Edexcel A · Theme 1: Introduction to markets and market failure · 1.4 Government intervention
Edexcel A Economics past paper questions: Government intervention
Every Edexcel A question on Government intervention from 2016 to 2025: 19 essays, 13 data response questions, 23 short answer questions and 11 multiple choice questions. It covers How markets work, Market failure, Labour market, Revenues, costs and profits and Aggregate demand. Each question links to its paper, mark scheme and examiner report.
SubtopicsHow markets work 5Market failure 4Labour market 2Revenues, costs and profits 1Aggregate demand 1Macroeconomic objectives and policy 1Poverty and inequality 1
Essay questions on government intervention
Case study: The impact of subsidies on farmer income, in England, 2018–2019 (£000 per farm)
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.
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.
- Watch out
- Shifting demand instead of supply, or ignoring the effect on farm incomes shown in Figure 1.
Case study: The impact of subsidies on farmer income, in England, 2018–2019 (£000 per farm)
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.
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.
- Watch out
- Assuming the price rises by the full amount of the tax.
Case study: The market for plastic in the UK
Evaluate the likely impact of a tax on plastic food-packaging. Use a diagram to support your answer.
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.
- Watch out
- Assuming producers absorb the whole tax when the burden splits by relative elasticities.
The average UK household energy bill (gas and electric combined) rose 80% from £1 971 in 2021 to £3 549 in 2022. (Source adapted from: https://www.telegraph.co.uk/money/consumer-affairs/ energy-price-cap-rise-october-2022-what-happen-household-bills/) Evaluate possible methods of government intervention to control household energy bills in the UK.
Examiner insight
- What to cover
- Take two or three methods: a price cap on energy bills, subsidies or direct payments to households, and a windfall tax funding support. Explain how each lowers the price paid and affects quantity demanded and supplier revenue.
- Watch out
- Describing the policies without a diagram, or using a price cap diagram that never shows the shortage.
Using 2021 estimates of carbon emissions, it is estimated that a petrol car journey from London to Glasgow emits approximately 3.3 times more carbon dioxide per passenger than the equivalent journey by train. (Source adapted from: https://www.gov.uk/government/statistics/transport-and- environment-statistics-autumn-2021/transport-and-environment-statistics-autumn-2021) Evaluate possible methods of government intervention to reduce carbon emissions caused by road transport in the UK.
Examiner insight
- What to cover
- Treat carbon from driving as a negative externality. Take two or three policies: fuel duty or a carbon tax, tradable permits, road pricing, subsidies for rail and electric vehicles, and emissions regulation.
- Watch out
- Recommending a tax without judging how inelastic demand for petrol is, which limits the fall in emissions.
Case study: The market for television content
Evaluate possible methods of government intervention to reduce the environmental damage caused by the consumption of television content.
Examiner insight
- What to cover
- Consider taxing electricity or devices, minimum efficiency regulation, subsidies for efficient data centres, and information campaigns. Show each cutting consumption toward the social optimum.
- Watch out
- Treating television consumption as environmentally costless and giving no mechanism for the damage.
Case study: The market for television content
Evaluate the possible disadvantages of a free market approach to the provision of television content.
Examiner insight
- What to cover
- Explain under provision of public service content with external benefits, free riding on broadcast signals, imperfect information, and market power concentrated in a few large platforms.
- Watch out
- Arguing the free market is bad in general without naming a failure specific to television.
Case study: Hand car wash (HCW) firms in the UK
Evaluate the microeconomic and macroeconomic factors which determine the number of firms in an industry. Refer to HCWs or another industry of your choice.
Examiner insight
- What to cover
- Cover both sides. Micro: barriers to entry, economies of scale, profit levels, market structure, regulation and enforcement. Macro: the rate of economic growth, interest rates, business confidence and the level of AD.
- Watch out
- Describing market structures without explaining what determines the number of firms.
Case study: Hand car wash (HCW) firms in the UK
Evaluate the microeconomic and macroeconomic effects of increased government intervention in an industry. Refer to HCWs or another industry of your choice.
Examiner insight
- What to cover
- Cover both sides. Micro: compliance costs, higher prices, correction of market failure such as tax evasion or exploitation at HCWs. Macro: tax revenue, effects on employment, inflation and the informal economy.
- Watch out
- Only arguing one way. Intervention has both corrective and distortionary effects and both must appear.
Case study: The market for higher education in the UK
Evaluate the possible advantages of a free market approach to providing services such as education.
Examiner insight
- What to cover
- Explain consumer sovereignty, competition raising quality, the profit incentive driving efficiency and innovation, and prices signalling which courses students most want.
- Watch out
- Only attacking the free market when the question asks first for its advantages.
In October 2017 Scania, the Volkswagen-owned truck maker, was fined €880 million (£771 million) by the European Commission for colluding with five other truck manufacturers over a 14-year period. The firms had agreed to coordinate prices after experiencing additional costs of meeting emission regulations. With reference to an industry of your choice, evaluate why some firms engage in collusive behaviour.
Examiner insight
- What to cover
- Define collusion and use a named oligopoly such as the truck cartel. Explain interdependence and price rigidity, then how agreeing prices lifts joint profit towards the monopoly outcome, cuts uncertainty and avoids damaging price wars.
- Watch out
- Listing the harm cartels do to consumers instead of explaining why firms themselves choose to collude.
Case study: Markets for food and drinks high in fat, salt or sugar (HFSS)
Evaluate the likely microeconomic and macroeconomic effects of imposing a tax on HFSS foods.
Examiner insight
- What to cover
- Cover both sides. Micro: the tax raises price and cuts quantity towards the social optimum, internalising external health costs, though producers may absorb part of it. Macro: tax revenue rises, inflation rises slightly and healthier workers raise LRAS.
- Watch out
- Ignoring the macroeconomic half, or forgetting that HFSS demand is price inelastic so the fall in quantity may be small.
Case study: Health provision
Evaluate the possible disadvantages of a free market approach to providing health care.
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.
- Watch out
- Listing advantages of the NHS instead of analysing why the free market itself fails.
Case study: World coal prices, 2006–2016, US dollars per tonne
With reference to the information provided and your own knowledge, evaluate the microeconomic and macroeconomic effects on Indonesia of the volatility of prices of commodities such as coal.
Examiner insight
- What to cover
- Cover both sides. Micro: swinging coal revenue makes mining firms investment and hiring unstable, and input costs vary for coal users. Macro: export earnings, the current account, tax revenue, the rupiah and growth all become unstable.
- Watch out
- Analysing only falling prices, when volatility means both rises and falls create uncertainty.
Case study: Energy markets
Evaluate ways in which government intervention could be used to reduce carbon emissions. Use at least one appropriate diagram in your answer.
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.
- Watch out
- Describing policies without linking them back to the socially optimum level of emissions.
Case study: The market for cigarettes
Evaluate the possible advantages of a free market approach to cigarette consumption.
Examiner insight
- What to cover
- Build the free market case first. Consumer sovereignty lets smokers choose, the profit motive drives efficiency and lower prices, and competition brings innovation such as e-cigarettes.
- Watch out
- Attacking the free market throughout without first setting out its advantages as the question asks.
Case study: The market for cigarettes
Evaluate the impact of government intervention in the cigarette market.
Examiner insight
- What to cover
- Take two or three of indirect tax, advertising bans, age limits and plain packaging. Show how each shifts supply or demand left, raising price and cutting quantity toward the social optimum.
- Watch out
- Claiming a tax on an addictive, inelastic good produces a large fall in quantity demanded.
Case study: The market for housing
Evaluate the likely microeconomic effects of government intervention in the UK housing market.
Examiner insight
- What to cover
- Choose two or three interventions such as Help to Buy, rent control or planning reform. Trace each through demand or supply to price, quantity, and the welfare of buyers, tenants and builders.
- Watch out
- Listing several policies without reaching a supported judgement on which is most effective.
Case study: The market for housing
Evaluate the case for government provision of goods and services such as flood defence schemes or housing.
Examiner insight
- What to cover
- Flood defence is non rival and non excludable, so free riding means the market under provides it. Housing carries external benefits and is a merit good, so it is also under consumed.
- Watch out
- Treating housing as a pure public good when it is both rival and excludable.
Data response questions on government intervention
Case study: The German economy
With reference to Figure 1, explain the distinction between direct and indirect taxation.
Examiner insight
- What to cover
- A direct tax is paid straight to government on income, profit or wealth, such as German income tax. An indirect tax is levied on spending and the burden can be passed to consumers, such as VAT. Use Figure 1.
- Watch out
- Defining the two by who collects the tax rather than by whether the burden can be passed on.
Case study: The German economy
Discuss supply‐side policies the German government could use ‘to improve its economic performance’ (Extract A, line 6).
Examiner insight
- What to cover
- Suggest infrastructure and skills investment, lower business taxes and less red tape, immigration to ease labour shortages, and energy market reform. Show each raising productivity and shifting German LRAS right.
- Watch out
- Ignoring Extract A, so the answer could be about any country rather than Germany.
Using a demand and supply diagram, explain the cost of a subsidy on the market for cooking oil to the Indian government (Extract E, line 6).
Examiner insight
- What to cover
- A subsidy shifts supply right, lowering the price to consumers and raising quantity. The cost to the Indian government is the subsidy per unit multiplied by the new quantity.
- Watch out
- Shading the wrong rectangle. The government cost runs across the new quantity, not the original one.
Case study: The electronics industry
With reference to Extract D, discuss possible methods of government intervention to reduce electronic waste.
Examiner insight
- What to cover
- Treat electronic waste as a negative externality. Take two or three policies from Extract D: a tax on devices, recycling subsidies, deposit return schemes, extended producer responsibility, or regulation on repairability.
- Watch out
- Writing about pollution in general instead of the specific electronic waste evidence in Extract D.
Case study: The market for plastic in the UK
Explain what is meant by the ‘unintended consequence’ (Extract B, line 9) of the plastic tax.
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.
Case study: The travel and tourism industry
With reference to Extract C, discuss the proposed government subsidy to prevent Thomas Cook from reaching its shut-down point.
Examiner insight
- What to cover
- Define the short run shut down point, where price falls below average variable cost. Explain how a subsidy lowers average variable cost or raises revenue so Thomas Cook keeps trading, protecting jobs and stranded customers.
- Watch out
- Confusing the short run shut down point with the long run break even point where price equals average total cost.
Case study: The UK Rail Industry
Refer to Figure 1. Explain the likely effect of the change in subsidy levels between 2017 and 2018 on rail fares. Include a supply and demand diagram in your answer.
Examiner insight
- What to cover
- Read the direction of the subsidy change from Figure 1. A smaller subsidy raises train operating costs, so supply shifts left and rail fares rise. Link the size of the fare change to the size of the subsidy cut.
- Watch out
- Shifting demand rather than supply, or drawing the diagram without stating the new fare and quantity.
Case study: Energy and telecommunication markets in the UK
Discuss methods of government intervention to protect consumers within the utilities markets, such as energy and telecommunications.
Examiner insight
- What to cover
- Set out methods: price caps such as RPI-X, profit regulation, quality and performance standards, promoting switching and competition, and windfall taxes. Link each to lower bills and higher consumer surplus.
- Watch out
- Utilities are natural monopolies, so explain why competition alone may not protect consumers.
Case study: Health provision
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.
Case study: Health provision
Discuss likely reasons why the prices of treatments in private sector hospitals are increasing. Draw a supply and demand diagram to support your answer.
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.
- Watch out
- Shifting only one curve when the extracts point to both demand pressure and rising costs.
Case study: The UK energy market
With reference to Extract B, assess how the regulation of energy suppliers’ profits is likely to affect consumers and suppliers in the energy market.
Examiner insight
- What to cover
- Profit or price regulation such as RPI-X caps supernormal profit. Consumers gain lower bills and more consumer surplus, while suppliers face thinner margins and weaker investment. Use Extract B.
- Watch out
- Both consumers and suppliers must be covered, and regulators cap prices or profits rather than costs.
Case study: The market for housing
With reference to Extract A, assess the likely impact of the Help to Buy scheme on the market for rented properties in the UK.
Examiner insight
- What to cover
- Help to Buy subsidises deposits, so some tenants move into owner occupation. Demand for rented property shifts left, so rents and quantity rented fall. Lower landlord returns may then reduce rental supply.
- Watch out
- Answers drift onto the owner occupied market and never say what happens to rents.
Case study: The market for housing
With reference to Figure 2, calculate the percentage change in house prices between the first quarter of 2009 and the first quarter of 2015. You are advised to show your working.
Short answer questions on government intervention
Define the term ‘indirect tax’.
Explain one likely reason for the maximum price for an undergraduate university programme.
Annotate the diagram below to show the original and new maximum price in this market.
Define the term ‘minimum price’.
Explain one likely problem for the EU of maintaining prices at P2.
With reference to the information provided, draw a supply and demand diagram to show why the price of cobalt fell between June 2018 and June 2019.
Calculate the value of the government subsidy necessary for this production to cover all of its costs.
Case study: Hand car wash (HCW) firms in the UK
Using the information provided, explain the market structure that best describes the hand car wash (HCW) industry in the UK.
Explain one likely effect of reducing the number of tradable pollution permits.
Using an example, explain why the government imposes specific taxes on many goods and services.
Define the term ‘government failure’.
Explain one likely microeconomic reason why the government is using taxpayers’ money to fund HS2.
Case study: Markets for food and drinks high in fat, salt or sugar (HFSS)
With reference to Figure 1 and Extract A, explain what is meant by a ‘highly concentrated’ market for potato crisps (Extract A, lines 2–3).
Case study: Markets for food and drinks high in fat, salt or sugar (HFSS)
Apart from changes in indirect taxes and subsidies, examine two causes of income inequality within a developed economy such as the UK.
Examiner insight
- What to cover
- Pick two causes, such as wage differences from skills and education, and unemployment or the growth of low paid part time work. Link each to the spread of UK household incomes.
- Watch out
- Using indirect taxes or subsidies as one of the two causes, which the question rules out.
On the diagram below annotate the effect of a rise in VAT on the market for household energy use.
Define the term ‘indirect tax’.
Case study: Branded coffee shops
Examine the advantages of using an indirect tax as a means of reducing the use of disposable coffee cups.
Examiner insight
- What to cover
- The tax internalises the external cost of disposable cup waste, raising price and cutting quantity towards the social optimum. It also raises revenue that can fund recycling or reusable cup schemes.
- Watch out
- Spending most of the answer on disadvantages when the question asks only for advantages.
Explain one possible reason why the state provides NHS dental treatment.
Calculate the total domestic cooking gas subsidy paid daily by the Indian government. You are advised to show your working.
Calculate the percentage share of the total subsidy received by: consumers producers
Define the term ‘subsidies’.
Explain one measure the Kenyan government could use to reduce the impact of water extraction from Lake Naivasha.
Define the term ‘national income’.
Multiple choice questions
- AS Paper 1, June 2025, Q5(a)
Which one of the following factors may cause a shift in demand for new cars?
- AS Paper 2, June 2025, Q4(c)
Which one of the following is an example of an indirect tax?
- A-level Paper 1, June 2024, Q4(b)
Which one of the following is an example of government failure associated with the maximum price?
- AS Paper 1, June 2023, Q1(a)
Which one of the following is the percentage increase in the maximum price to the average household bill?
- AS Paper 1, June 2022, Q2(b)
In achieving a price of P2, the amount spent on intervention buying by the EU would be
- A-level Paper 1, November 2021, Q2(b)
Between June 2018 and June 2019 the price of cobalt fell by:
- A-level Paper 1, November 2020, Q3(b)
Regulation of firms that pollute is likely to be a problem because it
- AS Paper 1, November 2020, Q3(a)
In the diagram below, the government grants a subsidy to energy suppliers to install loft insulation. This shifts the market supply curve for loft insulation from Supply1 to Supply2. Price of loft insulation Supply1 Supply2 Demand O Q1 Q2…
- AS Paper 1, June 2019, Q4(a)
The amount of VAT paid per year from energy bills by an average household in 2016 was:
- AS Paper 1, June 2017, Q4(b)
Which one of the following is likely to result in an increase in carbon emissions?
- AS Paper 1, June 2016, Q2(b)
Which one of the following measures could a government introduce to achieve the social optimum consumption of nursery school places? It could introduce a:
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.