecosystem and lost income in dependent communities. Show why market output exceeds the social optimum.
- Diagram
- Negative externality in production with MSC above MPC, the external cost as the vertical gap, free market output Q1 above social optimum Q*, and the welfare loss triangle shaded.
- Evaluation
- Weigh the size and certainty of these external costs against how hard they are to value, and against the jobs and food the industry provides. They build over time. Judge.
- Watch out
- Listing environmental harms without showing why the market price of cod fails to reflect them.
Q6(g)
Other than using a TAC, evaluate the policy options which could be used to reduce market failure resulting from over-fishing. Use at least one appropriate diagram in your answer.
Mark splitKnowledge 4Application 4Analysis 6Evaluation 6
TopicMarket failure
Examiner insight
- What to cover
- Consider a tax on catch, tradable fishing permits, clearer property rights, minimum net sizes and marine protected areas. Show how each raises private cost toward social cost.
- Diagram
- Tax on cod catch shifting supply left by the external cost per unit so output falls from Q1 to Q*, with the tax per unit and the welfare gain marked.
- Evaluation
- Compare the efficiency of a price based tax with the certainty of regulation. Enforcement at sea is costly and fish stocks cross borders. Judge the best option.
- Watch out
- Building the answer around a total allowable catch when the question has ruled that out.
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.