AQA A Level Economics · 2019-11-20 · AQA A Level Economics Unit Assessment 3.1.2 Price Determination in A Competitive Market (Edition 1) Includes: 3.1.2.1 Determinants of Demand

AQA A LevelEconomicsUnit Assessment

3.1.2 Price Determination in A Competitive Market(Edition 1)Includes: 3.1.2.1 Determinants of Demand for A Good or Service3.1.2.2 Price, Income and Cross Elasticities of Demand3.1.2.3 Determinants of Supply for A Good or Service3.1.2.4 Price Elasticity of Supply3.1.2.5 Determination of Equilibrium Market Prices3.1.2.6 Interrelationships Between Markets

h 1 hour 30 minutesh The maximum mark for this unit assessment is 70

UNIT ASSESSMENT

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www.tutor2u.net/economicsPage 2 AQA A Level Economics Unit Assessment

Section A ANSWER ALL THE QUESTIONS IN THIS SECTION

1 In a free market, the rationing function of the price mechanism means that A an increase in demand, leading to a rise in price, will encourage new firms to enter

the market

B when there is a shortage of a product, the price will rise and deter some consumers from buying the product

C changes in price provide information to market agents about changes in market conditions

D if a product is scarce, a rise in price is likely to make the shortage worse (1 mark)

2 Which one of the following is an example of composite demand? A The demand for pilots rises as the demand for the international tourism rises B The demand for petrol rises as economic growth rises C The demand for houses rises as the price of houses falls D The demand oil rises for use in plastic, rubber and petrol

(1 mark) 3 All other things being equal, supply curves are upwards slowing because A higher prices lead to higher costs. B higher prices lead to lower demand. C lower prices lead to higher demand. D higher prices lead to higher profits.

(1 mark)

www.tutor2u.net/economics AQA A Level Economics Unit Assessment Page 3

Section A ANSWER ALL THE QUESTIONS IN THIS SECTION

1 In a free market, the rationing function of the price mechanism means that A an increase in demand, leading to a rise in price, will encourage new firms to enter

the market

B when there is a shortage of a product, the price will rise and deter some consumers from buying the product

C changes in price provide information to market agents about changes in market conditions

D if a product is scarce, a rise in price is likely to make the shortage worse (1 mark)

2 Which one of the following is an example of composite demand? A The demand for pilots rises as the demand for the international tourism rises B The demand for petrol rises as economic growth rises C The demand for houses rises as the price of houses falls D The demand oil rises for use in plastic, rubber and petrol

(1 mark) 3 All other things being equal, supply curves are upwards slowing because A higher prices lead to higher costs. B higher prices lead to lower demand. C lower prices lead to higher demand. D higher prices lead to higher profits.

(1 mark)

4 A shift to the right of the supply curve for a product can be caused by A a fashion trend causing popularity to rise for the good. B a fall in costs of production. C a removal of a subsidy to the sector. D a sales tax on the good being introduced.

(1 mark) 5 The table below shows the demand for a good at different income levels.

Income Quantity demanded £30,000 200 £35,000 250

What can be concluded about the good?

A It is an inferior good. B It is an income elastic good. C The YED is unitary. D The good is price elastic.

(1 mark) 6 A rightward shift of a demand curve for rail travel is most likely to result from A a decision to subsidise all car parking. B an increase in subsidies to the rail sector. C a decrease in the price of rail tickets. D an increase in tax on the price of petrol.

(1 mark) 7 The demand for capital goods such as machinery is said to be derived demand, because A machinery can make many different other goods. B demand depends on the number of consumer goods purchased. C machinery needs oil to make it work. D it depends on the amount of labour employed by a firm.

(1 mark)


8 The table below shows the value of the price elasticity of demand facing 4 providers of broadband.

Firm A Firm B Firm C Firm D -1.5 -0.9 -1.0 -0.6

If each broadband provider increased their prices by the same percentage, which provider would see the biggest proportionate decrease in total revenue?

A Firm A B Firm B C Firm C D Firm D

(1 mark) 9 Goose meat and chicken meat are substitutes.

Goose meat and goose feathers for pillows are in joint supply. Other things being equal, what will be the effects of a rise in the price of chicken meat? Price of goose meat Price of goose feathers A Fall Fall B Rise Fall C Fall Rise D Rise Rise

(1 mark) 10 A firm calculates that when the price of another firm’s Good Y falls by 6%, the demand for its

own product, Good X, falls by 8%. Which of the following best describes the relationship between the two goods?

A X and Y are substitute goods. B X is price elastic. C X and Y are complementary goods. D XED is 0.75

(1 mark)


8 The table below shows the value of the price elasticity of demand facing 4 providers of broadband.

Firm A Firm B Firm C Firm D -1.5 -0.9 -1.0 -0.6

If each broadband provider increased their prices by the same percentage, which provider would see the biggest proportionate decrease in total revenue?

A Firm A B Firm B C Firm C D Firm D

(1 mark) 9 Goose meat and chicken meat are substitutes.

Goose meat and goose feathers for pillows are in joint supply. Other things being equal, what will be the effects of a rise in the price of chicken meat? Price of goose meat Price of goose feathers A Fall Fall B Rise Fall C Fall Rise D Rise Rise

(1 mark) 10 A firm calculates that when the price of another firm’s Good Y falls by 6%, the demand for its

own product, Good X, falls by 8%. Which of the following best describes the relationship between the two goods?

A X and Y are substitute goods. B X is price elastic. C X and Y are complementary goods. D XED is 0.75

(1 mark)

11 In the diagram, the original equilibrium point is at X.

The industry has to pay a large wage increase and at the same time faces higher competition from imported substitutes. What is the new equilibrium position?

A Point A B Point B C Point C D Point D

(1 mark) 12 Which of the following statements about the price mechanism is true? A Resources are allocated according to the highest willingness to pay. B A price rise causes a demand curve to shift to the left. C Excess demand causes producers to spend less on investment. D Excess supply causes prices to rise.

(1 mark)

13 Good X and Y are complements with a XED of -0.8. When the price of Good X was £10, the quantity demanded of Good Y was 2000 units per week. After a change in the price of Good X, the demand for Good Y increases to 2800 units per week. What is the new price of good X?

A £5 B £6.80 C £13.20 D £15

(1 mark)


14 A bus company estimates that it faces the following elasticities for a particular journey: PED = -2.2 YED = -0.6 Incomes in the economy are rising whilst bus journeys are becoming cheaper. Which of the following is true? Change in QD for its bus journeys A Rise B Uncertain C Fall D Unchanged

(1 mark) 15 A product has a price elasticity of demand of -1.5. If its price falls from £10 to £9, the quantity

demanded will A decrease by 15% B increase by 15% C decrease by 5% D increase by 5%

(1 mark) 16 The income elasticity of demand for a good is -2.5. Which one of the following statements is

correct? A A 10% increase in income leads to a 25% rise in quantity demanded B A 5% increase in price leads to a 12.5% fall in quantity demanded C The good is a normal good D Demand for the good is income elastic

(1 mark)


14 A bus company estimates that it faces the following elasticities for a particular journey: PED = -2.2 YED = -0.6 Incomes in the economy are rising whilst bus journeys are becoming cheaper. Which of the following is true? Change in QD for its bus journeys A Rise B Uncertain C Fall D Unchanged

(1 mark) 15 A product has a price elasticity of demand of -1.5. If its price falls from £10 to £9, the quantity

demanded will A decrease by 15% B increase by 15% C decrease by 5% D increase by 5%

(1 mark) 16 The income elasticity of demand for a good is -2.5. Which one of the following statements is

correct? A A 10% increase in income leads to a 25% rise in quantity demanded B A 5% increase in price leads to a 12.5% fall in quantity demanded C The good is a normal good D Demand for the good is income elastic

(1 mark)

17 In the diagrams below, S1 and D1 show the original supply and demand curves for Good X, whilst S2 and D2 shows shifts of these curves. Which diagram A, B, C or D illustrates the effects of an increase in the price of a good that is complementary to Good X, and the decision by firms to adopt more efficient machinery to produce Good X?

(1 mark)

18 An inferior good always has A YED < 0 B YED > 1 C XED < 0 D YED < 1

(1 mark)


19 A good is more likely to have price inelastic supply if A there is near-perfect factor mobility. B the good is purchased out of habit. C there is a highly complex production process. D consumers are easily able to purchase substitutes for the good.

(1 mark) 20 The price of a good in 2015 was 30p, and 55,000 were produced. By 2017, the price had risen to

36p. If the price elasticity of supply for the good is 2.0, what quantity of the good would be supplied in 2017?

A 77,000 B 22,000 C 110,000 D 57,750

(1 mark)


19 A good is more likely to have price inelastic supply if A there is near-perfect factor mobility. B the good is purchased out of habit. C there is a highly complex production process. D consumers are easily able to purchase substitutes for the good.

(1 mark) 20 The price of a good in 2015 was 30p, and 55,000 were produced. By 2017, the price had risen to

36p. If the price elasticity of supply for the good is 2.0, what quantity of the good would be supplied in 2017?

A 77,000 B 22,000 C 110,000 D 57,750

(1 mark)

Section B READ THE EXTRACTS THEN ANSWER ALL THE QUESTIONS THAT FOLLOW

Extract 1 - UK petrol prices could jump after Hurricane Harvey The RAC (an automobile and drivers’ association) warned that the price of unleaded petrol could surpass that of diesel by mid-September 2017 as a result of the disruption caused by Hurricane Harvey in the US on September 1st. The drivers' association said the price of a litre of unleaded petrol in the UK could rise by up to 4p, passing 121p. That level has not been seen since December 2014. Hurricane Harvey has left a quarter of America's oil refining capacity “offline”. Crude oil production in the Gulf of Mexico has fallen. In response, US demand for petrol imports has jumped, driving up prices. RAC spokesman Pete Williams said this was now affecting UK petrol forecourts. "The average price of a litre of unleaded petrol on Thursday 31 August was 117.29p and diesel was 118.14p," he said. "But we could see unleaded rise in the coming days to around 121p a litre, with diesel likely to stay stable around 118.5p." He added: "This will be the first time [that the price of] unleaded has been higher than diesel since June 2016 and we expect this to be the case for some time to come - or at least until the US oil industry is able to get refineries back into operation." However, the AA (a rival drivers’ association) said that any price rises needed to be seen in context. "Petrol prices were already heading up because of the increase in the price of oil since mid-August," Mr Bosdet of the AA said. "But they still have a little way to go before reaching the 119p of April and 120p of February." He added: "This is not Hurricane Katrina, which hit around the August bank holiday of 2005 and added 5p to a litre of pump petrol in a matter of days - before starting to fall back shortly afterwards. Katrina destroyed oil infrastructure, Harvey has just disrupted it." There are still plenty of stocks of oil before this feeds through to the market equilibrium price. There could be further knock-on effects on the price of car tyres and plastic cutlery too, as the impact starts to be felt in other markets that rely on oil as a raw material.

Adapted from: http://www.bbc.co.uk/news/business-41121594


Extract 2

Extract 3 - Why switching to fully electric cars will take time Are electric cars really about to take over from the old-fashioned internal combustion engine? Judging by some of the headlines we've seen recently, you could be forgiven for thinking petrol and diesel engines were about to be consigned to the scrap heap. Yet the reality is rather different, although there is no question that the car industry is undergoing a radical change. Volkswagen said it would build electrified versions of every model in its range - including those sold under the Audi, Skoda, Seat and Porsche brands - by 2030. Mercedes' parent company Daimler said it would have electrified versions of its own models by 2022. Other companies, including Volvo, Jaguar Land Rover and Honda have made similar pledges. These are undoubtedly ambitious plans - but it is important to recognise their limitations. Car manufacturers are not saying they will get rid of diesel or petrol cars completely. They are simply promising to make electrified versions of them available. It is also important to recognise what "electrified" actually means. It can, of course, refer to fully electric battery powered vehicles. But it can also be used to describe hybrids (cars that use a mixture of electric technology and traditional fuels) – hybrid cars come in many forms. A plug-in hybrid, for example, has a large battery capacity and is often capable of running entirely on electric power at least part of the time, though it will have a petrol engine as well.


Extract 2

Extract 3 - Why switching to fully electric cars will take time Are electric cars really about to take over from the old-fashioned internal combustion engine? Judging by some of the headlines we've seen recently, you could be forgiven for thinking petrol and diesel engines were about to be consigned to the scrap heap. Yet the reality is rather different, although there is no question that the car industry is undergoing a radical change. Volkswagen said it would build electrified versions of every model in its range - including those sold under the Audi, Skoda, Seat and Porsche brands - by 2030. Mercedes' parent company Daimler said it would have electrified versions of its own models by 2022. Other companies, including Volvo, Jaguar Land Rover and Honda have made similar pledges. These are undoubtedly ambitious plans - but it is important to recognise their limitations. Car manufacturers are not saying they will get rid of diesel or petrol cars completely. They are simply promising to make electrified versions of them available. It is also important to recognise what "electrified" actually means. It can, of course, refer to fully electric battery powered vehicles. But it can also be used to describe hybrids (cars that use a mixture of electric technology and traditional fuels) – hybrid cars come in many forms. A plug-in hybrid, for example, has a large battery capacity and is often capable of running entirely on electric power at least part of the time, though it will have a petrol engine as well.

Although their pledges may sound a bit more dramatic than they really are, it is true that carmakers are investing a great deal of money in new electric models. Volkswagen, for example, says that by 2025, one in four of its cars could be battery powered. BMW says it will be offering 12 pure-electric models by the same date. So, what is driving the move towards electric vehicles? There are several factors at play. The launch of the Tesla Model S in 2012 proved that electric cars could perform as well as their petrol equivalents and have a decent battery range, albeit at a high price. Since then the cost of lithium-ion batteries has fallen significantly, while battery management technology has improved, making that kind of performance more affordable. Secondly, anti-pollution legislation is being tightened in key markets. Here in Europe, for example, there will be new limits in force for emissions of carbon dioxide from 2021. Both of these factors were affecting the major manufacturers' long-term thinking. There is also the question of infrastructure. Clearly, if millions of petrol and diesel cars are to be replaced by electric versions, then we will need a huge investment in charging infrastructure, or they won't be going anywhere. They will also need large quantities of batteries. And the power to charge them has to be generated somewhere. That will take time and money. An industry spokesperson has said "You will see a transition time, with investments in combustion engines - petrol engines, diesel engines, very efficient engines…There will be a coexistence between internal combustion engines and electric drive systems for a certain period. I can't tell you how long that will be. And that's because we do have to get the right infrastructure in place... we have to create the battery capacity. We're talking about enormous capacity here, and it has yet to be created."

Adapted from the BBC: http://www.bbc.co.uk/news/business-41268513

21 Define what is meant by a ‘market equilibrium price’ (Extract 1, line 22).

(3 marks)

22 Using the data provided in Extract 2, identify two significant points of comparison between the

supply and demand for oil over the period shown. (4 marks)

Comparison 1:


Comparison 2:

Extra space:

23 Using Extract 1, calculate the change in the stock of oil between Q1 2013 and Q2 2015 (in ‘million

barrels per day’, or MMb/d) (4 marks)


Comparison 2:

Extra space:

23 Using Extract 1, calculate the change in the stock of oil between Q1 2013 and Q2 2015 (in ‘million

barrels per day’, or MMb/d) (4 marks)

24 Using a supply and demand diagram, and the information provided in Extract 1, draw a diagram to show why the price of petrol ‘in the UK could rise by up to 4p’ (Extract 1, line 4).

(4 marks)

25 Using economic analysis, explain two factors that are ‘driving the move towards electric vehicles’

(Extract 3). (10 marks)



26 Using the data in the extracts and your economic knowledge, evaluate the possible effects of the rise in oil prices on the market for electric cars.

(25 marks)




End of Questions


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AQA A Level Economics · 2019-11-20 · AQA A Level Economics Unit Assessment 3.1.2 Price Determination in A Competitive Market (Edition 1) Includes: 3.1.2.1 Determinants of Demand