Edexcel A · Theme 1: Introduction to markets and market failure · 1.2 How markets work
Edexcel A Economics past paper questions: How markets work
Every Edexcel A question on How markets work from 2016 to 2025: 2 essays, 29 data response questions, 32 short answer questions and 30 multiple choice questions. It covers Government intervention, Nature of economics, Market failure, Revenues, costs and profits and Market structures. Each question links to its paper, mark scheme and examiner report.
Essay questions on how markets work
Case study: Health provision
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.
- Watch out
- Explaining the causes of excess demand at length and leaving no room to evaluate the policies.
Case study: Branded coffee shops
Examiner insight
- What to cover
- Cover both sides. Micro: demand for branded coffee shifts right, raising price, output, profit and derived demand for labour and beans. Macro: consumption and AD rise, lifting growth, jobs and import demand.
- Watch out
- Writing only about the coffee market and never reaching the macroeconomic effects Paper 3 requires.
Data response questions on how markets work
Case study: Digital markets
Examiner insight
- What to cover
- State the price elasticity formula and its determinants. Argue video games are a luxury with many substitutes and time to shop around, so demand is elastic, then argue franchise loyalty makes demand inelastic.
- Watch out
- Stating elastic or inelastic without using evidence from the extracts or figures to support the value.
Case study: The impact of subsidies on farmer income, in England, 2018–2019 (£000 per farm)
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.
- Watch out
- Saying revenue rises because demand rises, without using price elasticity of demand as asked.
Case study: The impact of subsidies on farmer income, in England, 2018–2019 (£000 per farm)
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.
- Watch out
- Assessing whether switching is good for the environment rather than whether it is rational.
Case study: The impact of subsidies on farmer income, in England, 2018–2019 (£000 per farm)
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.
Case study: The market for plastic in the UK
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.
- Watch out
- Assuming any choice that harms the environment must automatically be irrational.
Case study: The market for plastic in the UK
Case study: The market for plastic in the UK
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.
- Watch out
- Showing a movement along the single use cup demand curve instead of a leftward shift.
Case study: The UK online streaming services market
Examiner insight
- What to cover
- Use the market shares in Figure 1 to identify an oligopoly. Explain a high concentration ratio, a few dominant firms, interdependence, differentiated content and high barriers from content spending. Quote the shares as evidence.
- Watch out
- Naming the market structure without using the market share figures to justify it.
Case study: The UK online streaming services market
Examiner insight
- What to cover
- Define rational behaviour as maximising utility with full information. Argue subscribers weigh price against content and cancel when value falls, then set against habit, inertia, default renewals and anchoring on free trial prices.
- Watch out
- Describing behavioural bias in general without applying it to the streaming evidence provided.
Case study: The UK online streaming services market
Examiner insight
- What to cover
- State the cross elasticity formula and that substitutes give a positive value. Argue Netflix and rivals such as Disney Plus are close substitutes, so the value is positive and above one, though exclusive content weakens it.
- Watch out
- Giving a negative value, which would mean complements, or quoting a precise figure with no justification.
Case study: The market for television content
Examiner insight
- What to cover
- Use the elasticity value in Figure 1 and Extract A. If demand is inelastic a price rise raises total revenue. If demand is elastic a price rise lowers it. Apply this to television content.
- Watch out
- Stating the elasticity rule without applying the figure to show what happens to revenue.
Case study: The market for television content
Case study: UK branded coffee shop chains market
Examiner insight
- What to cover
- Pick two factors, such as weather or disease hitting the harvest and a change in world demand. Explain that with inelastic supply and inelastic demand for a primary commodity, small shifts cause large price swings.
- Watch out
- Ignoring elasticity when the question asks you to use it to explain the size of the price change.
Case study: The market for fish
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.
- Watch out
- Calling the behaviour irrational simply because it damages the marine environment.
Case study: The UK Rail Industry
Examiner insight
- What to cover
- Pick two demand determinants and tie each to Figure 2. Real incomes with rail travel as a normal good, and the price of substitutes such as petrol, car use or coach travel. Explain each shift in demand.
- Watch out
- Describing the trend in Figure 2 without explaining why demand shifted.
Case study: The market for higher education in the UK
Examiner insight
- What to cover
- A value of 0.5 in size means demand for higher education is price inelastic. A fee rise causes a smaller proportionate fall in applications, so university total revenue rises. Use Extract A.
- Watch out
- Ignoring the minus sign or reading 0.5 as elastic rather than inelastic.
Case study: The UK energy market
Examiner insight
- What to cover
- Give two developed reasons using Extract A, such as more substitutes from solar panels and insulation, a longer time period allowing adjustment, smart meters improving information, or a changing share of income.
- Watch out
- A change in elasticity is not the same as a change in demand, so keep the two apart.
Case study: Energy markets
Examiner insight
- What to cover
- Use Figure 1 and Extract A. Demand for uranium fell as nuclear plants closed while supply from mines stayed high. Excess supply at the old price forces price down.
- Watch out
- Describing the price fall without shifting a curve, or shifting supply when the extract points to falling demand.
Case study: Energy markets
Examiner insight
- What to cover
- Uranium mining has long lead times, high sunk costs and little spare capacity, so supply is price inelastic in the short run. Support this with Extract A evidence on mine closures.
- Watch out
- Giving the determinants of price elasticity of demand instead of those of price elasticity of supply.
Case study: Energy markets
Examiner insight
- What to cover
- Use Extract B. Give two reasons such as imperfect information about tariffs, consumer inertia and the perceived time cost of switching. Explain why each blocks a rational response to lower prices.
- Watch out
- Naming two reasons without explaining why they stop consumers acting on the cheaper tariffs.
Case study: Energy markets
Examiner insight
- What to cover
- Trace the decision through the energy market. Show the effect on supply, price and quantity, then on consumer bills and surplus, and on producer revenue, profit and employment.
- Watch out
- Covering consumers only when the question names both energy producers and consumers.
Case study: Supermarket price war, food waste and possible mergers
Examiner insight
- What to cover
- Use Extract B to show how confusing date labels and poor information cause over-buying, and how bulk offers, habit and present bias lead to irrational over-purchase and waste.
- Watch out
- The question is about the extent these are the main causes, so other causes must be compared, not ignored.
Case study: The market for cigarettes
Examiner insight
- What to cover
- Rational consumers maximise utility given the information they have. E-cigarettes are substitutes and are cheaper and less harmful, so switching raises utility. Use the extract evidence.
- Watch out
- Explaining what rational behaviour means in theory but never testing it against the e-cigarette evidence.
Case study: The market for cigarettes
Examiner insight
- What to cover
- The two goods are substitutes, so cross elasticity of demand is positive. A rise in cigarette prices raises demand for e-cigarettes. Explain why the response grows as habits and information adjust.
- Watch out
- Treating the two goods as complements, so the demand shift is drawn in the wrong direction.
Case study: The market for cigarettes
Case study: The market for cigarettes
Examiner insight
- What to cover
- Use the Figure 1 values. Cigarettes are addictive with few close substitutes, so demand is inelastic. E-cigarettes have closer substitutes and weaker habit, so demand is more elastic.
- Watch out
- Confusing the sign and the size of price elasticity of demand when comparing the two values.
Case study: The market for housing
Examiner insight
- What to cover
- Quote the price elasticity of supply figures for two countries in Figure 1. Explain one determinant, such as land availability or planning restrictions, and why it makes new housing supply more or less responsive to a price rise.
- Watch out
- Describing the Figure 1 numbers without linking a named supply determinant to the size of the quantity response.
Case study: The market for housing
Examiner insight
- What to cover
- Define producer surplus as the gap between the price received and the minimum price suppliers would accept. Show demand rising, price rising along the supply curve, and explain why the surplus area grows.
- Watch out
- Shading consumer surplus instead of producer surplus, or shifting supply when demand is what rises.
Case study: The market for housing
Examiner insight
- What to cover
- Explain the rationing, incentive and signalling functions using Figures 1 and 2. Rising house prices ration scarce homes to those willing to pay, signal the shortage, and give builders the incentive to supply more.
- Watch out
- Listing the three functions as textbook definitions without applying them to the housing data.
Short answer questions on how markets work
Case study: The food delivery industry
Examiner insight
- What to cover
- Use Extract B to estimate both elasticities. Price inelastic means a price rise raises total revenue. Income elastic and positive means delivery is a luxury, so demand swings sharply with income.
- Watch out
- Stating the elasticities without using the extract figures to justify them.
Case study: Hand car wash (HCW) firms in the UK
Examiner insight
- What to cover
- Give two reasons and develop each. Hand car washes are cheaper than automatic or valet alternatives, so demand rises as real incomes fall. This suggests they are an inferior good with negative income elasticity.
- Watch out
- Assuming all car washing is an inferior good. The argument depends on HCWs being the cheap substitute.
Multiple choice questions
- A-level Paper 1, June 2025, Q2(b)
The cross elasticity of demand for petrol cars with respect to the price of diesel cars is estimated to be +0.64. Which one of the following is the most likely impact if the price of diesel cars falls by 10%?
- A-level Paper 1, June 2025, Q5(b)
There has been a significant decrease in the supply of agricultural workers in the UK. Which one of the following is the most likely cause of this decrease?
- AS Paper 1, June 2025, Q2(b)
Which one of the following is the most appropriate description of the price elasticity of demand of −0.2?
- AS Paper 1, June 2025, 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?
- A-level Paper 1, June 2024, Q2(b)
In Texas the price elasticity of supply is +1.8. Which one of the following is the percentage increase in price if the quantity of housing supplied in Texas is increased by 12%?
- AS Paper 1, June 2024, Q1(b)
Which one of the following best describes ‘scarcity’?
- AS Paper 1, June 2024, 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?
- A-level Paper 1, June 2023, Q2(c)
Which one of the following would be most likely to help the farmer reach point Z? An increase in
- A-level Paper 1, June 2023, Q3(a)
The likely income elasticity of demand for a luxury good is:
- A-level Paper 1, June 2023, Q4(c)
Which one of the following areas represents the change in producer surplus when a minimum price is imposed?
- AS Paper 1, June 2023, Q2(b)
The table below shows estimates of the price elasticity of supply and price elasticity of demand for gas. Natural Gas Price elasticity of supply + 0.14 Price elasticity of demand − 0.10 (Source: adapted from…
- AS Paper 1, June 2023, Q4(b)
Which one of the following is the most likely cross price elasticity of demand for close substitutes?
- A-level Paper 1, June 2022, Q1(a)
Ceteris paribus, the most likely consequence of the above data is that Disney+ will experience an increase in its:
- A-level Paper 1, June 2022, Q2(c)
Using the data on page 4, which one of the following is most likely?
- AS Paper 1, June 2022, 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?
- A-level Paper 1, November 2020, Q1(b)
The indirect tax on fuel is increased in a market in which the price elasticity of demand is −0.1. Which one of the following is the most likely effect on consumer and producer surplus?
- AS Paper 1, November 2020, Q1(b)
Which one of the following is the best example of the rationing function of the price mechanism?
- AS Paper 1, November 2020, Q2(a)
The income elasticity of demand for bus travel is estimated to be –1.5. This implies that:
- AS Paper 1, November 2020, Q4(a)
In the diagram below, the government imposes a specific tax on a product. This shifts the supply curve from Supply1 to Supply2. Price Supply2 H Supply1 Demand O Q1 Q2 Quantity The government’s tax revenue is shown by the area:
- AS Paper 1, November 2020, Q5(c)
The diagram below shows the demand for and supply of passenger rail services. Rail fares O Q1 Q2 Quantity of rail passengers The shift of the demand curve from D1 to D2 is most likely to result from a:
- AS Paper 1, June 2019, Q2(b)
A ban on diesel vehicles in city centres will reduce the demand for diesel fuel. This is because:
- AS Paper 1, June 2019, Q3(a)
The most likely cross price elasticity of demand for close substitutes is:
- AS Paper 1, June 2018, Q2(b)
Which one of the following is most likely to be a determinant of price elasticity of demand for the Daily Mail newspaper?
- AS Paper 1, June 2018, Q3(a)
Using the data above, which one of the following is a function of the price mechanism in the market for private dental care?
- AS Paper 1, June 2018, Q4(a)
Which one of the following is the most accurate explanation of the term ‘median household income’?
- A-level Paper 1, June 2017, Q1(b)
Research conducted in New Zealand in 2014 estimated the cross elasticity of demand for e-cigarettes to be 0.16 in response to changes in the price of tobacco. This implies that a 5% increase in the price of tobacco will cause the…
- A-level Paper 1, June 2017, Q2(c)
Estimates for the demand for black tea in the UK suggest that it is an inferior good. This implies it has a negative:
- AS Paper 1, June 2017, Q3(b)
The most likely effect of cutting subsidies for the installation of solar panels is to:
- AS Paper 1, June 2016, Q4(b)
If the price of an “all you can eat buffet” fell from £8.99 to £6.99, which one of the following is likely to happen?
- AS Paper 1, June 2016, Q5(a)
What is the expected percentage change in the quantity of petrol demanded if the price elasticity of demand is –0.2?
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.