Edexcel A Level Economics A
Edexcel A Level Economics A 1.2 How Markets Work Exam Questions
Free Edexcel A Level Economics A exam questions on 1.2 How Markets Work, with mark schemes. Covers demand, supply, elasticities, price determination and consumer and producer surplus.
1.2 How Markets Work exam questions
2 question packs of real past exam questions with their mark schemes. Answer every question without notes, then mark your answers line by line against the mark scheme.
StemUp mark scheme flashcards
Edexcel A Level Economics A 9EC0 Flashcards (Anki & Quizlet)
Every answer is written in mark scheme wording, so you learn exactly what examiners give marks for. Use them on Anki or Quizlet, then test yourself with the questions on this page.
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About Edexcel A Level Economics A 1.2 How Markets Work
1.2 is the largest topic in Theme 1 and the one you will use most. Expect elasticity calculations, demand and supply diagrams and questions on how the price mechanism allocates resources.
What you need to know
- Rational decision making Consumers aim to maximise utility and firms to maximise profit. Know the law of diminishing marginal utility.
- Demand and supply Movements along a curve are caused by a change in the good's own price. Shifts are caused by other factors, such as income, tastes or the price of related goods for demand, and costs, technology or indirect taxes for supply.
- Elasticities PED = %ΔQd / %ΔP, YED = %ΔQd / %ΔY, XED = %ΔQd of A / %ΔP of B, PES = %ΔQs / %ΔP. Know the signs, the ranges and what affects each, and the link between PED and total revenue.
- Price determination Equilibrium is where demand equals supply. Excess demand pushes the price up and excess supply pushes it down. Analyse shifts with a diagram before and after.
- The price mechanism Prices act as signals, incentives and rationing devices to allocate scarce resources.
- Consumer and producer surplus The areas between the price and the demand and supply curves. Show how they change when the market changes.
- Behavioural economics Bounded rationality, bounded self-control, biases such as rules of thumb, anchoring and social norms, and the importance of altruism and perceptions of fairness.
Common mistakes in 1.2 How Markets Work
- Shifting the demand curve when the good's own price changes. A change in own price is a movement along the curve.
- Getting the PED sign or the formula upside down. Quantity goes on top.
- Saying a price rise always increases revenue. It only does when demand is price inelastic.
- Drawing a shift but not labelling the new equilibrium price and quantity.
Try three 1.2 How Markets Work exam-style questions
1. The price of a cinema ticket rises from 10 pounds to 12 pounds and the quantity demanded falls from 500 to 450 a night. Calculate the price elasticity of demand. (2 marks)
Show the mark scheme answer
%ΔQd = -10% and %ΔP = +20% (1). PED = -10 / 20 = -0.5, so demand is price inelastic (1).
2. Using a diagram, explain the effect of a rise in the cost of raw materials on the market for chocolate. (4 marks)
Show the mark scheme answer
Diagram shows the supply curve shifting left (1) with the new equilibrium labelled (1). Higher costs reduce the quantity firms are willing to supply at each price (1), so the equilibrium price rises and the equilibrium quantity falls (1).
3. Explain why the income elasticity of demand for an inferior good is negative. (2 marks)
Show the mark scheme answer
As income rises, consumers switch to higher quality substitutes (1), so quantity demanded falls when income rises, giving a negative YED (1).
1.2 How Markets Work FAQs
What does Edexcel A Level Economics 1.2 cover?
Rational decision making, demand, supply, the four elasticities, price determination, the price mechanism, consumer and producer surplus, indirect taxes and subsidies, alternative views of consumer behaviour.
Which elasticity formulas do I need to learn?
PED, YED, XED and PES. Each is a percentage change in quantity divided by a percentage change in the variable that caused it.
How are indirect taxes shown on a diagram?
A specific tax shifts supply up by the amount of the tax, keeping the curves parallel. An ad valorem tax makes the new supply curve diverge from the old one. Show the incidence on consumers and producers.
Revise this topic with flashcards: Edexcel A Level Economics A 9EC0 Flashcards, with mark scheme answers for Anki and Quizlet.
