Edexcel A · Theme 3: Business behaviour and the labour market · 3.3 Market structures
Edexcel A Economics past paper questions: Market structures
Every Edexcel A question on Market structures from 2017 to 2025: 2 essays, 8 data response questions, 6 short answer questions and 4 multiple choice questions. It covers Government intervention, Revenues, costs and profits and Market failure. Each question links to its paper, mark scheme and examiner report.
SubtopicsGovernment intervention 1Revenues, costs and profits 1Market failure 1
Essay questions on market structures
Tesla held an 82% market share of the electric vehicle market in the United States during the first half of 2020. (Source: adapted from https://electrek.co/2020/08/21/ tesla-holds-us-ev-market-losing-federal-tax-credit/) Evaluate whether a monopoly is likely to operate efficiently. Refer to at least one monopoly of your choice.
Examiner insight
- What to cover
- Define allocative, productive, dynamic and X efficiency. Explain that a monopoly such as Tesla restricts output and sets price above marginal cost, and without competitive pressure may produce above minimum average cost.
- Watch out
- Covering only allocative efficiency and ignoring dynamic and productive efficiency, where the monopoly case is strongest.
‘Amazon.com, the giant online retailer, has too much power.’ It uses its market power to put a squeeze on publishers, in effect driving down the prices it pays for books. If a publisher refuses, Amazon may take action by ‘delaying their delivery, raising their prices, and steering customers to other publishers’. (Source adapted from: https://www.nytimes.com) Evaluate the likely costs of a monopsony operating in a market such as book retailing.
Examiner insight
- What to cover
- Define monopsony as a single dominant buyer. Explain how Amazon restricts the quantity it buys and pays publishers below the competitive price, cutting publisher profit, author royalties, the range of titles and publishing jobs.
- Watch out
- Describing monopoly selling power instead of monopsony buying power.
Data response questions on market structures
Case study: Digital markets
With reference to Extract A, explain one likely impact of the growth of digital markets on allocative efficiency.
Examiner insight
- What to cover
- Define allocative efficiency as price equal to marginal cost. Explain that digital markets cut search costs and improve price information, so competition pushes price nearer marginal cost and resources match consumer preferences better.
- Watch out
- Explaining productive or dynamic efficiency instead of allocative efficiency, which needs price equal to marginal cost.
Case study: The UK online streaming services market
Using examples from Figure 2 or Extract B, discuss the likely impact of price discrimination on a firm’s profits. Use a relevant diagram to support your answer.
Examiner insight
- What to cover
- Define price discrimination and the conditions needed. Explain that charging different prices to different subscriber groups converts consumer surplus into producer surplus, so revenue rises for the same costs and profit increases.
- Watch out
- Drawing the diagram but never explaining how the shaded areas show the extra profit earned.
Case study: UK branded coffee shop chains market
With reference to Figure 1, calculate the three-firm concentration ratio for branded coffee shop chains.
Examiner insight
- What to cover
- Add the market shares of the three largest chains in Figure 1 and express the total as a percentage of the market. Show the addition, give the answer with a percentage sign, and comment on concentration.
- Watch out
- Choosing three firms that are not the largest three, or giving an answer with no working shown.
Case study: The UK Rail Industry
With reference to Extract A, paragraph 3, discuss whether the rail network can be considered to be a natural monopoly.
Examiner insight
- What to cover
- Define natural monopoly as one firm supplying the whole market at lower average cost. Apply to the track network: huge fixed costs mean long run average cost keeps falling, so duplicating track would waste resources.
- Watch out
- Treating the whole rail industry as one natural monopoly instead of separating infrastructure from train operations.
Case study: The UK Rail Industry
Discuss the likely benefits of price discrimination to rail passengers. Use a diagram to support your answer.
Examiner insight
- What to cover
- Define third degree price discrimination and the conditions needed. Explain how off peak passengers with elastic demand pay lower fares, how spare capacity gets used, and how extra profit can fund network investment.
- Watch out
- Explaining the benefits to the train operator when the question asks about benefits to passengers.
Case study: Supermarket price war, food waste and possible mergers
With reference to Figure 1 and Extract A, explain one likely reason for the change in the four-firm concentration ratio of the supermarket sector between 2010 and
Examiner insight
- What to cover
- Give one developed reason using Figure 1 and Extract A, such as the growth of discounters Aldi and Lidl taking share, which lowers the combined share of the largest four supermarkets.
- Watch out
- Define the four-firm concentration ratio and state the direction of change shown in Figure 1.
Case study: Supermarket price war, food waste and possible mergers
With reference to Figure 2 and Extract A, discuss the possible impact of supermarket monopsony power on both food suppliers and consumers.
Examiner insight
- What to cover
- Supermarkets as dominant buyers force supplier prices down, cutting supplier profit, investment and quality. Some of the saving may pass to consumers as lower shop prices. Use Figure 2 and Extract A.
- Watch out
- Monopsony is buying power, so do not slip into monopoly pricing analysis of consumers.
Case study: Supermarket price war, food waste and possible mergers
Examine measures the government might use to restrict the monopsony power of supermarkets.
Examiner insight
- What to cover
- Explain measures such as a groceries code with an adjudicator, fines for late payment or unfair contract changes, blocking mergers, and supporting supplier co-operatives to raise supplier prices.
- Watch out
- Measures must target buying power over suppliers, not the prices supermarkets charge shoppers.
Short answer questions on market structures
Case study: The cost of living in the UK
With reference to Figure 1 and Extract C, discuss whether supermarkets charging similar prices for petrol is evidence of collusion. Use game theory to support your answer.
Examiner insight
- What to cover
- Similar prices are consistent with tacit collusion but also with competitive price matching in an oligopoly. Use game theory to show that both firms holding a high price is a stable outcome.
- Watch out
- Concluding collusion from similar prices alone. Identical costs and price matching produce the same outcome without any agreement.
Draw a simple two firm/two outcome game theory model to show why the chicken suppliers may have colluded.
Complete the third-degree price discrimination diagram below. Draw the impact on each sub-market by showing the price and profit.
Draw a cost and revenue diagram toMR show the long-run equilibrium of a firm in monopolistic competition.
Case study: Markets for food and drinks high in fat, salt or sugar (HFSS)
In Extract A, lines 15–16, it was suggested that some firms may respond to the advertising ban by cutting the prices of their products. Using game theory and the information provided in Figure 1 and Extract A, discuss the effects on firms of cutting prices in an oligopolistic market.
Examiner insight
- What to cover
- Use the Figure 1 payoff matrix to show that cutting price is the dominant strategy but leaves both firms worse off, a Nash equilibrium like the prisoner dilemma. Rivals match cuts, so a price war erodes profit.
- Watch out
- Describing the payoff numbers without identifying the dominant strategy and the Nash equilibrium.
Calculate the five-firm concentration ratio. You are advised to show your working.
Multiple choice questions
- A-level Paper 1, June 2022, Q4(b)
Which one of the following is most closely associated with tacit collusion?
- A-level Paper 1, November 2021, Q3(b)
Which one of the following is necessary for a firm to be able to practise price discrimination?
- A-level Paper 1, November 2021, Q5(b)
Which one of the following will exist in the short run if Chiara makes a loss?
- A-level Paper 1, June 2019, Q3(a)
The UK hair and beauty industry is an example of monopolistic competition because:
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.