AQA_2024: A-level Economics - Paper 1
Markets and Market Failure.
(Merged Question Paper and Marking Scheme)
A-level
ECONOMICS
Paper 1 Markets and Market Failure
Wednesday 15 May 2024 Morning Time allowed: 2 hours
Materials
For this paper you must have:
an AQA 12-page answer book
a calculator.
Instructions
Use black ink or black ball-point pen. Pencil should only be used for drawing.
Write the information required on the front cover of your answer book.
The Paper Reference is 7136/1.
In Section A, answer EITHER Context 1 OR Context 2.
In Section B, answer ONE essay.
Information
The marks for questions are shown in brackets.
The maximum mark for this paper is 80.
There are 40 marks for Section A and 40 marks for Section B.
Advice
You are advised to spend 1 hour on Section A and 1 hour on Section B.
IB/G/Jun24/G4001/E11 7136/1
, For A-level Economics Paper 1: Markets and Market Failure, here’s a concise revision guide focusing
on the key areas you need to cover:
1. Market Structures:
Perfect Competition:
o Characteristics: Large number of firms, homogeneous products, no barriers to entry/exit, perfect
information.
o Price Determination: In a perfectly competitive market, price is determined by supply and demand,
and firms are price takers.
o Efficiency: Perfect competition leads to productive and allocative efficiency in the long run.
Monopoly:
o Characteristics: Single firm dominating the market, high barriers to entry, price maker.
o Price and Output: A monopolist maximizes profit where MC = MR, setting a higher price and lower
output than in perfect competition.
o Market Failures: Monopolies can lead to X-inefficiency, deadweight loss, and reduced consumer
welfare.
Monopolistic Competition:
o Characteristics: Many firms, differentiated products, low barriers to entry.
o Short-Run vs. Long-Run: Firms can make supernormal profit in the short-run, but in the long-run,
entry of new firms erodes profits to normal levels.
Oligopoly:
o Characteristics: Few firms dominate the market, with interdependence between firms.
o Price Rigidity: Oligopolies often engage in non-price competition and price collusion (e.g., tacit
collusion) to maintain stable prices.
o Kinked Demand Curve: Prices remain stable due to the kink in the demand curve, as firms are
reluctant to change prices for fear of retaliation.
2. Market Failure:
Externalities:
o Positive Externalities: Benefits to third parties, such as education and healthcare (e.g., a more
educated workforce).
o Negative Externalities: Costs to third parties, such as pollution and congestion (e.g., air pollution
caused by industrial production).
o Government Intervention: The government can correct externalities through taxes, subsidies, or
regulation.
Public Goods:
o Characteristics: Non-excludability and non-rivalry (e.g., street lighting, national defense). These
goods are under-provided in a free market, as firms cannot exclude non-payers.
o Free Rider Problem: Consumers benefit without paying, leading to market failure.
Information Failure:
o Asymmetric Information: Occurs when one party (e.g., a seller) has more information than the
other party (e.g., the buyer), leading to inefficient market outcomes.
o Examples: Adverse selection in insurance markets, moral hazard in finance.
Inequality:
o Wealth vs. Income Inequality: Market systems can lead to income inequality. Governments may
intervene with progressive taxation and welfare policies to reduce inequality.
3. Government Intervention:
Indirect Taxes: The government can impose taxes (e.g., on cigarettes or carbon) to correct negative
externalities, raising the cost of production and reducing consumption.
Subsidies: Subsidies are used to encourage positive externalities (e.g., subsidies for renewable energy or
education).
IB/G/Jun24/G4001/E11 7136/1
, 2
Section A
Answer EITHER Context 1 OR Context 2.
EITHER
Context 1 Total for this context: 40 marks
The market for university accommodation
Study Extracts A, B and C and then answer all parts of Context 1 which follow.
Extract A
Table 1: Average weekly university rent, Figure 1: Number of full-time students at UK
selected UK cities, 2015 and universities, and type of
2021 accommodation, 2015 to 2021
Average Average
Selected UK weekly weekly
cities university university
rent, 2015 rent, 2021
Birmingham £113.88 £157.94
Brighton £143.00 £235.93
Bristol £141.58 £184.38
Liverpool £112.97 £136.61
Manchester £120.87 £180.60
UK average £121.16 £169.35
Source: Cushman Wakefield Student Accommodation
Report, 2022
Extract B: A serious shortage of student accommodation
The number of 18-year-olds in the UK applying to university is rising. In addition, there was a
record number of 277 000 foreign students in 2022.
Universities have expanded the number of places on offer to students, but the supply of student
accommodation is highly inelastic. Providers of rental accommodation have been deterred by
stricter rules on shared houses, higher taxes and greater rights for renters. Rising construction 5
costs, interest rates and inflation have resulted in an insufficient number of new developments
in many university cities. Supply shortages have been particularly acute in some cities, and
certain universities have asked students to live at home.
Shortages of accommodation could mean that some students are discouraged from applying to
university. The average private sector rent outside London consumes almost three-quarters of 10
the maximum student loan, and most students are ineligible for this maximum. Some of the top
universities may become out of reach to poorer students who do not live locally.
Source: News reports, 2023
IB/G/Jun24/7136/1
, 3
Extract C: Policies to solve the shortage of student accommodation
The causes of the shortage of student accommodation are varied and some, but not all, result
from market failure. Rising rents ought to incentivise more supply, but that has not worked
recently. Planning restrictions have limited the number of new building projects. Relaxing such
rules might help, but local residents complain that high numbers of students can alter the nature
of their communities. Subsidies to the builders of student accommodation could increase 5
supply, but with a likely delay of many years.
Some students have been offered financial incentives to defer their entry by a year or to live at
home. To reduce further the demand for student accommodation, some people have urged the
government to restrict foreign student numbers. However, the 22% of students who are foreign
pay 44% of all tuition fees and so subsidise costs for UK students. 10
Policies to tackle high rents could include rent subsidies from the government or an increase in
the grants and loans available to students. In Scotland, university students have benefited from
controls which limit rent increases to a fixed percentage each year. The National Union of
Students is calling for nationwide rent controls. A maximum rent can help keep the cost of
student accommodation lower than it would otherwise be, but risks some landlords withdrawing 15
from the market. Some argue that high-quality student accommodation is a merit good and
ought to be provided by the government at a fair rent.
Source: News reports, 2023
0 1 Inflation resulted in a basket of goods and services that cost £100 in 2015 costing £112
in 2021. Using this information and the data in Extract A (Table 1), calculate the
percentage increase in average university rent, in real terms, between 2015 and 2021.
Give your answer to one decimal place.
[2 marks]
0 2 Explain how the data in Extract A (Figure 1 and Table 1) show that the supply of
university and private rental accommodation has failed to match the increase in student
numbers between 2015 and 2021.
[4 marks]
0 3 Extract B (lines 3–4) states that ‘Universities have expanded the number of places on
offer to students, but the supply of student accommodation is highly inelastic’.
With the help of a diagram, explain the impact of the increase in the number of students
attending university on the market for student accommodation.
[9 marks]
0 4 Extract C (lines 14–16) states that ‘A maximum rent can help keep the cost of student
accommodation lower than it would otherwise be, but risks some landlords withdrawing
from the market’.
Using the data in the extracts and your knowledge of economics, discuss the advantages
and disadvantages of policies the government might introduce to improve the market for
student accommodation.
[25 marks]
Turn over ►
IB/G/Jun24/7136/1
Markets and Market Failure.
(Merged Question Paper and Marking Scheme)
A-level
ECONOMICS
Paper 1 Markets and Market Failure
Wednesday 15 May 2024 Morning Time allowed: 2 hours
Materials
For this paper you must have:
an AQA 12-page answer book
a calculator.
Instructions
Use black ink or black ball-point pen. Pencil should only be used for drawing.
Write the information required on the front cover of your answer book.
The Paper Reference is 7136/1.
In Section A, answer EITHER Context 1 OR Context 2.
In Section B, answer ONE essay.
Information
The marks for questions are shown in brackets.
The maximum mark for this paper is 80.
There are 40 marks for Section A and 40 marks for Section B.
Advice
You are advised to spend 1 hour on Section A and 1 hour on Section B.
IB/G/Jun24/G4001/E11 7136/1
, For A-level Economics Paper 1: Markets and Market Failure, here’s a concise revision guide focusing
on the key areas you need to cover:
1. Market Structures:
Perfect Competition:
o Characteristics: Large number of firms, homogeneous products, no barriers to entry/exit, perfect
information.
o Price Determination: In a perfectly competitive market, price is determined by supply and demand,
and firms are price takers.
o Efficiency: Perfect competition leads to productive and allocative efficiency in the long run.
Monopoly:
o Characteristics: Single firm dominating the market, high barriers to entry, price maker.
o Price and Output: A monopolist maximizes profit where MC = MR, setting a higher price and lower
output than in perfect competition.
o Market Failures: Monopolies can lead to X-inefficiency, deadweight loss, and reduced consumer
welfare.
Monopolistic Competition:
o Characteristics: Many firms, differentiated products, low barriers to entry.
o Short-Run vs. Long-Run: Firms can make supernormal profit in the short-run, but in the long-run,
entry of new firms erodes profits to normal levels.
Oligopoly:
o Characteristics: Few firms dominate the market, with interdependence between firms.
o Price Rigidity: Oligopolies often engage in non-price competition and price collusion (e.g., tacit
collusion) to maintain stable prices.
o Kinked Demand Curve: Prices remain stable due to the kink in the demand curve, as firms are
reluctant to change prices for fear of retaliation.
2. Market Failure:
Externalities:
o Positive Externalities: Benefits to third parties, such as education and healthcare (e.g., a more
educated workforce).
o Negative Externalities: Costs to third parties, such as pollution and congestion (e.g., air pollution
caused by industrial production).
o Government Intervention: The government can correct externalities through taxes, subsidies, or
regulation.
Public Goods:
o Characteristics: Non-excludability and non-rivalry (e.g., street lighting, national defense). These
goods are under-provided in a free market, as firms cannot exclude non-payers.
o Free Rider Problem: Consumers benefit without paying, leading to market failure.
Information Failure:
o Asymmetric Information: Occurs when one party (e.g., a seller) has more information than the
other party (e.g., the buyer), leading to inefficient market outcomes.
o Examples: Adverse selection in insurance markets, moral hazard in finance.
Inequality:
o Wealth vs. Income Inequality: Market systems can lead to income inequality. Governments may
intervene with progressive taxation and welfare policies to reduce inequality.
3. Government Intervention:
Indirect Taxes: The government can impose taxes (e.g., on cigarettes or carbon) to correct negative
externalities, raising the cost of production and reducing consumption.
Subsidies: Subsidies are used to encourage positive externalities (e.g., subsidies for renewable energy or
education).
IB/G/Jun24/G4001/E11 7136/1
, 2
Section A
Answer EITHER Context 1 OR Context 2.
EITHER
Context 1 Total for this context: 40 marks
The market for university accommodation
Study Extracts A, B and C and then answer all parts of Context 1 which follow.
Extract A
Table 1: Average weekly university rent, Figure 1: Number of full-time students at UK
selected UK cities, 2015 and universities, and type of
2021 accommodation, 2015 to 2021
Average Average
Selected UK weekly weekly
cities university university
rent, 2015 rent, 2021
Birmingham £113.88 £157.94
Brighton £143.00 £235.93
Bristol £141.58 £184.38
Liverpool £112.97 £136.61
Manchester £120.87 £180.60
UK average £121.16 £169.35
Source: Cushman Wakefield Student Accommodation
Report, 2022
Extract B: A serious shortage of student accommodation
The number of 18-year-olds in the UK applying to university is rising. In addition, there was a
record number of 277 000 foreign students in 2022.
Universities have expanded the number of places on offer to students, but the supply of student
accommodation is highly inelastic. Providers of rental accommodation have been deterred by
stricter rules on shared houses, higher taxes and greater rights for renters. Rising construction 5
costs, interest rates and inflation have resulted in an insufficient number of new developments
in many university cities. Supply shortages have been particularly acute in some cities, and
certain universities have asked students to live at home.
Shortages of accommodation could mean that some students are discouraged from applying to
university. The average private sector rent outside London consumes almost three-quarters of 10
the maximum student loan, and most students are ineligible for this maximum. Some of the top
universities may become out of reach to poorer students who do not live locally.
Source: News reports, 2023
IB/G/Jun24/7136/1
, 3
Extract C: Policies to solve the shortage of student accommodation
The causes of the shortage of student accommodation are varied and some, but not all, result
from market failure. Rising rents ought to incentivise more supply, but that has not worked
recently. Planning restrictions have limited the number of new building projects. Relaxing such
rules might help, but local residents complain that high numbers of students can alter the nature
of their communities. Subsidies to the builders of student accommodation could increase 5
supply, but with a likely delay of many years.
Some students have been offered financial incentives to defer their entry by a year or to live at
home. To reduce further the demand for student accommodation, some people have urged the
government to restrict foreign student numbers. However, the 22% of students who are foreign
pay 44% of all tuition fees and so subsidise costs for UK students. 10
Policies to tackle high rents could include rent subsidies from the government or an increase in
the grants and loans available to students. In Scotland, university students have benefited from
controls which limit rent increases to a fixed percentage each year. The National Union of
Students is calling for nationwide rent controls. A maximum rent can help keep the cost of
student accommodation lower than it would otherwise be, but risks some landlords withdrawing 15
from the market. Some argue that high-quality student accommodation is a merit good and
ought to be provided by the government at a fair rent.
Source: News reports, 2023
0 1 Inflation resulted in a basket of goods and services that cost £100 in 2015 costing £112
in 2021. Using this information and the data in Extract A (Table 1), calculate the
percentage increase in average university rent, in real terms, between 2015 and 2021.
Give your answer to one decimal place.
[2 marks]
0 2 Explain how the data in Extract A (Figure 1 and Table 1) show that the supply of
university and private rental accommodation has failed to match the increase in student
numbers between 2015 and 2021.
[4 marks]
0 3 Extract B (lines 3–4) states that ‘Universities have expanded the number of places on
offer to students, but the supply of student accommodation is highly inelastic’.
With the help of a diagram, explain the impact of the increase in the number of students
attending university on the market for student accommodation.
[9 marks]
0 4 Extract C (lines 14–16) states that ‘A maximum rent can help keep the cost of student
accommodation lower than it would otherwise be, but risks some landlords withdrawing
from the market’.
Using the data in the extracts and your knowledge of economics, discuss the advantages
and disadvantages of policies the government might introduce to improve the market for
student accommodation.
[25 marks]
Turn over ►
IB/G/Jun24/7136/1
