Edexcel A Level Microeconomics FINAL EXAM PREP 2025/2026 COMPLETE QUESTIONS WITH CORRECT DETAILED ANSWERS || 100% GUARANTEED PASS <BRAND NEW VERSION>

Edexcel A Level Microeconomics FINAL EXAM PREP 2025/2026 COMPLETE QUESTIONS WITH CORRECT DETAILED ANSWERS || 100% GUARANTEED PASS &lt;BRAND NEW VERSION&gt; 1. Factors influencing demand for labour - ANSWER Demand for final product - if rise in output &gt; increase in productivity Relative productivity of labour to capital - substitution effect UK raises NMW from £7.50 to £7.83 £3,000 subsidy for hiring unemployed 18-24 y.o. = half UK's youth minimum wage 2. Factors influencing supply of labour - ANSWER Cost of living Cost of gaining skills UK uni fees capped at £9,250 per year Number of workers UK raises state pension age from 67 to 68 3. Market failures in labour markets - ANSWER Geographical immobility - inability of labour to move from one location to another Occupational immobility - inability of labour to move form one industry to another Employer monopsony -&gt; wage-setting power -&gt; wage lower than equilibrium 10% decline in real wages of NHS worker since start of recession 4. Solutions to market failures in labour market - ANSWER Education and training Housing market reform Wage-setting UK raises NMW from £7.50 to £7.83 5. Evaluate solutions to market failures in labour market - ANSWER If increases elasticity of S(labour) -&gt; lower wages If D(labour) if elastic -&gt; min wage will increase unemployment 6. Public good (def.) - ANSWER Goods that are non-rival and non excludable 7. Non-rival (def.) - ANSWER Consumption of good by one person does not reduce amount available for others 8. Non-excludable (def.) - ANSWER It is not possible to provide good or service to one person without it thereby being available for others to enjoy 9. Free-rider problem - ANSWER When consumers wait for someone else to pay for good then consume for free 10. Not possible to prevent anyone from enjoying good once it has been provided -&gt; no incentive to pay for good -&gt; market doesn't recognise any demand -&gt; under-provision 11. Quasi-public good (def.) - ANSWER Good that only has one characteristic of public good - either non-rival or non-excludable 12. Private cost (def.) - ANSWER Costs experienced by two parties involved in transaction 13. External cost (def.) - ANSWER Costs experienced by third parties not involved in transaction 14. Social cost (def.) - ANSWER Private costs + external costs 15. Private benefit (def.) - ANSWER Benefits experienced by two parties involved in transaction 16. External benefit (def.) - ANSWER Benefits experienced by third parties not involved in transaction 17. Social benefit (def.) - ANSWER Private benefits + external benefits 18. Deadweight loss (def.) - ANSWER Loss in producer and consumer surplus due to an inefficient level of production perhaps resulting from market failure or government failure 19. Characteristics of contestable market - ANSWER Low barriers to entry + potential for large number of firms -&gt; threat of entry -&gt; abnormal profit only in SR 20. Implications of contestable markets for behaviour of firms - ANSWER Lower prices Sales maximisation Limit pricing Proactive efforts to establish entry barriers Cartels 21. Types of barriers to entry - ANSWER High fixed start-up costs Brand loyalty Licences/regulation Access to supply chain Patent laws 22. Conditions necessary for monopsony market - ANSWER High barriers to entry One dominant buyer 23. Benefits of monopoly - ANSWER Lower wages for workers Compromised working conditions Often monopoly selling power -&gt; higher prices for consumers 24. Costs of monopsony - ANSWER Abnormal profit -&gt; ability to invest in R&D -&gt; dynamic efficiency Purchasing EoS -&gt; lower LRAC -&gt; lower prices Itself being counterweight to monopoly supplier 25. Imperfect information (def.) - ANSWER When at least one party has incomplete information 26. Asymmetric information (def.) - ANSWER When one party in transaction has more information than other 27. Merit good (def.) - ANSWER Good which is under-consumed by consumers if left to free market MPB(perceived) &lt; MPB(actual) 28. Demerit good (def.) - ANSWER Good which is over-consumed by consumers if left to free market MPB(perceived) &gt; MPB(actual) 29. Market failures - ANSWER Tragedy of the Commons Free rider problem Imperfect information Asymmetric information Merit good Demerit good Negative externality Positive externality Commodity markets Labour markets 30. Organic growth (def.) - ANSWER Increase factors of production in its own industry 31. Vertical integration (def.) - ANSWER Merger between two firms at different production stages in same industry 32. Horizontal integration (def.) - ANSWER Merger between two firms at same stage of production in same industry 33. Conglomerate integration (def.) - ANSWER Merger between two firms in different industries, with no common interest 34. LRAC curve - ANSWER Firm's lowest cost per unit at each level of output, assuming that all factors of production are variable 35. Types of economies of scale - ANSWER Purchasing Technical Financial Marketing Distribution 36. Market Failure - ANSWER Encompasses: externalities, public goods, monopoly power, asymmetric information 37. Externalities as Market Failure: - ANSWER If an economic activity imposes costs on, or creates benefits for third parties for which they do not get compensated for, or do not pay for - imposes costs on third parties 38. Public Goods as Market Failure: - ANSWER Leads to the collapse of the market as profit-oriented firms will not have the incentive to producer and offer these goods 39. Monopolies as Market Failure: - ANSWER Less than the socially optimal amount of the good will be produced = no incentive 40. Asymmetric Information as Market Failure: - ANSWER Buyers and sellers share different sets of information then this may also lead to a market failure NEGATIVE CONSUMPTION EXTERNALITY 41. Negative Externality - ANSWER Impose costs on third parties 42. Positive Externality - ANSWER Provide benefits for third parties 43. Marginal Cost - ANSWER MPC (Private): costs of producing an extra unit of output MSC (Social): Costs of producing an extra unit of output that are borne by society 44. Marginal Benefit - ANSWER MPB (Private): Benefits individuals enjoy from the consumption of an extra unit of good 45. MSB (Social): Benefits that society enjoys from each extra unit consumed 46. Negative Production Externality - ANSWER Overproduction of the good 47. Positive Production Externality - ANSWER Underproduction of the good 48. Negative Consumption Externality - ANSWER 49. Positive Consumption Externality - ANSWER 50. Welfare Loss - ANSWER Point towards your new P1 or Q1 51. Merit Good - ANSWER A good which creates very significant externalities OR goods that the government would like for the public to consume regardless of their income Examples: Education and health care 52. Demerit Good - ANSWER Consumption of the good creates very significant negative externalities Examples: Alcohol and Tobacco 53. Solutions to Negative Production Externalities - ANSWER Indirect Taxation, Assigning and enforcing property rights over assets, Tradable pollution permits (cap and trade schemes), Advertising, Persuasion, Education 54. Solution to Positive Production Externality - ANSWER Subsidy, Intellectual Property Rights, Mergers, Direct Regulation 55. Solution to Positive Consumption Externality (Merit Goods) - ANSWER Subsidy, Legislation and Direct Provision, Advertisement and moral provision 56. Solutions to Negative Consumption Externality (Demerit Good) - ANSWER Indirect Tax, Direct Regulation, Advertisement and moral persuasion 57. Public Good - ANSWER Non-Rivalrous, Non-Excludable Examples: light house, traffic lights, roads 58. Solutions to Public Good as Externality: - ANSWER Taxation and Provision 59. Why is a Public Good an Externality? - ANSWER Private Benefit is smaller than social benefit (someone pays for the good) 60. Common-Access Resources (Common-Pool Resources) - ANSWER 'Tragedy of the Commons" 1. Difficult to exclude 2. Rivalry in consumption Examples: Lake, Pasture 61. Graphing Common Pool Market Failure - ANSWER MSC exceeds MPC (Negative Production Externality) 62. Solutions to Tragedy of the Commons - ANSWER Property Rights Institutional Framework Regulation (quotas) Educating the Public 63. Solutions of Monopoly Power as a source of M.F.: - ANSWER No mergers Practices that seem anti-competitive are monitored Tax firms 64. Solutions to Asymmetric Information M.F: - ANSWER 'Signalling' through which one of the parties tries to convey information about itself that will make it seem credible 'Screening' through which individuals try to infer additional information Building a good reputation that also conveys information to buyers Writing contracts More information 65. Buffer Stock Scheme - ANSWER Aims to stabilize the price of commodities (since they fluctuate a lot usually) Equilibrium Price = Intervention Price 66. What happens in the Buffer Stock Scheme? - ANSWER 1. Government chooses intervention Price 3. If Price falls below intervention Price, then government buys the buffer stock 4. If the Price is too high, they release their storage of the buffer stock to lower the price 67. Why do Buffer Stocks Fail? - ANSWER 1. Too big of firms 2. Storage of the commodity is expensive 3. Setting the intervention Price too high 68. Price Discrimination - ANSWER Happens when a firm charges a different price to different groups of consumers for an identical good or service, for reasons not associated with costs of supply. 69. First Degree Price Discrimination - ANSWER Where each individual customer is charged the maximum amount that they would be willing to pay. 70. Second Degree Price Discrimination - ANSWER Often used in wholesale markets where lower prices are charged to people who purchase large quanitites 71. Third Degree Price Discrimination - ANSWER Where a firm charges different prices for the same product to different segments of the market 72. creative destruction - ANSWER the hypothesis that the creation of new products and production methods simultaneously destroys the market power of existing monopolies 73. Contestable market - ANSWER an imperfectly competitive industry subject to potential entry if prices or profits increase 74. Static efficiency - ANSWER The level of efficiency at one point in time. Productive and allocative efficiencies are examples of static efficiency. 75. Dynamic efficiency - ANSWER Concerned with new technology and increases in productivity, which causes efficiency to increase over a period of time. 76. Productive efficiency - ANSWER Occurs when firms minimise their average total costs 77. Allocative efficiency - ANSWER Occurs when resources are distributed to the goods and services that consumers want. 78. X-inefficiency - ANSWER Happens when a lack of effective / real competition in a market or industry means that average costs are higher than they would be with competition. 79. Consumer Surplus - ANSWER The difference between the price the consumer is willing and able to pay and the price they actually pay. 80. Producer Surplus - ANSWER This is the difference between the price the producer is willing to charge and the price they actually charge. 81. Economic Welfare - ANSWER The area of the producer surplus and consumer surplus added together 82. Deadweight loss - ANSWER The loss of economic efficiency when the equilibrium price and quantity is not achieved. 83. Marginal utility - ANSWER The extra satisfaction derived from consuming one extra unit of the good. 84. consumer's utility - ANSWER the total satisfaction received from consuming a good or service. 85. Maximisation - ANSWER When consumers aim to generate the greatest utility possible from an economic decision. 86. Public Goods as Market Failure: - ANSWER Leads to the collapse of the market as profit-oriented firms will not have the incentive to producer and offer these goods 87. Monopolies as Market Failure: - ANSWER Less than the socially optimal amount of the good will be produced = no incentive