Paper 1: Introduction to Markets and Market Failure · 8EC0/01
Edexcel A AS Paper 1, June 2024
All 14 written questions and 5 multiple choice questions from Edexcel A AS Paper 1 (June 2024), Introduction to Markets and Market Failure. Case studies: The market for plastic in the UK. 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)
With reference to the information provided, explain the distinction between renewable and non‐renewable resources.
Mark splitKnowledge 1Application 1Analysis 1
TopicNature of economics
Q1(b)
Which one of the following best describes ‘scarcity’?
- AAn extension of the demand curve
- BExcess supply
- CInsufficient resources to satisfy wants
- DThe misallocation of resources
Show the answer
The answer is C.
Mark splitKnowledge 1
TopicHow markets workNature of economics
Q2(a)
Define the term ‘supply.’
Mark splitKnowledge 1
TopicHow markets work
Q2(b)
The diagrams below show movements from position X to Y on production possibility frontiers. In which one of the diagrams does the movement from X to Y illustrate the most likely impact on Madagascar’s economy of a natural disaster such as a cyclone?
Show the answer
The answer is D. Open the question paper to read the options.
Mark splitKnowledge 1
TopicNature of economics
Q2(c)
Annotate the diagram below to show the effect of the cyclone on the price of vanilla beans.
Mark splitKnowledge 1Application 1
Q3(a)
Which one of the following statements about a free market economy is true?
- AIt was supported by Karl Marx
- BThe price mechanism allocates all resources
- CThere are no externalities
- DThe state owns all the resources
Show the answer
The answer is B.
Mark splitKnowledge 1
TopicNature of economicsHow markets workMarket failure
Q3(b)
Singapore’s education system is provided by the state. With reference to the information above, explain why education is normally provided by the state.
Mark splitKnowledge 1Application 1Analysis 1
TopicNature of economics
Q4(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.
Mark splitKnowledge 1
Q4(b)
With reference to the information above, explain what is meant by ‘opportunity cost’.
Mark splitKnowledge 1Application 1Analysis 1
TopicNature of economics
Q5(a)
In June 2023, Tesla further reduced the price of its Model 3 vehicle by £4 200 from £42 990. It has been forecast that the price cut will lead to a 15% increase in demand. Ceteris paribus, calculate the price elasticity of demand for the Model 3. You are advised to show your working.
Mark splitKnowledge 1Application 1
TopicHow markets workNature of economics
Q5(b)
Define the term ‘ceteris paribus’.
Mark splitKnowledge 1
TopicNature of economics
Q5(c)
Which one of the following is most likely to be a determinant of price elasticity of demand for the Model 3 electric vehicle?
- AAvailability of substitute electric vehicles
- BChange in population size
- CIncrease in the cost of steel
- DNumber of unsold Model 3 electric vehicles
Show the answer
The answer is A.
Mark splitKnowledge 1
TopicHow markets work
Section B
Case study
The market for plastic in the UK
Extracts: A: 10p charge continues to reduce use of plastic carrier bags · B: Plastic packaging tax · C: Single‐use cups
In the extracts: Plastic, Food, Chief Executive of Robinson, Wouter Poortinga of Cardiff, UK Environment, Helene Roberts, Environmental, Businesses, University, Consumers
Q6(a)
Explain what is meant by the ‘unintended consequence’ (Extract B, line 9) of the plastic tax.
Mark splitKnowledge 1Application 2Analysis 2
Examiner insight
- What to cover
- Define an unintended consequence as an effect the policy did not aim for. Then give the one in Extract B, such as a switch to another damaging material or higher costs passed to consumers.
- Watch out
- Defining the term correctly but never stating the specific consequence named in Extract B.
Q6(b)
With reference to Extract A and your own knowledge, assess the view that it is irrational to buy plastic carrier bags when shopping.
Mark splitKnowledge 2Application 2Analysis 2Evaluation 4
TopicHow markets work
Examiner insight
- What to cover
- Rational consumers weigh costs against benefits. A carrier bag is cheap and convenient and solves an immediate problem, so buying one can still maximise utility. Use Extract A.
- Evaluation
- Weigh this against habit, present bias and the fact consumers ignore the external cost of plastic waste. Judge whether the choice is rational privately but not socially.
- Watch out
- Assuming any choice that harms the environment must automatically be irrational.
Q6(c)
With reference to Extract A, explain the likely numerical value for the income elasticity of demand for reusable cleaning products.
Mark splitKnowledge 2Application 2
TopicHow markets work
Q6(d)
With reference to Extract C, explain how incentives to use reusable coffee cups may lead to a fall in demand for single‐use cups.
Mark splitKnowledge 2Application 2Analysis 2
TopicHow markets work
Examiner insight
- What to cover
- A discount for bringing a reusable cup lowers its relative price, so consumers substitute away from single use cups. Demand for single use cups shifts left. Use Extract C.
- Diagram
- Single use cup market with demand shifting left from D1 to D2, and both price and quantity falling.
- Watch out
- Showing a movement along the single use cup demand curve instead of a leftward shift.
Q6(e)
Discuss the likely private costs and external costs of the production of plastic.
Mark splitKnowledge 3Application 3Analysis 3Evaluation 6
TopicMarket failure
Examiner insight
- What to cover
- Private costs are the firm's own, such as oil feedstock, energy, labour and machinery. External costs fall on third parties, such as air pollution, litter and harm to marine life.
- Diagram
- Negative externality in production with MPC and MSC drawn, the external cost as the vertical gap, output Q1 above social optimum Q*, and the welfare loss triangle shaded.
- Evaluation
- Weigh the size and measurability of the external costs against the private costs and the benefits plastic brings. These costs build over long time periods. Reach a judgement.
- Watch out
- Mixing the two, for example calling the firm's own energy bill an external cost.
Q6(f)
Evaluate the likely impact of a tax on plastic food-packaging. Use a diagram to support your answer.
Mark splitKnowledge 4Application 4Analysis 6Evaluation 6
Examiner insight
- What to cover
- The tax raises production costs, so supply shifts left. Price rises and quantity falls toward the social optimum, and firms gain an incentive to switch to alternative packaging.
- Diagram
- Plastic packaging market with S shifting to S+tax, price P1 to P2, quantity Q1 to Q2, tax per unit, government revenue, and the consumer and producer share of the burden shaded.
- Evaluation
- The fall in quantity depends on price elasticity of demand, which is low when few substitutes exist. Weigh revenue and less pollution against dearer food and regressive effects. Judge.
- Watch out
- Assuming producers absorb the whole tax when the burden splits by relative elasticities.
Q6(g)
Evaluate methods of government intervention which could be used to reduce the market failure associated with plastic waste. Use a diagram to support your answer.
Mark splitKnowledge 4Application 4Analysis 6Evaluation 6
TopicMarket failureGovernment intervention
Examiner insight
- What to cover
- Consider a plastic tax, deposit return schemes, subsidies for recycling, bans and regulation. Show how each moves production or disposal toward the socially optimum level.
- Diagram
- Negative externality in production with a tax equal to the external cost shifting MPC up to MSC, output falling from Q1 to Q*, and the welfare gain shaded.
- Evaluation
- Compare the efficiency of taxes with the certainty of bans. Weigh enforcement costs, weak information about the true external cost, and substitution to other harmful materials. Judge.
- Watch out
- Describing each policy in turn and never comparing which best reduces plastic waste.
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.