A Level Economics Short Paper A
Covers Demand, Supply and Price Determination, Elasticity of Demand and Supply, Market Failure and Externalities and 3 more.
Questions
Question 1 [2 marks]
Labour Markets and Wage Determination
Define "geographical immobility of labour" and give one example of a barrier that causes it.
Question 2 [2 marks]
Demand, Supply and Price Determination
Distinguish between a contraction of demand and a leftward shift of the demand curve, using the example of rail travel.
Question 3 [2 marks]
Market Structures and Competition
Define "oligopoly" and state one characteristic that distinguishes it from perfect competition.
Question 4 [3 marks]
Market Failure and Externalities
Define "public good", give one example, and explain why non-excludability means it may not be provided by a free market.
Question 5 [4 marks]
Demand, Supply and Price Determination
The price of games consoles falls sharply. Games consoles and video games are complements.
Explain, using economic analysis, the likely effect of this fall in price on the equilibrium price and quantity in the market for video games.
Question 6 [5 marks]
Government Intervention in Markets
The government is deciding between an outright ban on single-use plastic carrier bags and a small charge per bag as ways to reduce plastic waste.
Explain one advantage and one disadvantage of using a ban (regulation) rather than a charge to achieve this aim.
Question 7 [5 marks]
Elasticity of Demand and Supply
The average price of large flat-screen televisions falls by 15%, causing the quantity demanded of TV wall-mounting brackets to rise by 6%.
Calculate the cross price elasticity of demand between wall-mounting brackets and televisions, and state whether the two goods are substitutes or complements, and how strong this relationship appears to be.
Question 8 [5 marks]
Labour Markets and Wage Determination
In a competitive labour market for warehouse workers, weekly labour supply is given by N = 200 + 10w and labour demand is given by N = 800 - 15w, where w is the weekly wage in pounds and N is the number of workers.
Calculate the equilibrium wage and the equilibrium number of workers employed.
Question 9 [6 marks]
Government Intervention in Markets
A government operates a buffer stock scheme for a staple grain, setting a minimum price of 200 pounds per tonne and a maximum price of 260 pounds per tonne. In a good harvest year, farmers produce 900000 tonnes while consumers demand only 760000 tonnes at the minimum price.
Explain how the buffer stock scheme would operate in this good harvest year, and calculate the quantity of grain the government would need to buy to maintain the minimum price.
Question 10 [6 marks]
Government Intervention in Markets
A government introduces a generous subsidy for farmers who grow crops used to make biofuel, aiming to reduce reliance on imported fossil fuels. Over the following years, a significant amount of farmland switches from growing food crops to growing biofuel crops, and food prices in the country rise noticeably.
Evaluate the extent to which this outcome represents an example of government failure.
Model solutions
| Question 1[2 marks] | |
|---|---|
| Answer or working | Marks |
| a correct definition of geographical immobility as the difficulty workers face in moving from one location to another to find work | 1 |
| a valid example of a barrier, e.g. high housing costs in areas with more jobs, or family and social ties to the current location | 1 |
| Final answer: Geographical immobility is the difficulty workers face moving location to find work, e.g. because of high housing costs in areas with more jobs or family ties to their current area. | |
| Question 2[2 marks] | |
|---|---|
| Answer or working | Marks |
| explaining that a contraction of demand is a fall in quantity demanded caused by a rise in the price of the good itself, e.g. fewer rail journeys demanded as rail fares rise, shown as a movement along the demand curve | 1 |
| explaining that a leftward shift of the demand curve is a fall in demand at every price, caused by a factor other than the good's own price, e.g. a fall in average income reducing demand for rail travel as a normal good | 1 |
| Final answer: A contraction of demand is a movement along the curve caused by a price rise (e.g. higher rail fares); a leftward shift is caused by a non-price factor such as falling income. | |
| Question 3[2 marks] | |
|---|---|
| Answer or working | Marks |
| a correct definition, e.g. a market dominated by a small number of large, interdependent firms | 1 |
| a valid distinguishing characteristic, e.g. firms are interdependent and aware of rivals' pricing decisions, unlike price-taking firms in perfect competition | 1 |
| Final answer: Oligopoly is a market dominated by a few large, interdependent firms; unlike perfect competition, firms are aware of and react to rivals' decisions. | |
| Question 4[3 marks] | |
|---|---|
| Answer or working | Marks |
| a correct definition of a public good as non-excludable and non-rival in consumption | 1 |
| a valid example, e.g. street lighting or national defence | 1 |
| explaining that non-excludability allows free riders to benefit without paying, so private firms have little incentive to provide it, causing the free market to fail to supply it | 1 |
| Final answer: A public good is non-excludable and non-rival, e.g. street lighting; because non-payers cannot be excluded from benefiting, free riders mean private firms have little incentive to provide it, so the free market fails to supply it. | |
| Question 5[4 marks] | |
|---|---|
| Answer or working | Marks |
| identifying that games consoles and video games are complements | 1 |
| explaining that a fall in the price of consoles increases demand for consoles and therefore increases demand for video games | 1 |
| explaining that the demand curve for video games shifts rightward | 1 |
| concluding that both the equilibrium price and equilibrium quantity of video games rise | 1 |
| Final answer: The demand for video games shifts right because consoles and games are complements, so both equilibrium price and quantity of video games rise. | |
| Question 6[5 marks] | |
|---|---|
| Answer or working | Marks |
| identifying an advantage of a ban, e.g. it guarantees a large and immediate reduction in the use of the banned item, since consumers have no legal option to keep using it regardless of how strongly they want to | 1 |
| developing this advantage, e.g. this makes the outcome more certain than a charge, whose effectiveness depends on how responsive demand for bags is to the size of the charge | 1 |
| identifying a disadvantage of a ban, e.g. it removes consumer choice entirely and may push some consumers toward a more harmful substitute, such as buying thicker reusable bags that are then rarely reused | 1 |
| developing this disadvantage, e.g. unlike a charge, a ban raises no revenue that could be used to fund environmental projects or enforcement | 1 |
| a further valid point, e.g. a ban may also be harder and more costly to enforce against retailers who continue supplying banned bags informally, compared with simply collecting a charge at the till | 1 |
| Final answer: A ban guarantees a large, certain reduction in plastic bag use regardless of how price-sensitive consumers are, but it removes consumer choice, may push some people toward a more harmful substitute, raises no revenue, and can be harder to enforce than a simple charge collected at the till. | |
| Question 7[5 marks] | |
|---|---|
| Answer or working | Marks |
| using XED = % change in quantity demanded of brackets / % change in price of televisions | M1 |
| substituting 6 / -15 | M1 |
| XED = -0.4 (negative) | A1 |
| correctly stating a negative value means wall-mounting brackets and televisions are complements | 1 |
| correctly stating that, since the magnitude (0.4) is below 1, this is a moderately weak complementary relationship | 1 |
| Final answer: XED = -0.4 (negative), so brackets and televisions are complements, though the magnitude indicates a moderately weak complementary relationship. | |
| Question 8[5 marks] | |
|---|---|
| Answer or working | Marks |
| setting labour supply equal to labour demand, 200 + 10w = 800 - 15w | M1 |
| collecting terms to give 25w = 600 | M1 |
| equilibrium wage w = 24 pounds | A1 |
| substituting w = 24 into either equation, e.g. N = 200 + 10(24) | M1 |
| equilibrium number of workers employed, N = 440 | A1 |
| Final answer: Equilibrium wage = 24 pounds per week; equilibrium employment = 440 workers. | |
| Question 9[6 marks] | |
|---|---|
| Answer or working | Marks |
| identifying that at the minimum price of 200 pounds, the 900000 tonnes produced exceeds the 760000 tonnes demanded, creating a surplus | 1 |
| explaining that without intervention this surplus would push the market price below the minimum price | 1 |
| explaining that the government buys up the surplus grain to remove it from the market, adding it to a buffer stock, in order to maintain the minimum price | 1 |
| calculating the surplus as 900000 - 760000 | M1 |
| a surplus, and therefore a government purchase, of 140000 tonnes | A1 |
| explaining that this stored grain could later be released and sold if a poor harvest pushed the market price above the maximum price, helping to stabilise the price within the target range | 1 |
| Final answer: At the 200 pound minimum price, supply (900000 tonnes) exceeds demand (760000 tonnes), so the government buys the 140000 tonne surplus to add to its buffer stock and maintain the minimum price; this stock can later be released to hold price below the 260 pound maximum in a poor harvest year. | |
| Question 10[6 marks] | |
|---|---|
| Answer or working | Marks |
| explaining that the subsidy was intended to achieve a policy goal, reducing reliance on imported fossil fuels, by lowering the cost of producing biofuel crops | 1 |
| identifying that the subsidy created a strong incentive for farmers to switch land from food crops to biofuel crops, an effect the government may not have fully anticipated | 1 |
| explaining that the resulting fall in food crop supply raises food prices, imposing a cost on consumers that was not intended by the original policy | 1 |
| identifying this rise in food prices as an unintended consequence, and therefore a form of government failure, since the intervention creates a new problem while solving the original one | 1 |
| an evaluative point, e.g. whether this counts as an overall failure depends on the relative size of the benefit, reduced fossil fuel reliance, against the cost of higher food prices, which requires further information to judge | 1 |
| a reasoned overall judgement, e.g. the policy shows a genuine risk of government failure through unintended consequences, and could potentially be improved by limiting the subsidy to land unsuitable for food production, rather than concluding the subsidy itself was entirely misguided | 1 |
| Final answer: The subsidy achieved its aim of encouraging biofuel production but had the unintended consequence of diverting land from food crops and raising food prices, a cost the policy did not intend to create; this is a real risk of government failure, though whether it outweighs the benefit of reduced fossil fuel reliance depends on the relative size of each effect, and could potentially be reduced by targeting the subsidy more carefully. | |