Every question, cut by section

An economy currently sits on its production possibility frontier. It reallocates its existing resources to produce more machinery and less food, with no change to the total resources or technology available. What does this represent?

Household income in a country rises by 10%. Demand for domestic first-class rail travel rises by 25% over the same period. Is this good a necessity or a luxury, and how do you know?

A small town's flood-defence wall protects every household in the flood plain equally, whether or not that household contributed to its funding, and there is no way to withhold flood protection from a household that didn't pay. A single household is deciding whether to voluntarily donate toward the wall. Which best describes the rational household's incentive?

What is the defining difference between a free market economy and a command economy?

The price of a good falls from £50 to £40, and the quantity firms are willing to supply falls from 300 to 270 units. What is the price elasticity of supply?

According to the spec, what must a definition of government failure explicitly reference to be creditworthy?

A good's price rises by 10% and quantity demanded falls by 30%. Without calculating an exact value, is demand for this good elastic or inelastic?

A chemical plant's marginal private cost of production is a constant £15 per unit. Every unit produced imposes a constant external cost of £5 on nearby residents. Demand for the plant's output is P = 45 − Q.

What is the value of the welfare loss caused by this externality? (VERIDIAN-original, testing the same welfare-loss-triangle calculation derived in the worked chain above.)

An economist builds a model showing that a fall in the price of a good increases the quantity consumers demand, holding income, tastes, and the prices of other goods unchanged throughout. Which concept is doing the actual work of letting the economist isolate the effect of price alone?

A soft-drinks company sells a sugar-sweetened drink at £1.20 a bottle. It raises the price to £1.50, and weekly sales fall from 50,000 to 42,000 bottles. Separately, national data shows that when average household income rises by 10%, demand for the same drink rises by only 3%. The government is considering raising the specific tax on sugar-sweetened drinks further, aiming to both raise revenue and reduce consumption for public-health reasons.

Using both pieces of evidence, which of the following is the most complete assessment of the government's plan?

In a health insurance market, applicants know their own health history far better than the insurer does, and the insurer cannot cheaply verify it. If the insurer sets one average premium for everyone, which group is most likely to buy the policy, and what does this do to the insurer's costs over time?

A customer has stayed with the same broadband provider for six years. She knows a cheaper deal exists elsewhere but says comparing providers and switching over 'feels like too much hassle for what I'd actually save.' Which spec-named reason for not maximising utility does this best illustrate?

A cost-reducing technology lowers a firm's minimum acceptable supply price at every output level, shifting the supply curve right in a straight parallel line, with demand unchanged. What happens to consumer surplus and producer surplus?

Which one of the following is a genuine example of the state correcting a public-good-related market failure through state provision, rather than through a price-based method?

A train operator raises its off-peak fare from £8 to £10. Weekly ticket sales fall from 4,000 to 3,200. What is the price elasticity of demand?

A furniture manufacturer's private marginal cost of production is a constant £30 per unit. Producing furniture also releases chemical waste that costs a downstream water-treatment company an extra £10 for every unit made. Market demand for the furniture is P = 60 − Q.

Which of the following correctly identifies the free-market output and the socially optimal output, and correctly explains why they differ? (VERIDIAN-original, written in the style of a real Section C "examine" question — not a reproduction of any specific past paper.)

An economy's production possibility frontier is defined by five combinations of food and machinery it can produce using all its current resources: P (0 tonnes food, 40 units machinery), Q (10, 38), R (20, 34), S (30, 26), T (40, 0). This economy is currently producing 15 tonnes of food and 20 units of machinery (point X).

Explain what point X represents on this economy's PPF, and what that implies about how it is currently using its resources.

A government imposes a tax on a good where demand is highly price INELASTIC (consumers can't easily switch away) and supply is relatively elastic (producers can easily redirect resources elsewhere). Which side is likely to end up paying most of the tax?

A government believes the equilibrium price of milk is too low to give dairy farmers a fair income, so it introduces a minimum (guaranteed) price. Where must this price be set, relative to the free-market equilibrium, for the policy to have any effect on the market at all?

A broadband provider finds that far more customers accept a new contract when it is advertised as 'Save $120 a year' than when the mathematically identical contract is advertised as '$10 a month less than you might be overpaying now.' Which spec-named reason for not maximising utility does this best illustrate?

Which formula correctly defines marginal social cost (MSC)?

A finance minister states: 'Raising the minimum wage would increase measured unemployment among under-21s by roughly 2 percentage points.' What kind of statement is this?

A games console maker raises its own console's price by 20%. Quantity demanded of a rival console rises by 10% over the same period. What does this show?

A driver buys comprehensive car insurance. After the policy begins, they start parking in a riskier area and stop bothering to lock their car, reasoning that any theft will be covered. Which market failure does this illustrate?

The price of a good falls. As a direct result, and with every other determinant of demand held constant, the quantity demanded rises. What has happened to demand for the good itself?

A government replaces a specific tax on a good with an ad valorem tax raising the same revenue at the current price. At a much higher output level than today's, which tax would add the larger £ amount to the supply price?

A market has Qd = 80 − 2P and Qs = −10 + 4P. The government sets a minimum price of £20. What is the resulting surplus?

A firm knows its demand is price INELASTIC at its current price. If it wants to raise total revenue, should it raise or lower its price?

A national park suffers overcrowding and litter as visitor numbers rise, degrading the experience for other visitors and local wildlife. Is this best classified as a production or a consumption externality?

Which of the following is a positive economic statement?

A market-research firm has already calculated YED for a streaming subscription at +1.8. Regional household income is forecast to rise by 5% next year. Ceteris paribus, what is the forecast percentage change in quantity demanded?

An asset's price has risen sharply for several months. Survey evidence shows most recent buyers expect the price to keep rising, and few can point to any change in the asset's underlying earnings or rental income to justify the price reached so far. Which term most precisely describes this situation?

A student's total utility from successive rounds of coffee during a revision session is: round 1 = 12 utils, round 2 = 25 utils, round 3 = 36 utils, round 4 = 44 utils. At which round does diminishing marginal utility first occur?

Before a specific tax is introduced, a market is in equilibrium at a price of £15 and a quantity of 80 units. The government introduces a £4 per-unit tax collected from producers. After the tax, the new equilibrium quantity is 64 units, and the price paid by consumers rises to £18. (VERIDIAN-original, same calculation type confirmed across the archive.)

What is the total tax burden falling on producers?

The UK government's maximum price (price cap) on the unit rate suppliers may charge domestic electricity customers has been recorded at both £0.28 and £0.34 per kilowatt hour in different years — the cap itself was raised, not newly introduced. The cap applies to domestic consumers only, not businesses ("Maximum price of electricity affects domestic consumers and not businesses", Oct 2023 mark scheme, Q13) — a real limit on how much of the market any welfare verdict about the cap can actually speak to. The maximum-price diagram above shows the general two-price-level version of this same mechanism, drawn for an illustrative housing market rather than these real figures.

Assume the new, higher £0.34/kWh cap remains below the free-market equilibrium price. Which one of the following best explains what happens to the size of the resulting shortage compared to when the cap was £0.28/kWh?

A region's average household income rises by 10%. Demand for a budget instant-noodle brand falls by 8% over the same period. What does this measure, and what does it show?

A city council builds a new road that only a limited number of vehicles can use before congestion slows everyone down, but it charges no toll and has no barrier restricting entry. Judged purely on rivalry and excludability, which combination best describes this road once it becomes congested?

A student answers an exam question on the benefits of division of labour by writing: 'A bakery increased its output by using division of labour from 2019 onwards.' The knowledge point is credited, but the application mark is not. What is missing?

Which of the following is the most examiner-precise definition of consumer surplus?

A government sets a minimum price for wheat above the free-market equilibrium price. What happens to the quantity supplied and the quantity demanded, each measured relative to their own equilibrium levels?

In 2022, UK consumers who did not switch broadband, mobile phone and mortgage provider at the end of a deal collectively overpaid by roughly £1.3 billion — an estimated 630,000 mortgage consumers, 1.5 million mobile phone consumers and 7 million broadband consumers — even though comparing and switching providers typically takes well under an hour online and costs nothing.

Using the concept of inertia, explain why so many consumers fail to switch even when the financial saving is well-documented and switching itself is fast and free.

A factory's pollution damages a river used by a fishery downstream. Is this an externality of production or of consumption, and which curve does it affect?

A city has a fixed area of land available for public building. Using it to build a hospital means the same land cannot also be used to build a school. What economic concept does this scenario most directly illustrate?

A firm calculates that its PED is −0.4 at its current price. To raise total revenue, what should it do?

A city's New Year fireworks display is set off from a barge in open water, visible to anyone within several kilometres with no ticket, fence, or paywall of any kind, and one more household watching does not reduce what any other household sees. Which combination of properties does the display have?

A diner's total utility from successive courses at an all-you-can-eat restaurant is: course 1 = 15 utils, course 2 = 32 utils, course 3 = 46 utils, course 4 = 54 utils. At which course does diminishing marginal utility first occur?

During the global semiconductor shortage of 2021-22, manufacturers were confirmed to be 'struggling to respond to the increase in demand.' In response to the resulting price rises, several car manufacturers redesigned vehicles to use fewer chips per unit and cut production of chip-heavy models.

Which function of the price mechanism does the car manufacturers' response most directly illustrate?

A government introduces a tax on imported cigarettes to reduce a negative externality. Which of the following outcomes counts as an example of government failure, rather than simply a market failure the tax hasn't fully corrected?

The cross elasticity of demand between two goods is calculated as +1.2. What does the POSITIVE sign tell you?

A candidate answers a 2-mark "define external costs" question with: "External costs are costs to third parties." How many marks does this earn, and why?

A coastal town has unlimited access to seawater at the shoreline, but its supply of fresh drinking water is piped in from an inland reservoir at real cost, and is often rationed in dry periods. How should the two be classified?

A rise in the market price of a good, with nothing else about its production changing, causes firms to be willing to supply more of it. Is this a movement along the supply curve or a shift of it?

New Zealand's national parks charge no entry fee and have never restricted visitor numbers. Over the past decade, annual visitor numbers have more than doubled, and rangers now report queues at the main car parks and overcrowding on the most popular trails during peak season, while quieter trails in the same parks remain uncongested.

Using the concepts of rivalry and excludability, explain why the parks are best described as moving away from being a pure public good, rather than as having become a private good.

The price of long-haul flights falls. As a direct result, with every other determinant of demand held constant, the quantity of long-haul flights demanded rises. What has happened to demand for long-haul flights itself?

A good generates a negative externality of production. Compared with the socially optimal level of output, what does the free market tend to produce?