Market Failure (Edexcel A Level Economics A)

Exam Questions

1 hour12 questions
1
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1 mark

On average, in the UK, a working-age graduate earns approximately £10 000 more per year than a non-graduate.

(Source adapted from:https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/701720/GLMS_2017.pdf)

This suggests a university degree provides a substantial ________________. 

  • external benefit

  • external cost

  • private benefit

  • social cost

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2
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1 mark

In 2016 a coastal flood defence scheme was completed at Broomhill Sands in Kent, protecting people, homes and businesses. A £30 million grant from the National Lottery paid for the scheme.

(Source: https://www.gov.uk/government/news/30-million-project-set-to-reduce-flood-risk-in-kent)

The most likely reason for this grant is to ensure the:

  • exclusivity of Broomhill Sands

  • provision of a private good

  • provision of a public good

  • rivalry of Broomhill Sands

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3
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1 mark

Which of these correctly explains the meaning of 'non-rival'?

  • Once a good has been provided, consumers are unable to reject it

  • Consumption of the good by one person does not reduce the amount available to be consumed by others

  • It is impossible for new firms to enter the market to supply the good

  • Once a good has been provided, it is impossible to stop free-riders from consuming it

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4
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1 mark

Which of these explains why there are information gaps in the sale of second-hand motorhomes?

  • Motorhomes are rival and excludable

  • Motorhomes create pollution, which is a negative externality

  • The buyer values the motorhome at a higher price than the seller's valuation

  • The seller knows more about the quality of the motorhome than the buyer

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5
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1 mark

Which of these scenarios could be accurately represented by the diagram below?

1-3-2-externalities_1_edexcel-al-economics
  • The consumption of cigarettes causing lung disease for the consumers of cigarettes

  • A bakery that creates pleasant smells when baking bread and cakes

  • Pollution created from people driving their cars

  • The building of new offices and homes that creates lots of noise

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6
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2 marks

"The government must act to improve the allocation of resources in broadband services"

Explain one likely reason why there is a market failure in the market for broadband service (2)

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7
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2 marks

The construction of a new leisure centre would generate the following outcomes

Private Benefit

Private Cost

External Benefit

External Cost

£300m

£400m

£250m

£15m

Calculate the welfare gain from the construction of the leisure centre

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1
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10 marks

Assess the extent to which ‘information gaps’ (Extract B, lines 5 and 6) and ‘irrational behaviour’ (Extract B, line 11) are the main causes of food waste in the UK (10)  

Extract B

Food waste in the supply chain

A report from the British Retail Consortium reveals that supermarkets are directly responsible for around 0.2 million tonnes of food waste every year. This is due to the expiry of use-by-dates and poor handling of stock.

However, 4.1 million tonnes of food waste occurs annually in the food supply chain before it even reaches the supermarkets, indicating the existence of information gaps. The supermarkets are cooperating with food suppliers and farmers to try to reduce this waste. This involves improving forecasts for supply and demand of food and increasing the reliability of transportation and storage.

Consumers, the final stage of the supply chain, waste a further 7 million tonnes of food each year. This suggests irrational behaviour. Supermarkets are also working with consumers to reduce the waste by providing advice on how to store and use leftover food. The development of packaging designs to keep food fresher for longer is one of the innovations under way to reduce waste.

(Source: adapted from ‘Supermarkets tally up food waste bill’. Will Nicholls, in Businessgreen, 19th January 2015.http://www.businessgreen.com/ bg/news/2390792/supermarkets-tally-up-food-waste-bill)

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2
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4 marks

The external benefits of higher education include increased tax revenue, faster economic growth, greater innovation and labour market flexibility.

(Source adapted from: https://www.timeshighereducation.com/news/higher-education-its-good-for-you-and-society/2008681.article#survey-answer)

Draw an externalities diagram to show the likely impact of the consumption of higher education.

9ec0-01-q3b-june-2019

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3
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8 marks

Examine the likely impact of externalities of copper mining on firms and communities within Chile. (8)

screen-shot-2023-04-24-at-3-19-12-pm

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1
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25 marks

Evaluate the likely microeconomic consequences of consumers shifting from vehicles powered by fuel obtained from oil to electric-powered vehicles (25)

The International Energy Agency has predicted that oil use by cars will peak in 2025 because of the increasing number of drivers switching to electric vehicles.

(Source adapted from: https://www.thetimes.co.uk)

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2
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25 marks

In September 2016 the government approved the building of an £18 billion nuclear power station, Hinkley Point C, which will supply 7% of UK electricity for up to 60 years. The power station is funded by Chinese and French investment.

Evaluate the likely private costs and external costs involved in such major power station construction projects. Use an appropriate externalities diagram in your answer (25)

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