AQA AS ECONOMICS RATING Paper 1 The Operation of Markets and Market Failure MAY 2023

AQA AS ECONOMICS Paper 1 The Operation of Markets and Market Failure Monday 15 May 2023 Morning Time allowed: 1 hour 30 minutes Materials For this paper you must have: • the Insert • a calculator. Instructions • Use black ink or black ball-point pen. Pencil should only be used for drawing. • Fill in the boxes at the top of this page. • Answer all questions in Section A. • Answer either Context 1 or Context 2 in Section B. • You will need to refer to the Insert provided to answer Section B. • You must answer the questions in the spaces provided. Do not write outside the box around each page or on blank pages. • If you need extra space for your answer(s), use the lined pages at the end of this book. Write the question number against your answer(s). • Do all rough work in this book. Cross through any work you do not want to be marked. Information • The maximum mark for this paper is 70. • The marks for questions are shown in brackets. • No deductions will be made for wrong answers. IB/M/Jun23/E10 7135/1 Section A Answer all questions in this section. box Which one of the following gives rise to opportunity cost? [1 mark] A Alternative uses for resources B Market failures for many goods C The methodology of positive economics D The presence of externalities A bakery decides to increase the price of the bread that it sells. Which one of the following price elasticities of demand for bread will result in the largest increase in the bakery’s total revenue? [1 mark] A –0.4 B –0.8 C –1.0 D –2.0 0 3 Figure 1 shows the demand (D) and supply (S) curves for scooters. Market equilibrium is initially at E, the intersection of D1 and S1. Figure 1 The government announces a cut in the indirect tax on scooters and an increase in the indirect tax on bicycles, a substitute for scooters. Which one of the following is most likely to be the new equilibrium in the market for scooters? [1 mark] A F B G C H D I Turn over ► 0 4 A soap manufacturer experiences a fall in long-run average costs. This is most likely to be the result of [1 mark] A fewer external economies of scale. B lower labour productivity. C opportunities for internal economies of scale. D total costs increasing by more than output. 0 5 A government decides that visitor centres in nature reserves are merit goods and therefore increases their provision. It can be concluded that this decision [1 mark] A avoided government failure. B did not have an opportunity cost. C ensured provision of a public good. D involved a normative judgement. 0 6 The median income is higher in country W than in country Z. It can be concluded that [1 mark] A incomes are more equitably distributed in country W than in country Z. B incomes are more unequally distributed in country Z than in country W. C the mean income may be higher or lower in country Z compared with country W. D the ratio of the highest to lowest income is greater in country W than in country Z. 0 7 Which one of the following is a source of monopoly power? [1 mark] A A firm’s objective of maximising profits B Advertising to establish a brand C High cross elasticity of demand D High prices and low output 0 8 Figure 2 shows the demand (D) and supply (S) curves for diamonds. An increase in demand shifts the demand curve from D1 to D2. Figure 2 Using Figure 2, which one of the following is the price elasticity of supply for diamonds? [1 mark] A 0.4 B 0.5 C 2.0 D 2.5 Turn over ► 0 9 One week, a business has to pay £80 interest for its loan, £95 for raw materials and £210 on rent. If the business has no other costs, what are its fixed costs for that week? [1 mark] A £210 B £290 C £305 D £385 1 0 A good is in joint demand when it is [1 mark] A an alternative to buying another good. B consumed by more than one person. C consumed together with another good. D demanded for two or more distinct uses. 1 1 Figure 3 shows a supply curve (S) for an industry. Figure 3 All other things being equal, which one of the following causes the upward slope of the supply curve? [1 mark] A An increase in monopoly power at higher levels of output B Firms achieving economies of scale as output increases C Higher prices causing firms to improve productive efficiency D Higher profits providing an incentive to increase output Turn over for the next question *07* Turn over ► 1 2 Table 1 shows the market shares of supermarkets in an economy in 2020. Table 1 Company % share of market Fresh Co 35 Food Co 28 Value Co 16 Other companies 21 In 2021, Value Co fails to make any profits and decides to leave the market. The most likely result is that the [1 mark] A market becomes more competitive. B monopoly power of Fresh Co increases. C other companies’ market share rises to 37%. D two-firm concentration ratio becomes 63%. 1 3 Hedges around fields encourage wildlife and bring widespread benefits but many farmers choose to have wire fences instead. Which one of the following best describes the resulting failure in the market for hedges? [1 mark] A The social optimum output is greater than the free market output because the private benefit is greater than the social benefit. B The social optimum output is greater than the free market output because the private benefit is less than the social benefit. C The social optimum output is less than the free market output because the private benefit is greater than the social benefit. D The social optimum output is less than the free market output because the private benefit is less than the social benefit.