1 mark
AS · November 2020 · Paper 1
Introduction to Markets and Market Failure
80 marks19 questionsExam date 11 May 2020
Questions in exam order
19 totalAS Paper 1, November 2020, Q1(b)Multiple choice
1 mark
Which one of the following is the best example of the rationing function of the price mechanism?
AAn increase in demand, leading to a rise in price, will encourage new firms to enter the market
BChanges in price provide information to both producers and consumers
CIf a product is scarce, a rise in price is likely to make the shortage worse
DWhen there is a shortage of a product, the price will rise and discourage
2 marks
Explain one advantage of a free market economy compared to a command economy.
AS Paper 1, November 2020, Q2(a)Multiple choice
1 mark
The income elasticity of demand for bus travel is estimated to be –1.5. This implies that:
Aa 10% increase in fares will lead to a 15% decrease in passengers
Bas unemployment falls, more people will use buses
Cbus travel has a negative cross elasticity of demand compared to rail travel
Dbus travel is an inferior good
3 marks
Explain why a firm might try to reduce the price elasticity of demand for its products.
AS Paper 1, November 2020, Q3(a)Multiple choice
1 mark
ContextThe ‘Energy Company Obligation’ is the government’s term for its programme to make houses in the UK more energy efficient.
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 Supply to Supply . 1 2 Price of loft insulation Supply Supply J P K P P L M P Demand O Q Q Quantity of loft insulation 1 2 The total amount spent by the government on subsidies is represented by the area:
AOP JQ
BOP LQ
CP P JL
DP P KM
Diagram needed. Open the original question paper for the diagram
3 marks
ContextThe ‘Energy Company Obligation’ is the government’s term for its programme to make houses in the UK more energy efficient.
Explain an opportunity cost to the government of granting subsidies to energy suppliers to install loft insulation.
AS Paper 1, November 2020, Q4(a)Multiple choice
1 mark
ContextThe UK Government uses a range of indirect taxes to affect the market prices and quantities of many goods and services.
In the diagram below, the government imposes a specific tax on a product. This shifts the supply curve from Supply to Supply . 1 2 Price Supply H Supply P 1 J P K P Demand O Q Q Quantity 1 2 The government’s tax revenue is shown by the area:
AOP HQ
BP P HJ
CP P HK
DP P JK
Diagram needed. Open the original question paper for the diagram
3 marks
ContextThe UK Government uses a range of indirect taxes to affect the market prices and quantities of many goods and services.
Using an example, explain why the government imposes specific taxes on many goods and services.
1 mark
ContextHS2 is a high-speed rail network linking the north and south of England. HS2 will be four years late and cost double the Department for Transport’s original estimate.
Define the term ‘government failure’.
2 marks
ContextHS2 is a high-speed rail network linking the north and south of England. HS2 will be four years late and cost double the Department for Transport’s original estimate.
Explain one likely microeconomic reason why the government is using taxpayers’ money to fund HS2.
AS Paper 1, November 2020, Q5(c)Multiple choice
1 mark
ContextHS2 is a high-speed rail network linking the north and south of England. HS2 will be four years late and cost double the Department for Transport’s original estimate.
The diagram below shows the demand for and supply of passenger rail services. Rail fares (£) S P P D D O Q Q Quantity of rail passengers 1 2 The shift of the demand curve from D to D is most likely to result from a: 1 2
Agovernment decision to impose a tax on workplace parking
Bgovernment decision to increase subsidies for rail travel
Cplanned expansion of the government’s railway track building programme
Dreduction in the tax imposed on a litre of petrol
Diagram needed. Open the original question paper for the diagram
5 marks
Case study · The market for higher education in the UK
Explain why ‘the price elasticity of demand for higher education is about –0.5’ may be of relevance to English universities. Refer to Extract A in your answer.
10 marks
Case study · The market for higher education in the UK
Assess the likely impact of these drop-out rates on the allocation of resources within an economy.
6 marks
Case study · The market for higher education in the UK
With reference to Extract A, explain one likely private benefit to students and one likely external benefit of higher education.
4 marks
Case study · The market for higher education in the UK
With reference to Figure 2, calculate the percentage increase in outstanding student loans from 2013 to 2018. You are advised to show your working.
15 marks
Case study · The market for higher education in the UK
With reference to Figure 1 and Extract A, discuss the benefits of allowing universities to charge higher tuition fees for some degree courses.
Optional20 marks
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.
Optional20 marks
Case study · The market for higher education in the UK
Evaluate whether government intervention is able to correct market failure in education.
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