Paper 1: Introduction to Markets and Market Failure · 8EC0/01
Edexcel A AS Paper 1, June 2025
All 13 written questions and 5 multiple choice questions from Edexcel A AS Paper 1 (June 2025), Introduction to Markets and Market Failure. Case studies: The impact of subsidies on farmer income, in England…. 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)
Spending on capital goods in the UK rose by 4.8% in Quarter 4, 2022. Which one of the following is an example of a capital good?
- AA computer
- BSavings in the bank
- CShares in a company
- DUnderground reserves of oil
Show the answer
The answer is A.
TopicMarket failureGovernment intervention
Q1(b)
Using an example from your own knowledge, explain the distinction between renewable and non-renewable resources.
Mark splitKnowledge 1Application 1Analysis 1
TopicNature of economics
Q2(a)
In 2021, a bakery sold 2.5 million sausage rolls per week at the price of £1.00 each. In 2022 the price increased to £1.20. The price elasticity of demand was estimated to be −0.2. Calculate the new quantity of sausage rolls sold per week in 2022 after the price increased, ceteris paribus.
Mark splitKnowledge 1Application 2
TopicNature of economicsHow markets work
Q2(b)
Which one of the following is the most appropriate description of the price elasticity of demand of −0.2?
- APerfectly inelastic
- BRelatively elastic
- CRelatively inelastic
- DUnitary elastic
Show the answer
The answer is C.
TopicHow markets work
Q3(a)
The economy of Singapore is a highly developed free market economy with some elements of government intervention. Define the term ‘free market’.
Mark splitKnowledge 1
TopicNature of economicsGovernment intervention
Q3(b)
Which one of the following is the most likely reason why a free market fails to achieve the social optimum position?
- APublic goods are provided free of charge to users
- BThere is overproduction of goods with external benefits
- CThere is underconsumption of goods with external benefits
- DThere is underproduction of goods with external costs
Show the answer
The answer is C.
TopicMarket failure
Q3(c)
Explain why public goods may not be provided by the private sector.
Mark splitKnowledge 2
TopicMarket failure
Q4(a)
During the period from October to December 2022, production of coffee beans in the Philippines increased by 2.7% from the same quarter in 2021. Which one of the following is most likely to cause a shift to the right of the supply curve?
- AA decrease in the demand for coffee
- BA subsidy to coffee bean producers
- CA tax on coffee bean production
- DThe cost of production rises
Show the answer
The answer is B.
TopicHow markets workGovernment intervention
Q4(b)
Explain how the operation of market forces will eliminate an excess supply of coffee.
Mark splitKnowledge 1Application 1Analysis 1
TopicHow markets work
Q5(a)
Which one of the following factors may cause a shift in demand for new cars?
- AAdvertising
- BCost of production
- CIndirect taxes
- DSubsidy to producers
Show the answer
The answer is A.
TopicGovernment interventionHow markets work
Q5(b)
The diagram on the previous page shows new car registrations in March from 2007 to 2023. Using 2010 as the base year, calculate the index number for 2023.
Mark splitKnowledge 1Application 2
TopicHow markets work
Section B
Case study
The impact of subsidies on farmer income, in England, 2018–2019 (£000 per farm)
Extracts: A: The case for cutting out meat · B: Businesses benefitting from meat-substitute products
In the extracts: CGTN, Cereals Dairy Grazing, Key Profit Subsidies, Pigs Poultry Mixed, Vegetarian Butcher, Incredible Burger, California-based, European Union, Finest British, Type of Meat
Q6(a)
With reference to Extract B, explain why the change to meat-substitute products may result in an increase in the revenue of food companies. Refer to the concept of price elasticity of demand in your answer.
Mark splitKnowledge 1Application 2Analysis 2
TopicHow markets work
Examiner insight
- What to cover
- Meat substitutes are newer with fewer close substitutes, so demand is likely to be price inelastic. Firms raise price and quantity falls proportionately less, so total revenue rises. Use Extract B.
- Diagram
- Steep, inelastic demand curve with a price rise from P1 to P2 and the two total revenue rectangles compared.
- Watch out
- Saying revenue rises because demand rises, without using price elasticity of demand as asked.
Q6(b)
With reference to the information provided and your own knowledge, assess the view that consumers switching to meat-substitute products is an example of rational behaviour.
Mark splitKnowledge 2Application 2Analysis 2Evaluation 4
TopicHow markets work
Examiner insight
- What to cover
- Rational consumers maximise utility. Switching may bring health gains, lower prices and satisfaction from cutting emissions, so it fits utility maximisation. Use the information provided.
- Evaluation
- Weigh this against habit, social influence, imperfect information about nutrition and the higher price of some substitutes. Judge whether switching really maximises utility.
- Watch out
- Assessing whether switching is good for the environment rather than whether it is rational.
Q6(c)
With reference to the last paragraph of Extract B, explain two factors which are likely to influence price elasticity of supply.
TopicHow markets work
Examiner insight
- What to cover
- Take two factors from the last paragraph of Extract B, such as spare capacity, the time needed to rear animals, or stocks held. Explain how each changes the speed of the supply response.
- Watch out
- Giving factors that affect price elasticity of demand, such as substitutes, by mistake.
Q6(d)
Using examples from either Extract A or Extract B, explain what is meant by positive and normative economic statements.
Mark splitKnowledge 2Application 2
TopicNature of economics
Q6(e)
With reference to Extract A, discuss the likely private costs and external costs caused by meat farming. Use an appropriate diagram in your answer.
Mark splitKnowledge 3Application 3Analysis 3Evaluation 6
TopicMarket failure
Examiner insight
- What to cover
- Private costs are the farmer's own, such as feed, land, labour and vet bills. External costs fall on third parties, such as methane emissions, slurry in waterways and lost habitat. Use Extract A.
- Diagram
- Negative externality in production with MSC above MPC, the external cost as the vertical gap, market output Q1 above social optimum Q*, and the welfare loss triangle shaded.
- Evaluation
- Weigh the scale and measurability of the external costs against the food output and rural employment meat farming provides. The environmental costs build over long periods. Judge.
- Watch out
- Putting a cost the farmer actually pays, such as feed, into the external cost list.
Q6(f)
Evaluate the likely microeconomic effects of a reduction in subsidies to farmers of animal products (Figure 1 and Extract B, line 14). Use a relevant diagram to support your answer.
Mark splitKnowledge 4Application 4Analysis 6Evaluation 6
Examiner insight
- What to cover
- Cutting the subsidy raises the farmer's costs, so supply shifts left. Price rises, quantity falls, farm incomes fall as Figure 1 shows, and some farms exit or switch to arable.
- Diagram
- Animal products market with supply shifting left from S plus subsidy back to S, price rising P1 to P2, quantity falling, and the lost subsidy per unit marked.
- Evaluation
- The size of the price rise depends on price elasticity of demand for meat. Weigh lower government spending and lower emissions against lost farm incomes and rural unemployment. Judge.
- Watch out
- Shifting demand instead of supply, or ignoring the effect on farm incomes shown in Figure 1.
Q6(g)
Evaluate the likely microeconomic effects of an increase in indirect tax on animal products (Figure 2 and Extract A, line 17). Use a relevant diagram to support your answer.
Mark splitKnowledge 4Application 4Analysis 6Evaluation 6
Examiner insight
- What to cover
- The indirect tax raises production costs, so supply shifts left. Price rises and quantity falls toward the social optimum, and the government gains revenue. Use Figure 2 and Extract A.
- Diagram
- Animal products market with S shifting to S+tax, price P1 to P2, quantity Q1 to Q2, tax per unit, revenue rectangle, and the consumer and producer share of the burden shaded.
- Evaluation
- Demand for meat is fairly inelastic, so quantity falls little and consumers bear most of the burden. Weigh lower emissions and revenue against regressive effects and farm incomes. Judge.
- Watch out
- Assuming the price rises by the full amount of the tax.
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.