A-level Economics Tutor

Government intervention in markets Theme 1

Where it is examined
A-level Paper 1 (and Paper 3); AS Paper 1
Level
AS and A level
Specification
Section 1.4, 1 statement
Since 2016
40 question parts: 17 essays, 5 levels-marked responses, 5 multiple-choice items
Key terms cards (15)Define-it drill

Specification statements

Every essay set on this topic

SeriesPaperQMarksTitle
June 2025AS Paper 16(f)20Evaluate the likely microeconomic effects of a reduction in subsidies to farmers of animal products (Figure 1 and Extract B, line 14). Use a relevant diagram to support your answer.
June 2025AS Paper 16(g)20Evaluate the likely microeconomic effects of an increase in indirect tax on animal products (Figure 2 and Extract A, line 17). Use a relevant diagram to support your answer.
June 2024AS Paper 16(f)20Evaluate the likely impact of a tax on plastic food-packaging. Use a diagram to support your answer.
June 2024AS Paper 16(g)20Evaluate methods of government intervention which could be used to reduce the market failure associated with plastic waste. Use a diagram to support your answer.
June 2023AS Paper 16(f)20Evaluate possible methods of government intervention to reduce the environmental damage caused by the consumption of television content.
June 2023Paper 1725The average UK household energy bill (gas and electric combined) rose 80% from £1 971 in 2021 to £3 549 in 2022. (Source adapted from: https://www.telegraph.co.uk/money/consumer-affairs/ energy-price-cap-rise-october-2022-what-happen-household-bills/) Evaluate possible methods of government intervention to control household energy bills in the UK.
June 2023Paper 1825Using 2021 estimates of carbon emissions, it is estimated that a petrol car journey from London to Glasgow emits approximately 3.3 times more carbon dioxide per passenger than the equivalent journey by train. (Source adapted from: https://www.gov.uk/government/statistics/transport-and- environment-statistics-autumn-2021/transport-and-environment-statistics-autumn-2021) Evaluate possible methods of government intervention to reduce carbon emissions caused by road transport in the UK.
June 2022AS Paper 16(g)20Other than using a TAC, evaluate the policy options which could be used to reduce market failure resulting from over-fishing. Use at least one appropriate diagram in your answer.
October 2020AS Paper 16(g)20Evaluate whether government intervention is able to correct market failure in education.
June 2019AS Paper 16(f)20Evaluate possible ways the government could intervene to reduce the excess demand for state-funded health care.
June 2019Paper 31(d)25Evaluate the microeconomic and macroeconomic effects of increased government spending on education to promote healthy eating in the UK.
June 2019Paper 31(e)25Evaluate the likely microeconomic and macroeconomic effects of imposing a tax on HFSS foods.
June 2018AS Paper 16(g)20Evaluate ways in which government intervention could be used to reduce carbon emissions. Use at least one appropriate diagram in your answer.
June 2017AS Paper 16(g)20Evaluate the impact of government intervention in the cigarette market.
June 2017Paper 1725In 2015 a report by Public Health England recommended the imposition of a 20% tax on the sale of soft drinks that contain high levels of sugar. Evaluate the likely microeconomic effects of such a tax.
June 2016AS Paper 16(f)20Evaluate the likely microeconomic effects of government intervention in the UK housing market.
June 2016AS Paper 16(g)20Evaluate the case for government provision of goods and services such as flood defence schemes or housing.

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June 2025 · AS Paper 1 · Q6(f) 20 marks AO1=4, AO2=4, AO3=6, AO4=6 20-mark essay Either/or Hard
Data and extracts for question 6Sources for use with SECTION B Read the following figures (1 and 2) and extracts (A and B) before answering Question 6. The market for meat and the growth of vegetarianism Figure 1 The impact of subsidies on farmer income, in England, 2018–2019 (£000 per farm) Cereals Dairy Grazing livestock Pigs Poultry Mixed -20 0 20 40 60 80 100 £000 per farm Key Profit Subsidies (Source: adapted from www.FT.com) Figure 2 Potential impact of indirect tax rises on meat prices per kg, 2023–2030 Before indirect After indirect Type of Meat tax increases tax increases Beef/Veal £24.24 £29.50 Chicken £7.60 £8.63 (Source: adapted from Tax beef, pork and chicken to help climate and health, EU urged – CGTN) Extract A The case for cutting out meat Around a third of Britons are reducing the amount of meat they eat or are cutting it out altogether. Are these consumers right to be cutting out meat? For a start, there are the greenhouse gases released as a result of producing food. The evidence is clear that switching to a plant-based diet would lower emissions. A UK study found that eating a 5 diet high in meat costs 7.2 kg carbon dioxide emissions per day, compared with 3.8 kg for vegetarians. It would also free up land for other uses. Nearly 80% of the world’s farmland is dedicated to rearing animals; a plant-based diet would cut the use of land for agriculture by 76%. The land currently used by grazing livestock could be used for “rewilding”, allowing the environment and animal species destroyed by meat farming to 10 recover. Our health and wealth would be better too. A study published in 2016 modelled what would happen to our health and the global economy if we all switched to vegetarian diets. The economic benefits of switching to plant-based diets could be as much as £700 billion to £1 trillion per year in terms of savings on healthcare costs and lost 15 working days due to ill health. Some economists recommend an increased indirect tax on animal products so that their prices reflect the cost of externalities. This could impact on European farmers, if adopted by the European Union. The tax could bring £35 billion to the EU, with around £15 billion of that going directly to farmers. The 20 rest would be used to bring down VAT on fruit and vegetables, and fund other policies to encourage healthy-eating diets both in and outside the EU. (Source: adapted from https://moneyweek.com/499842/the-economic- consequences-of-veganism December-28-2018) Extract B Businesses benefitting from meat-substitute products There is one group for whom the trend towards meat-substitute products is definitely a good thing: processed food manufacturers and retailers. Finest British beef burgers are priced at £6.61 per kg. The ‘fake burger’ (which is made mostly of pea protein) is priced at £21.81 per kg even though the ingredients used to 5 make them, such as mushrooms, peas and palm oil, are cheaper ingredients than meat. Despite high prices, demand continues to rise for these products. This might benefit shareholders, but is it doing any real good for the rest of us? A large food producer bought meat-substitute product maker Vegetarian Butcher in December 2018 and is moving towards a range with more meat-substitute products. 10 In 2017, Nestlé bought Sweet Earth, a California-based maker of vegetarian foods, and it is launching its own meat-substitute ‘Incredible Burger’. It expects its meat-substitute revenues to reach $1 billion by 2029. As subsidies are being cut in every area of farming, consumers ought to be willing to pay higher prices for all food products. If farmers are to stay in business, they need to find 15 additional sources of revenue such as oyster mushrooms, goji berries and basil. (Source: adapted from http://www.financialtimes.com/the-veganism-boom-does- more-for-food-company-profits-than-the-planet February-22-2019)
(f) Evaluate the likely microeconomic effects of a reduction in subsidies to farmers of animal products (Figure 1 and Extract B, line 14). Use a relevant diagram to support your answer. (20)
June 2025 · AS Paper 1 · Q6(g) 20 marks AO1=4, AO2=4, AO3=6, AO4=6 20-mark essay Either/or
Data and extracts for question 6Sources for use with SECTION B Read the following figures (1 and 2) and extracts (A and B) before answering Question 6. The market for meat and the growth of vegetarianism Figure 1 The impact of subsidies on farmer income, in England, 2018–2019 (£000 per farm) Cereals Dairy Grazing livestock Pigs Poultry Mixed -20 0 20 40 60 80 100 £000 per farm Key Profit Subsidies (Source: adapted from www.FT.com) Figure 2 Potential impact of indirect tax rises on meat prices per kg, 2023–2030 Before indirect After indirect Type of Meat tax increases tax increases Beef/Veal £24.24 £29.50 Chicken £7.60 £8.63 (Source: adapted from Tax beef, pork and chicken to help climate and health, EU urged – CGTN) Extract A The case for cutting out meat Around a third of Britons are reducing the amount of meat they eat or are cutting it out altogether. Are these consumers right to be cutting out meat? For a start, there are the greenhouse gases released as a result of producing food. The evidence is clear that switching to a plant-based diet would lower emissions. A UK study found that eating a 5 diet high in meat costs 7.2 kg carbon dioxide emissions per day, compared with 3.8 kg for vegetarians. It would also free up land for other uses. Nearly 80% of the world’s farmland is dedicated to rearing animals; a plant-based diet would cut the use of land for agriculture by 76%. The land currently used by grazing livestock could be used for “rewilding”, allowing the environment and animal species destroyed by meat farming to 10 recover. Our health and wealth would be better too. A study published in 2016 modelled what would happen to our health and the global economy if we all switched to vegetarian diets. The economic benefits of switching to plant-based diets could be as much as £700 billion to £1 trillion per year in terms of savings on healthcare costs and lost 15 working days due to ill health. Some economists recommend an increased indirect tax on animal products so that their prices reflect the cost of externalities. This could impact on European farmers, if adopted by the European Union. The tax could bring £35 billion to the EU, with around £15 billion of that going directly to farmers. The 20 rest would be used to bring down VAT on fruit and vegetables, and fund other policies to encourage healthy-eating diets both in and outside the EU. (Source: adapted from https://moneyweek.com/499842/the-economic- consequences-of-veganism December-28-2018) Extract B Businesses benefitting from meat-substitute products There is one group for whom the trend towards meat-substitute products is definitely a good thing: processed food manufacturers and retailers. Finest British beef burgers are priced at £6.61 per kg. The ‘fake burger’ (which is made mostly of pea protein) is priced at £21.81 per kg even though the ingredients used to 5 make them, such as mushrooms, peas and palm oil, are cheaper ingredients than meat. Despite high prices, demand continues to rise for these products. This might benefit shareholders, but is it doing any real good for the rest of us? A large food producer bought meat-substitute product maker Vegetarian Butcher in December 2018 and is moving towards a range with more meat-substitute products. 10 In 2017, Nestlé bought Sweet Earth, a California-based maker of vegetarian foods, and it is launching its own meat-substitute ‘Incredible Burger’. It expects its meat-substitute revenues to reach $1 billion by 2029. As subsidies are being cut in every area of farming, consumers ought to be willing to pay higher prices for all food products. If farmers are to stay in business, they need to find 15 additional sources of revenue such as oyster mushrooms, goji berries and basil. (Source: adapted from http://www.financialtimes.com/the-veganism-boom-does- more-for-food-company-profits-than-the-planet February-22-2019)
(g) Evaluate the likely microeconomic effects of an increase in indirect tax on animal products (Figure 2 and Extract A, line 17). Use a relevant diagram to support your answer. (20)
June 2024 · AS Paper 1 · Q3(b) 3 marks AO1=1, AO2=1, AO3=1 Short answer
Data and extracts for question 33 Singapore is mainly a free market economy.
The education system in Singapore produces some of the highest achieving students in international education rankings, with its teenagers coming top in tests in mathematics, reading and science. (b) Singapore’s education system is provided by the state. With reference to the information above, explain why education is normally provided by the state. (3)
June 2024 · Paper 1 · Q4(a) 4 marks AO1=2, AO2=1, AO3=1 Short answer
Data and extracts for question 44 In 2022 the government announced that the maximum undergraduate tuition fee for universities in England will remain at £9 250 per year for the next two years. (Source adapted from: https://questions-statements.parliament.uk/ written-statements/detail/2021-10-21/HCWS339)
(a) Explain one likely reason for the maximum price for an undergraduate university programme. (4)
June 2024 · Paper 1 · Q6(e) 15 marks AO1=3, AO2=3, AO3=3, AO4=6 15-mark response
Data and extracts for question 6The electronics industry Extract A Rising prices of electronics devices Computer chips act as the “brain” in all electronic devices. Makers of electronic devices face significant increases in the price of computer chips as they try to source enough components, including games consoles, computers and smartphones. The price of some computer chips has jumped from $0.20 each to more than $1. The prices of electronic 5 devices have risen for a range of reasons, including higher material costs and the growing popularity of home entertainment. (Source: adapted from https://www.ft.com/content/8c718a74- cd95-4b2d-ac0e-de0682e4e3cd) Extract B Labour shortages in the electronics industry Every year, highly skilled and experienced employees in the electronics industry retire. The current tight labour market has made an already difficult problem of hiring suitable engineering and computing graduates worse, especially since the nature of the industry is becoming increasingly technical. As production becomes 5 more automated, electronics jobs are more likely to require problem solving and analysis than just assembling skills. However, artificial intelligence and other new technologies can help fill some of the skills gap. In addition, by giving hazardous, repetitive, grimy work to robots, human beings can focus on more creative, analytic tasks. 10 (Source: adapted from https://www.ericsson.com/en/blog/2021/12/ manufacturing-problems-that-keep-ceos-awake-at-night) Extract C Serious concerns over merger The Competition and Markets Authority (CMA) has said the takeover of the Cambridge- based computer chip designer Arm by its US rival Nvidia raises serious competition concerns. It has launched an in-depth investigation into the £29.5 billion deal. The CMA said the merger could reduce choice for firms reliant on computer chips, pushing 5 up prices of products including cars, games consoles and mobile phones. In addition, severe global shortages of computer chips has disrupted the manufacture of a range of electronic goods pushing up costs for firms. Despite this, large electronics firms benefit from economies of scale and are able to finance high-risk innovation and global advertising. 10 (Source adapted from: https://www.theguardian.com/ business/2021/aug/20/watchdog-expresses-concerns- over-nvidias-takeover-of-uk-chip-designer-arm ) Extract D The growing problem of electronic waste Electronic waste is the fastest growing element of the world’s household waste problem. The problem in the UK is particularly bad. The country produces 24.9 kg a person a year – nearly 10 kg more than the EU average. In 2018, 1.2 million tonnes of electrical devices were sold in the UK, and 500 000 tonnes made it to recycling centres. Some appliances 5 are more likely to be recycled than others. The recycling rate for big appliances, such as fridges and cookers, is about 80%. Of small appliances, barely one in five makes it to the recycling centre. As items such as toasters, hairdryers and headphones fit into household bins, they are not often taken to a recycling centre. This causes many problems, such as hazardous substances contaminating soil, water pollution and other external costs. 10 Policy makers have a long list of options to combat this problem including stricter regulation, environmental education, taxation and financial incentives. In some countries, for example, household rubbish is weighed and recycling initiatives are subsidised. (Source adapted from: https://www.ft.com/content/26e1aa74- 2261-11ea-92da-f0c92e957a96)
(e) With reference to Extract D, discuss possible methods of government intervention to reduce electronic waste. (15)
June 2024 · AS Paper 1 · Q6(f) 20 marks AO1=4, AO2=4, AO3=6, AO4=6 20-mark essay Either/or Hard
Data and extracts for question 6The market for plastic in the UK Figure 1: Trend in the purchase of single‑use plastic bags in millions, UK, 2014 to 2021 2014 2015 2016 2017 2018 2019 2020 2021 7 500 2 120 1 750 1 130 1 040 627 496 197 Extract A 10p charge continues to reduce use of plastic carrier bags The 5p charge on single‑use carrier bags was introduced in supermarkets in 2015. The charge was increased to 10p in 2021 and extended to all businesses. The UK Environment Minister said that the plastic bag charge has ended the irrational purchase of billions of single‑use carrier bags, thereby protecting our landscapes and 5 ensuring millions of pounds are redistributed to worthy causes. This was needed as without this legislation, the market is not able to effectively manage the situation. Consumers are now in the habit of bringing reusable carrier bags when shopping. In addition to single‑use carrier bag charges, major retailers have offered bottle deposit return schemes and refillable food and cleaning product options. These provide 10 incentives to consumers to reuse their plastic containers. However, retailers have suggested that most customers do not wish to pay more for cleaning products in reusable packaging. With the average household income falling by 4.3% in 2023, sales of refillable cleaning products are expected to fall from 200 000 to 130 000 this year. 15 (Source adapted from: https://www.circularonline.co.uk/news/) Extract B Plastic packaging tax Food manufacturers have criticised the implementation of a new UK environmental tax, warning it will force them to increase prices for consumers. The 2018 tax was designed to provide incentives to businesses to use recycled plastic in packaging. Businesses manufacturing or importing 10 tonnes or more a year of 5 plastic packaging that contains less than 30% recycled plastic are taxed at £200 a tonne. Plastic packaging containing more than this will be exempt from the tax. Helene Roberts, Chief Executive of Robinson Packaging, said increased prices for the consumer would be an unintended consequence of the tax. “It will just create inflationary pressures within the supply chain and firms may need to pass this on.” A wide range of 10 businesses are affected by the new tax, including retailers importing items such as bin liners, drink bottles and carrier bags. Food manufacturers are particularly impacted as the industry uses 40% of packaging in the UK. (Source adapted from: https://www.ft.com) Extract C Single‑use cups An estimated 2.5 billion single‑use cups are used in the UK every year by consumers buying coffee from chains and cafes, creating approximately 25 000 tonnes of waste. Research has found that while a 25p charge on single‑use cups increases the use of reusable coffee cups in coffee shops, a discount on reusable coffee cups has no impact at 5 all on their use. A 25p charge on single‑use cups increases the use of reusable coffee cups by 3.4%. Environmental messaging in cafes, for example posters about litter, increases the use of reusable coffee cups by 2.3%. The availability of reusable cups leads to an increase of 2.5% whereas the distribution of free reusable cups leads to a further increase of 4.3%. 10 “While the increases for individual measures were modest, the greatest behavioural change was when the measures were combined,” said Wouter Poortinga of Cardiff University. (Source adapted from: https://www.theguardian.com/environment/2017/mar/30/)
(f) Evaluate the likely impact of a tax on plastic food-packaging. Use a diagram to support your answer. (20)
June 2024 · AS Paper 1 · Q6(g) 20 marks AO1=4, AO2=4, AO3=6, AO4=6 20-mark essay Either/or
Data and extracts for question 6The market for plastic in the UK Figure 1: Trend in the purchase of single‑use plastic bags in millions, UK, 2014 to 2021 2014 2015 2016 2017 2018 2019 2020 2021 7 500 2 120 1 750 1 130 1 040 627 496 197 Extract A 10p charge continues to reduce use of plastic carrier bags The 5p charge on single‑use carrier bags was introduced in supermarkets in 2015. The charge was increased to 10p in 2021 and extended to all businesses. The UK Environment Minister said that the plastic bag charge has ended the irrational purchase of billions of single‑use carrier bags, thereby protecting our landscapes and 5 ensuring millions of pounds are redistributed to worthy causes. This was needed as without this legislation, the market is not able to effectively manage the situation. Consumers are now in the habit of bringing reusable carrier bags when shopping. In addition to single‑use carrier bag charges, major retailers have offered bottle deposit return schemes and refillable food and cleaning product options. These provide 10 incentives to consumers to reuse their plastic containers. However, retailers have suggested that most customers do not wish to pay more for cleaning products in reusable packaging. With the average household income falling by 4.3% in 2023, sales of refillable cleaning products are expected to fall from 200 000 to 130 000 this year. 15 (Source adapted from: https://www.circularonline.co.uk/news/) Extract B Plastic packaging tax Food manufacturers have criticised the implementation of a new UK environmental tax, warning it will force them to increase prices for consumers. The 2018 tax was designed to provide incentives to businesses to use recycled plastic in packaging. Businesses manufacturing or importing 10 tonnes or more a year of 5 plastic packaging that contains less than 30% recycled plastic are taxed at £200 a tonne. Plastic packaging containing more than this will be exempt from the tax. Helene Roberts, Chief Executive of Robinson Packaging, said increased prices for the consumer would be an unintended consequence of the tax. “It will just create inflationary pressures within the supply chain and firms may need to pass this on.” A wide range of 10 businesses are affected by the new tax, including retailers importing items such as bin liners, drink bottles and carrier bags. Food manufacturers are particularly impacted as the industry uses 40% of packaging in the UK. (Source adapted from: https://www.ft.com) Extract C Single‑use cups An estimated 2.5 billion single‑use cups are used in the UK every year by consumers buying coffee from chains and cafes, creating approximately 25 000 tonnes of waste. Research has found that while a 25p charge on single‑use cups increases the use of reusable coffee cups in coffee shops, a discount on reusable coffee cups has no impact at 5 all on their use. A 25p charge on single‑use cups increases the use of reusable coffee cups by 3.4%. Environmental messaging in cafes, for example posters about litter, increases the use of reusable coffee cups by 2.3%. The availability of reusable cups leads to an increase of 2.5% whereas the distribution of free reusable cups leads to a further increase of 4.3%. 10 “While the increases for individual measures were modest, the greatest behavioural change was when the measures were combined,” said Wouter Poortinga of Cardiff University. (Source adapted from: https://www.theguardian.com/environment/2017/mar/30/)
(g) Evaluate methods of government intervention which could be used to reduce the market failure associated with plastic waste. Use a diagram to support your answer. (20)
June 2023 · AS Paper 1 · Q1(a) 1 mark Multiple choice
Data and extracts for question 11 In 2021, energy regulator Ofgem announced that the maximum price of energy will rise from £ 1 277 to £ 1 971 a year, for the average household bill. (Source: adapted from https://www.moneysavingexpert.com/ utilities/what-is-the-energy-price-cap/)
(a) Which one of the following is the percentage increase in the maximum price to the average household bill? (1) A 35 % B 45 % C 54 % D 694 %
June 2023 · AS Paper 1 · Q1(b) 2 marks AO2=2 Short answer
Data and extracts for question 11 In 2021, energy regulator Ofgem announced that the maximum price of energy will rise from £ 1 277 to £ 1 971 a year, for the average household bill. (Source: adapted from https://www.moneysavingexpert.com/ utilities/what-is-the-energy-price-cap/)
(b) Annotate the diagram below to show the original and new maximum price in this market. (2) Average annual household bill (£) S P1 D 0 Q1 Quantity of energy per household
June 2023 · AS Paper 1 · Q6(f) 20 marks AO1=4, AO2=4, AO3=6, AO4=6 20-mark essay Either/or
Data and extracts for question 6The market for television content Figure 1: Elasticities of demand for streamed television services, UK, 2021 Price elasticity of demand -0.6 Income elasticity of demand 1.6 (Source: adapted from https://www.consultancy.uk/news/24986/covid-19- presents-netflix-with-chance-to-hike-prices) Figure 2: Market shares of streamed content providers, Europe, 2021 39% Netflix 29% Amazon 9% Apple TV+ 7% Disney+ 3% DZN 2% Viaplay 1% TIM Vision 1% Sky Now Tv 1% HBO 1% IPLA 7% Others 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Market share (Source: adapted from Statista 2021) Extract A The growth of streamed television content Netflix currently has 13 million UK subscribers, who typically pay £9.99 a month to the US based private sector firm. At this price, up to two users can view the television content at the same time. The demand for individual firms’ streamed television content boomed when people were forced to stay at home and has only begun to slow recently as more 5 firms enter the market e.g. Amazon Prime Video. The launch of Disney+ at the end of 2019, including original content such as the £74 million Star Wars TV spin-off The Mandalorian, resulted in the service adding more UK subscribers in a year in 2020 than any other streaming platform has ever managed. However, the costs of providing streaming television content have risen. Consumers now 10 expect original content, for example Stranger Things which costs around £10 million an episode to make. Furthermore, advertising in a saturated market is expensive. In 2021, Netflix put up the price of its most-popular package by £1 a month to £9.99. Fortunately for Netflix, its subscriber demand has proven price inelastic. Just 3% of customers in a survey said they would definitely cancel their subscription after Netflix’s 15 latest price rise. (Source: adapted from ‘As UK hits peak, Netflix the streaming giant will have to work harder’, The Guardian, Monday 3 January 2022) Extract B Is television content a public good? Public service broadcasting in the UK is made up of a number of parts. First, there are the main UK-wide public service broadcasters (PSBs). There is the publicly funded BBC, and the publicly owned Channel 4 which is funded through advertisements. The BBC was established in 1922 by a Royal Charter. It is mainly funded through the TV 5 licence fee, which costs £159 a year and is a compulsory charge for those who watch live TV on any device. Live TV and catch-up services are free to view and do not restrict household usage. Without the licence fee very few people would pay due to the free rider problem. The BBC’s Charter sets out its five public purposes: 10 • To provide impartial news and information • To support learning for people of all ages • To show the most creative, highest quality and distinctive televised content • To provide content for minority groups which would not be profitable for a private firm 15 • To reflect the UK, its culture and values to the world. (Source: adapted from https://publications.parliament.uk/pa/cm5801/cmselect/ cmcumeds/156/15604, and ‘BBC licence fee to be abolished in 2027 and funding frozen’, The Guardian, Sunday 16 January 2022) Extract C The environmental impact of streaming television content The carbon footprint produced by watching a month of Netflix programmes is equivalent to driving a car to Saturn. Every activity in the chain required to stream video, from the use of huge datacentres and transmission over Wi-Fi and broadband to watching the content on a device, requires electricity. The majority of this is generated by emitting CO2. 5 Modern flatscreen televisions use significant amounts of energy. There’s very little a government can do about this in a free market dominated by US firms. The focus of any government intervention could be to encourage alternative forms of entertainment and recreation, support the development of more energy efficient devices, to improve information on the environmental effects or to use regulation to limit 10 viewing hours. (Source: adapted from ‘Streaming’s dirty secret: how viewing Netflix top 10 creates vast quantity of CO2’, The Guardian, Friday 29 October 2021)
(f) Evaluate possible methods of government intervention to reduce the environmental damage caused by the consumption of television content. (20)
June 2023 · Paper 1 · Q7 25 marks AO1=4, AO2=4, AO3=8, AO4=9 25-mark essay Either/or
7 The average UK household energy bill (gas and electric combined) rose 80% from £1 971 in 2021 to £3 549 in 2022. (Source adapted from: https://www.telegraph.co.uk/money/consumer-affairs/ energy-price-cap-rise-october-2022-what-happen-household-bills/) Evaluate possible methods of government intervention to control household energy bills in the UK.
June 2023 · Paper 1 · Q8 25 marks AO1=4, AO2=4, AO3=8, AO4=9 25-mark essay Either/or
8 Using 2021 estimates of carbon emissions, it is estimated that a petrol car journey from London to Glasgow emits approximately 3.3 times more carbon dioxide per passenger than the equivalent journey by train. (Source adapted from: https://www.gov.uk/government/statistics/transport-and- environment-statistics-autumn-2021/transport-and-environment-statistics-autumn-2021) Evaluate possible methods of government intervention to reduce carbon emissions caused by road transport in the UK.
June 2022 · AS Paper 1 · Q1(b) 3 marks AO1=1, AO2=1, AO3=1 Short answer
Data and extracts for question 11 Since 2015, the government has invested £74 million on a flood defence scheme in the Calder Valley. The scheme will protect homes, businesses and jobs. (Source: https://www.theguardian.com/uk-news/2020/feb/10/yorkshire-residents-criticise- delays-to-flood-defence-scheme)
(b) Explain why flood defences such as those in the Calder Valley are usually provided by the public sector. (3)
June 2022 · AS Paper 1 · Q2(a) 1 mark AO1=1 Definition
Data and extracts for question 22 The Common Agricultural Policy (CAP) is a system of minimum prices and other programmes covering farming, environmental measures and rural development. The CAP applied to British farmers before the UK left the EU in January 2020. (Source adapted from: https://www.gov.uk/government/collections/common-agricultural- policy-reform)
(a) Define the term ‘minimum price’. (1)
June 2022 · AS Paper 1 · Q2(b) 1 mark Multiple choice
Data and extracts for question 22 The Common Agricultural Policy (CAP) is a system of minimum prices and other programmes covering farming, environmental measures and rural development. The CAP applied to British farmers before the UK left the EU in January 2020. (Source adapted from: https://www.gov.uk/government/collections/common-agricultural- policy-reform)
The diagram below shows the demand and supply curves for wheat in the European Union (EU). Price of Supply wheat J H P2 K L P1 Demand Q2 Q1 Q3 0 Quantity of wheat The free market price of wheat is P1. It had been agreed as part of the CAP to maintain a price of P2 within the EU and to do so through intervention buying. (b) In achieving a price of P2 , the amount spent on intervention buying by the EU would be (1) A HKL B JHQ2Q3 C LKJH D Q1Q2LK
June 2022 · Paper 1 · Q3(b) 1 mark AO3=1 Multiple choice
Data and extracts for question 33 A company that provides drinking water and treats waste water has been fined £180 000 after an incident that killed about 2 500 fish. The charges relate to an illegal discharge of sewage from the waste water treatment plant that polluted nine kilometres of the River Severn, a popular tourist destination. (Source: adapted from https://www.leaderlive.co.uk/news/wrexham/ 19393552.water-company-fined-today-sewage-leaked-wrexham-river-killing-2-500-fish/)
(b) Which one of the following is the most likely effect of the £180 000 fine? (1) To: A increase market failure B increase profits for the water company C reduce external costs D reduce government failure
June 2022 · AS Paper 1 · Q6(a) 5 marks AO1=1, AO2=2, AO3=2 Diagram
Data and extracts for question 6The market for fish Extract A Total allowable catches of North Sea cod halved in response to falling stocks In 2020, new lower limits on the quantity of cod that can be caught by the UK fishing fleet came into force. These limits on the fish catch, called total allowable catches (TACs), were agreed at the annual EU fisheries negotiations. It was the last December EU meeting attended by the UK before it left the EU. It was 5 agreed that cod catch limits will be cut by 50% in the North Sea, while reduced limits were agreed for cod in the Celtic Sea, Irish Sea and west of Scotland. However, there were increases for other types of fish, with TACs for haddock in the North Sea rising by 23% and for sole rising by 19%. UK Fisheries Minister George Eustice said: “This year there has been mounting scientific 10 evidence suggesting that cod is being overfished in many parts of the northeast Atlantic and we have responded to conserve stocks”. These new regulations applied to the UK while it remained part of the Common Fisheries Policy. In the future it will become an independent coastal state and negotiate on fisheries with the EU and other coastal states such as Norway. 15 (Source adapted from: https://www.independent.co.uk/news/business/news/north-sea-cod- stocks-quota-climate-change-brexit-a9252196.html) Figure 1 Atlantic over-fishing: share of total allowable catch (TAC) in excess of scientific advice (2019) Country Excess TAC (%) Excess TAC (tonnes) Sweden 52.4 17 369 106 925 United Kingdom 24.3 34 052 Ireland 21.7 49 914 Denmark 19.7 20 620 Germany 18.0 The Netherlands 13.5 31 910 3 009 Belgium 10.4 France 9.4 27 230 Spain 6.6 16 689 Portugal 3.8 3 662 (Source adapted from: Statista 2018) Extract B The tragedy of the commons The ‘tragedy of the commons’ may occur when there are common access resources (CARs). These are natural resources over which no private ownership has been established. Therefore, there are difficulties in excluding people from using or exploiting them. CARs include fisheries and common grazing lands. Oceans are so vast that it is 5 impractical for one fishing company to establish ownership and control. This means that others cannot be prevented from exploiting the ocean. Economists have suggested that with the lack of ownership of these resources, private producers will act in their own self-interest and exploit CARs to maximise profit. This exploitation is unsustainable. In other words, CARs provide an opportunity for individuals to create profit, while 10 creating negative externalities which impact on everybody else. This process is referred to as the ‘tragedy of the commons’. The ‘tragedy of the commons’ is at the core of a range of problems that are relevant and threatening to natural resources, environments and human health. In the case of overfishing, fishing companies are not made accountable for the state of the ocean. 15 They continue to fish as much as possible to maximise profit. Today, 90% of fish stocks are depleted. The reason for such a wide range of problems is because there is an environmental cost for everything. The ‘tragedy of the commons’ is the outcome of the fact that every resource is limited on this planet, coupled with the rising level of demand for these 20 resources. These issues are large-scale and require laws, regulation and international cooperation. (Source adapted from: http://felixonline.co.uk/articles/2019-12-09-tragedy-commons- drama-planet-not-enjoying/)
(a) Explain the likely impact of the new 2020 TACs on the price of cod. Include a supply and demand diagram in your answer. (5)
June 2022 · AS Paper 1 · Q6(g) 20 marks AO1=4, AO2=4, AO3=6, AO4=6 20-mark essay Either/or
Data and extracts for question 6The market for fish Extract A Total allowable catches of North Sea cod halved in response to falling stocks In 2020, new lower limits on the quantity of cod that can be caught by the UK fishing fleet came into force. These limits on the fish catch, called total allowable catches (TACs), were agreed at the annual EU fisheries negotiations. It was the last December EU meeting attended by the UK before it left the EU. It was 5 agreed that cod catch limits will be cut by 50% in the North Sea, while reduced limits were agreed for cod in the Celtic Sea, Irish Sea and west of Scotland. However, there were increases for other types of fish, with TACs for haddock in the North Sea rising by 23% and for sole rising by 19%. UK Fisheries Minister George Eustice said: “This year there has been mounting scientific 10 evidence suggesting that cod is being overfished in many parts of the northeast Atlantic and we have responded to conserve stocks”. These new regulations applied to the UK while it remained part of the Common Fisheries Policy. In the future it will become an independent coastal state and negotiate on fisheries with the EU and other coastal states such as Norway. 15 (Source adapted from: https://www.independent.co.uk/news/business/news/north-sea-cod- stocks-quota-climate-change-brexit-a9252196.html) Figure 1 Atlantic over-fishing: share of total allowable catch (TAC) in excess of scientific advice (2019) Country Excess TAC (%) Excess TAC (tonnes) Sweden 52.4 17 369 106 925 United Kingdom 24.3 34 052 Ireland 21.7 49 914 Denmark 19.7 20 620 Germany 18.0 The Netherlands 13.5 31 910 3 009 Belgium 10.4 France 9.4 27 230 Spain 6.6 16 689 Portugal 3.8 3 662 (Source adapted from: Statista 2018) Extract B The tragedy of the commons The ‘tragedy of the commons’ may occur when there are common access resources (CARs). These are natural resources over which no private ownership has been established. Therefore, there are difficulties in excluding people from using or exploiting them. CARs include fisheries and common grazing lands. Oceans are so vast that it is 5 impractical for one fishing company to establish ownership and control. This means that others cannot be prevented from exploiting the ocean. Economists have suggested that with the lack of ownership of these resources, private producers will act in their own self-interest and exploit CARs to maximise profit. This exploitation is unsustainable. In other words, CARs provide an opportunity for individuals to create profit, while 10 creating negative externalities which impact on everybody else. This process is referred to as the ‘tragedy of the commons’. The ‘tragedy of the commons’ is at the core of a range of problems that are relevant and threatening to natural resources, environments and human health. In the case of overfishing, fishing companies are not made accountable for the state of the ocean. 15 They continue to fish as much as possible to maximise profit. Today, 90% of fish stocks are depleted. The reason for such a wide range of problems is because there is an environmental cost for everything. The ‘tragedy of the commons’ is the outcome of the fact that every resource is limited on this planet, coupled with the rising level of demand for these 20 resources. These issues are large-scale and require laws, regulation and international cooperation. (Source adapted from: http://felixonline.co.uk/articles/2019-12-09-tragedy-commons- drama-planet-not-enjoying/)
(g) Other than using a TAC, evaluate the policy options which could be used to reduce market failure resulting from over-fishing. Use at least one appropriate diagram in your answer. (20)
November 2021 · Paper 1 · Q6(d) 12 marks AO1=2, AO2=2, AO3=4, AO4=4 12-mark response
Data and extracts for question 6The travel and tourism industry Figure 1: Package holiday market share of the six largest providers, booked by UK residents, 2019 TUI 29% Jet2 16% Thomas Cook 13% Expedia 8% On The Beach 6% BA Holidays 4% (Source adapted from: https://knowledge.sharescope.co.uk/2019/10/16/finding-companies- that-control-their-own-destinies/The Times/ATOL) Figure 2: Jet2 package holiday prices to Sorrento Price 12 hours after Thomas Cook shutdown Price before Thomas Cook shutdown 2 Adults for 7 Nights from Monday 25 May 2020 2 Adults for 7 Nights from Monday 25 May 2020 Half Board Half Board 1 x Premium Double or Twin room 1 x Premium Double or Twin room Return flights from Edinburgh Return flights from Edinburgh View flight times View flight times 22 kg Bag Allowance 22 kg Bag Allowance 10 kg Hand Baggage 10 kg Hand Baggage ATOL Protected ATOL Protected Coach Transfers Coach Transfers Holiday price from £1,576 Per person price Holiday price from £1,648 Per person price £788 £824 Data accessed: 22nd and 23rd September 2019 Extract A Marginal productivity of cabin crew Cabin crew are responsible for loading passengers and providing in-flight meals. United Airlines is planning to reduce the number of its cabin crew members onboard international flights. The airline currently operates its planes with one more cabin crew member than its competitors. The marginal productivity of this additional crew member 5 may be low. By reducing the number of its cabin crew members United Airlines will be able to operate more efficiently and compete more effectively. (Source adapted from: https://simpleflying.com/united-airlines-to-reduce-number-of-crew- on-international-flights/) Extract B Thomas Cook’s environmental impact Thomas Cook Group plc’s operations included its airline and 560 high street travel agents providing flights, hotels and package holidays. The environmental impact of the travel industry is significant. It accounts for 8% of all global carbon emissions. Thomas Cook recognised the risks presented by climate change 5 and actively engaged in reducing their airline emissions. Its plans included using more efficient aircraft and using lower-carbon fuel. In 2018, Thomas Cook was included in the top 10 of the world’s most fuel-efficient airlines. (Source adapted from: https://www.thomascookgroup.com/investors/insight_external_ assest/Thomas+Cook+Sustainability+Report+2018.pdf) Extract C Why did Thomas Cook shut down? Thomas Cook Group plc ceased trading on 23 September 2019. The collapse of Thomas Cook left 600 000 travellers stranded overseas and approximately 21 000 worldwide employees were left without a job. Thomas Cook’s management said that the failure of rescue talks between banks, 5 shareholders and the UK Government meant it had no choice but to shut down the business. But in truth the tour operator’s problems go back much further. A disastrous merger in 2007, increased debts, the internet revolution in holiday booking and Brexit uncertainty all contributed to the failure of the business. 10 In 2007 it merged with MyTravel. Thomas Cook directors had an objective of rapid company growth over short-term profitability. The merger was supposed to create a European giant, promising £75 million-a-year cost savings and a springboard to challenge emerging internet rivals. In reality, Thomas Cook was merging with a company that had only made a profit once in the previous six years, and the deal left the Group 15 with huge debts. In May 2019, the firm reported a £1.5 billion loss. The role of the management in Thomas Cook’s collapse is being investigated by the UK Government. Thomas Cook executives’ salaries and bonuses have been questioned. Directors received salaries totalling £20 million in the five years before its collapse. The Chief Executive Officer (CEO) earned a £500 000 cash bonus in 2017 and about 20 £8.5 million in his five years with the company. It seems that around £4 million of this was in the form of shares. The share price reached £1.46 in 2018, but each share is now worthless. The CEO said that the directors had worked “exhaustively” to rescue Thomas Cook and create a long-term turnaround strategy. “It is a matter of profound regret to me and the 25 rest of the board that we were not successful.” The UK prime minister admitted that the government refused to grant £150 million as a subsidy to help rescue Thomas Cook in the short run. The UK prime minister stated: “Clearly, that is a lot of taxpayers’ money and sets up, as people will appreciate, a moral hazard in the case of future such commercial difficulties that companies face. I have 30 questions about whether it’s right that the directors, or whoever, the board, should pay themselves large sums when businesses can go down the tubes like that. One is driven to reflect on whether the directors of these companies are properly incentivised to sort such matters out”. (Source adapted from: https://www.theguardian.com/business/2019/sep/23/thomas-cook- as-the-world-turned-the-sun-ceased-to-shine-on-venerable-tour-operator and https://www.ft.com/content/a7dd2554-de23-11e9-b112-9624ec9edc59)
(d) With reference to Extract C, discuss the proposed government subsidy to prevent Thomas Cook from reaching its shut-down point. (12)
October 2020 · Paper 1 · Q3(a) 4 marks AO1=2, AO2=1, AO3=1 Short answer
Data and extracts for question 33 The EU tradable pollution permits scheme is expected to become more effective by 2020, due to recent reductions in the number of tradable pollution permits. (Source adapted from: https://ec.europa.eu/clima/policies/ets_en)
(a) Explain one likely effect of reducing the number of tradable pollution permits. (4)
October 2020 · AS Paper 1 · Q4(b) 3 marks AO1=1, AO2=1, AO3=1 Short answer
Data and extracts for question 44 The UK Government uses a range of indirect taxes to affect the market prices and quantities of many goods and services.
(b) Using an example, explain why the government imposes specific taxes on many goods and services. (3)
October 2020 · AS Paper 1 · Q6(d) 4 marks AO1=2, AO2=2 Calculation
Data and extracts for question 6The market for higher education in the UK Figure 1: Average graduate earnings, according to subject studied, compared to average non-graduate earnings (per cent) 2018 selected subjects. Economics Medicine Architecture Business Top 5 Law Bottom 5 Psychology Philosophy English Agriculture Creative arts –20% 0% 20% 40% (Source: adapted from https://www.ifs.org.uk/publications/13731 The impact of undergraduate degrees on early-career earnings, Research report, November 2018) Figure 2: Student loans outstanding at the end of financial years 2013 to 2018 in England 120 000 100 000 80 000 60 000 102 357 87 629 74 960 40 000 63 776 53 668 45 418 20 000 0 2013 2014 2015 2016 2017 2018 Financial year (Source: adapted from https://www.slc.co.uk/official-statistics/ student-loans-debt-and-repayment/england.aspx) Figure 3: Number of applications to UCAS according to median income of area lowest household highest household income below £23 000 income above £35 400 90 000 80 000 70 000 60 000 50 000 40 000 30 000 20 000 10 000 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 (Source: adapted from https://www.ucas.com/corporate/data-and-analysis/ucas-undergraduate- releases/2018-cycle-applicant-figures-january-deadline) Extract A Rethinking tuition fees The value of a degree is significant. The latest data shows that the median university graduate income was £10 000 more than the average non-graduate income in 2018. This ‘graduate premium’ means graduates will contribute significantly to the economy. In addition, the government will benefit greatly from additional tax revenues. 5 However, funding higher education continues to be a major issue. English universities charge some of the world’s highest fees. Interest rates on student loans are now 6.3%. There are a large number of courses where graduates are likely to earn less than non-graduates, despite an average of £50 000 of debt. The Department for Education estimates that 45% of the value of loans will not be 10 repaid. Outstanding student loans in England totalled more than £100 billion in 2018. By 2023 total outstanding student loans are forecast to rise to £120 billion. One option for revising student fees could be to charge higher fees for courses that are more expensive to teach or that have a better chance of higher earnings. That would make Science or Mathematics degrees more expensive to study than English or 15 Philosophy. At most universities the level of fees is likely to be the same flat rate of £9 250 per year. However, science-based courses need more expensive equipment and courses such as medicine require more teaching time and personal instruction. Tuition fees were introduced in 1998 at £1 000 per year. They are currently £9 250. 20 Economists estimate that the price elasticity of demand for higher education is about –0.5. Charging £9 250 a year for an undergraduate degree makes England very expensive by international standards. Scotland has no fees for Scottish students, and fees in Wales and Northern Ireland are significantly lower. Much of Europe has low or no fees and Germany, which used to charge fees, has abolished them, replacing them with a graduate tax. 25 The only country with comparable fees is the United States. Top private colleges can charge more than the equivalent of £30 000 per year while state colleges can charge local students less than fees in England. Despite this, student numbers at English universities have continued to increase from 450 000 in 1998 to over 700 000 in 2018. Students from all backgrounds are more likely to 30 go to university than ever before. However, applicants from low-income areas are much less likely to go to university than applicants from high-income areas. The Universities and Colleges Admissions Service (UCAS) found that in the most deprived 10% of postal areas about 20% of young people went to university in 2018, compared with 50% in the highest income areas. Research 35 by University College London revealed that even when candidates from low-income areas had the same exam results, they were much less likely to apply to university than candidates from high-income areas. (Source: adapted from https://www.theguardian.com/education/2018/dec/16/change-in-student-loan- accounting-could-add-10bn-to-national-debt) Extract B Low-income university students twice as likely to drop out than high-income ones The number of students from low-income areas who drop out of university before finishing their degree is at its highest in five years, indicating a considerable waste of scarce educational resources. This news comes at the same time as a drive to recruit students from poorer backgrounds, with universities spending a total of £725 million on 5 access initiatives in the past academic year alone. A number of top universities have started to lower their A level grade offers to students from low-income areas, in an attempt to encourage them to apply. However, there is a danger with ‘enticing’ disadvantaged students through lower grade offers, if universities are not going to provide ongoing support for them once they begin their courses. 10 The latest figures show that 9% of disadvantaged undergraduates do not continue in higher education beyond their first year. In comparison, the average drop-out rate among students from the high-income backgrounds was less than 5%. The gap continues to widen. A report, published by the Office for Fair Access, concluded that: ‘The significance of 15 this for students is huge. Higher education can be a transformational experience that opens doors to rewarding careers and social mobility, but this is only the case if students achieve successful outcomes.’ (Source: adapted from https://www.telegraph.co.uk/news/2017/06/28/number-poor-students-dropping- university-highest-level-five/)
(d) With reference to Figure 2, calculate the percentage increase in outstanding student loans from 2013 to 2018. You are advised to show your working. (4)
October 2020 · AS Paper 1 · Q6(g) 20 marks AO1=4, AO2=4, AO3=6, AO4=6 20-mark essay Either/or
Data and extracts for question 6The market for higher education in the UK Figure 1: Average graduate earnings, according to subject studied, compared to average non-graduate earnings (per cent) 2018 selected subjects. Economics Medicine Architecture Business Top 5 Law Bottom 5 Psychology Philosophy English Agriculture Creative arts –20% 0% 20% 40% (Source: adapted from https://www.ifs.org.uk/publications/13731 The impact of undergraduate degrees on early-career earnings, Research report, November 2018) Figure 2: Student loans outstanding at the end of financial years 2013 to 2018 in England 120 000 100 000 80 000 60 000 102 357 87 629 74 960 40 000 63 776 53 668 45 418 20 000 0 2013 2014 2015 2016 2017 2018 Financial year (Source: adapted from https://www.slc.co.uk/official-statistics/ student-loans-debt-and-repayment/england.aspx) Figure 3: Number of applications to UCAS according to median income of area lowest household highest household income below £23 000 income above £35 400 90 000 80 000 70 000 60 000 50 000 40 000 30 000 20 000 10 000 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 (Source: adapted from https://www.ucas.com/corporate/data-and-analysis/ucas-undergraduate- releases/2018-cycle-applicant-figures-january-deadline) Extract A Rethinking tuition fees The value of a degree is significant. The latest data shows that the median university graduate income was £10 000 more than the average non-graduate income in 2018. This ‘graduate premium’ means graduates will contribute significantly to the economy. In addition, the government will benefit greatly from additional tax revenues. 5 However, funding higher education continues to be a major issue. English universities charge some of the world’s highest fees. Interest rates on student loans are now 6.3%. There are a large number of courses where graduates are likely to earn less than non-graduates, despite an average of £50 000 of debt. The Department for Education estimates that 45% of the value of loans will not be 10 repaid. Outstanding student loans in England totalled more than £100 billion in 2018. By 2023 total outstanding student loans are forecast to rise to £120 billion. One option for revising student fees could be to charge higher fees for courses that are more expensive to teach or that have a better chance of higher earnings. That would make Science or Mathematics degrees more expensive to study than English or 15 Philosophy. At most universities the level of fees is likely to be the same flat rate of £9 250 per year. However, science-based courses need more expensive equipment and courses such as medicine require more teaching time and personal instruction. Tuition fees were introduced in 1998 at £1 000 per year. They are currently £9 250. 20 Economists estimate that the price elasticity of demand for higher education is about –0.5. Charging £9 250 a year for an undergraduate degree makes England very expensive by international standards. Scotland has no fees for Scottish students, and fees in Wales and Northern Ireland are significantly lower. Much of Europe has low or no fees and Germany, which used to charge fees, has abolished them, replacing them with a graduate tax. 25 The only country with comparable fees is the United States. Top private colleges can charge more than the equivalent of £30 000 per year while state colleges can charge local students less than fees in England. Despite this, student numbers at English universities have continued to increase from 450 000 in 1998 to over 700 000 in 2018. Students from all backgrounds are more likely to 30 go to university than ever before. However, applicants from low-income areas are much less likely to go to university than applicants from high-income areas. The Universities and Colleges Admissions Service (UCAS) found that in the most deprived 10% of postal areas about 20% of young people went to university in 2018, compared with 50% in the highest income areas. Research 35 by University College London revealed that even when candidates from low-income areas had the same exam results, they were much less likely to apply to university than candidates from high-income areas. (Source: adapted from https://www.theguardian.com/education/2018/dec/16/change-in-student-loan- accounting-could-add-10bn-to-national-debt) Extract B Low-income university students twice as likely to drop out than high-income ones The number of students from low-income areas who drop out of university before finishing their degree is at its highest in five years, indicating a considerable waste of scarce educational resources. This news comes at the same time as a drive to recruit students from poorer backgrounds, with universities spending a total of £725 million on 5 access initiatives in the past academic year alone. A number of top universities have started to lower their A level grade offers to students from low-income areas, in an attempt to encourage them to apply. However, there is a danger with ‘enticing’ disadvantaged students through lower grade offers, if universities are not going to provide ongoing support for them once they begin their courses. 10 The latest figures show that 9% of disadvantaged undergraduates do not continue in higher education beyond their first year. In comparison, the average drop-out rate among students from the high-income backgrounds was less than 5%. The gap continues to widen. A report, published by the Office for Fair Access, concluded that: ‘The significance of 15 this for students is huge. Higher education can be a transformational experience that opens doors to rewarding careers and social mobility, but this is only the case if students achieve successful outcomes.’ (Source: adapted from https://www.telegraph.co.uk/news/2017/06/28/number-poor-students-dropping- university-highest-level-five/)
(g) Evaluate whether government intervention is able to correct market failure in education. (20)
October 2020 · Paper 3 · Q1(c) 12 marks AO1=2, AO2=2, AO3=4, AO4=4 12-mark response
Data and extracts for question 1Turkey – an emerging economy Figure 1: Turkey’s central bank lending rate, percent, 2013–2018 25 20 15 % 10 5 0 2014 2015 2016 2017 2018 Figure 2: Selected emerging economy exchange rates, percentage change against the US dollar: January 2018 compared to January 2016. Russian rouble South African rand Polish zloty Hong Kong dollar Chinese renminbi Indian rupee Turkish lira Argentine peso -60 -40 -20 0 20 Percentage changes (Source adapted from: FT.com) Extract A Can Turkey’s central bank avoid another rate rise? At an annual rate of 25%, Turkey’s inflation is alarming. However, it may have peaked. This may be a turning point for the economically struggling country, whose currency (the Turkish lira) has lost nearly a third of its value against the US dollar in 2018. The central bank may be able to avoid tightening monetary policy further, as a severe economic 5 adjustment is already well under way. Turkey is highly indebted in foreign currency. The Turkish government takes measures against excessive appreciation or depreciation of the Turkish lira to reduce financial stability risks. The financial market faces difficulties in trying to restore foreign investors’ confidence. Consumer prices increased by 2.7% in October 2018, a much lower rate than the 6.3% 10 recorded in September 2018. The lira has stabilised, having risen 16% since the central bank raised interest rates by 6.25 percentage points. However, the government wants lower borrowing costs to fuel credit growth and economic expansion. Timothy Ash at a London investment bank says at this point it’s “illogical” to raise interest rates again in Turkey. That’s because Turkey’s economy is already experiencing a severe slowdown. 15 In the long term Turkey’s economic growth is expected to be above that of other emerging markets such as Brazil, Russia and China. Turkey’s private sector is resilient. Between 2018–50 we expect Turkey to grow by an annual average of 3.1%. Brazil is expected to grow by an annual average of 2.1%, Russia by 1.6% and China by 2.8%. GDP growth will nevertheless be well below that recorded in 2004–07 and 2010–15. Average 20 growth in GDP per head will be substantially lower, mainly reflecting the expected rise in the total population. (Source adapted from: https://ftalphaville.ft.com/2018/11/06/1541508141000/Can‑Turkey‑s-central‑bank- avoid‑another‑rate‑hike‑/. 6 Nov 2018 Colby Smith and one sentence The president wants lower borrowing costs to fuel credit growth and economic expansion from https://www.theguardian.com/world/2018/aug/07/turkey‑urged‑to‑announce-emergency-interest‑rate‑hike Larry Elliott 7/8/18 and http://country.eiu.com/article.aspx?articleid=157174199&Country=Turkey&topic=Economy&subtopic= Long-term+outlook&subsubtopic=Summary) Extract B Turkey aims to bin the plastic bag You get a free plastic bag whenever you go to a shop, even if it is just to buy a loaf of bread or a chocolate bar. In Turkey, plastic bags are everywhere, with millions being thrown away, and their use is causing a growing environmental problem. In Istanbul, the country’s biggest city with about 12 million people, around 10 000 tonnes 5 of waste are being collected every day. Plastic bags and other plastic waste make up 950 tonnes, or almost 10%, of the total waste. The Turkish government said it was looking at ways to discourage the consumption of single‑use plastic bags. One possible step currently under review is a ban of the black bags that are said to contain carcinogens. Another is that the state may raise taxes 10 on plastic products, which could lead to supermarkets charging consumers for the bags. In Corlu, a town north‑west of Istanbul, a local environmental group distributed 20 000 canvas bags to shoppers in one month. In some parts of Turkey, plastic bags are completely banned, with heavy fines for both firms and consumers who use them. (Source adapted from: tseibert@thenational.ae https://www.thenational.ae/world/europe/turkey‑aims‑to‑bin‑the‑plastic‑bag‑1.530059 accessed 11/11/18) Extract C Istanbul’s third airport set to be the busiest in the world Istanbul’s third airport is being constructed over an area of 76.5 million square metres, to the north of Istanbul. When complete, the new airport will have six runways and have an annual passenger capacity of up to 200 million people, making it potentially the world’s busiest airport. “This airport is going to be the most important hub between Asia and 5 Europe,” said one business leader. The airport design includes high vaulted ceilings and spacious, modern and efficient design – and its tulip‑shaped air traffic control tower won the 2016 International Architecture Award. It uses mobile applications and artificial intelligence for customers, is energy efficient and has a high‑tech security system. The site employs 36 000 people and 10 is estimated to cost the equivalent of £10 billion. However, the rush to meet the deadline set by the Turkish government is a major cause of accidents on the construction site, according to the construction workers’ union. (Source adapted from: https://www.lonelyplanet.com/news/2018/08/08/istanbuls‑huge‑new‑airport/ and https://www.voanews.com/a/istanbul‑to‑unveil‑new‑airport‑seeks‑to‑be‑world‑s‑biggest/4632308.html)
(c) Discuss the likely success of policies to reduce the consumption of single‑use plastic bags in cities such as Istanbul. (12)
June 2019 · AS Paper 1 · Q6(d) 4 marks AO1=2, AO2=2 Calculation
Data and extracts for question 6Health provision Figure 1: National Health Service (NHS) in England: Government spending and projected funding gap, £ billions, 2015 to 2020 140 Government spending required to meet forecast demand 130 120 £ billions 110 100 Government spending on the NHS 90 0 2015 2016 2018 2019 2017 2020 (Source: https://www.economist.com/news/britain/21706563-nhs-mess- reformers-believe-new-models-health-care-many-pioneered) Figure 2: Percentage of NHS patients in England waiting over 18 weeks for non-emergency treatment 12% 10% 10.1% Jan 2017 8% 5.7% Jan 2013 6% 4% 2% 0% Jan 2013 Jan 2014 Jan 2015 Jan 2016 Jan 2017 (Source: https://www.statista.com/chart/8813/more-and- more-people-made-to-wait-by-the-nhs/) Extract A Hospitals already full National Health Service (NHS) managers’ warned that bed occupancy rates are approaching 99% in some parts of the country, compared with recommended levels of 85%. In 2017 the number of patients waiting for non-urgent treatment passed the four million mark, the highest figure for almost a decade. 5 The chief executive of the NHS suggested that waiting list targets for routine operations such as hip and knee replacements would have to be sacrificed in order to protect other services, including accident and emergency (A&E) and cancer care. However, the government has insisted waiting time targets must still be met. Recently the Chancellor awarded the NHS £2.8 billion over three years, including £1.6 billion 10 in 2018 - less than the £4 billion which NHS officials had asked for to keep up with an ageing population and new medical technologies. NHS managers said there was now very little spare capacity in the system, warning of shortages of paramedics, doctors, A&E consultants and nurses. (Source: adapted from http://www.telegraph.co.uk/news/2017/12/07/hospitals- already-full-bursting-pressures-mount-warn-nhs-chiefs/) Extract B How health care is funded Most countries have a mixed economy of health provision typically funded from taxation, patient fees and private health insurance. The NHS was launched in the UK in 1948 to ensure direct state provision by the government of health care ‘free at the point of use’. The NHS is mainly funded from 5 general taxation. However, some NHS patients pay for some of their medical care, such as prescriptions to buy medicine. In the ongoing debate about how best to fund the NHS, some people have proposed introducing a £12 charge for visiting a General Practitioner (GP) doctor. Proponents argue that such a charge would deter overuse of GP services by those who do not have 10 genuine health needs. It would also raise additional money for the NHS and create incentives which will stimulate innovation and more choice. Estimates suggested that a £12 charge on the 450 million visits a year to GPs could have raised enough to cover hospitals’ overspend in 2016. Based on exemptions for prescriptions, 90% of patients will not be charged including the elderly, children and low 15 income groups. There would also be administrative costs of collecting the charge and verifying exemptions. These arrangements would significantly reduce the amount a charge would generate, assuming no one paying would be dissuaded from visiting their GP. The proportion of people in the UK taking out private health insurance (PHI) to pay for private health care has increased to 10.6%, despite significant increases in the 20 prices of treatment in private hospitals. Some economists argue that the government should provide subsidies to encourage people to take out private health insurance. This would reduce the burden on the NHS by taking some people out of the state system. Furthermore it is argued that private health care increases choice for users, encourages competition and drives up standards of care. 25 A typical PHI policy for a healthy 35-year-old costs about £650 a year but this rises steeply to £2 300 for those aged 70, when claims are far more likely. The level of contribution is based on their risk of requiring health care. PHI also tends to incur high management and administrative costs due to the resources required to assess risk and claims. Also there is the possibility of market failure given asymmetric information. 30 (Source: adapted from https://www.kingsfund.org.uk/ publications/how-health-care-is-funded) Extract C Public parks are a public good Public parks are places which people can use for free to exercise or to relax. Parkrun Limited organises free weekly runs in local parks attracting hundreds of joggers per park to enjoy healthy exercise. The government is proposing to ban local authorities charging Parkrun for the use of public parks to fund the maintenance of public parks. The 5 government considers that it is appropriate for the public to pay a reasonable sum for the private use of a facility such as a tennis court or a football pitch which may be used exclusively. However, the government does not consider it appropriate for a local authority to charge a volunteer community group ‘seeking to provide a free weekly event’ for the use of a public park. Parkrun share the park with other park users. Although a running 10 course may be marked out there is no restriction on other people using the park. (Source: adapted from © Crown Copyright Running Free – Government consultation on preserving the free use of public parks, April 2017, https://www.gov.uk/ government/uploads/system/uploads/attachment_data/file/608372/ Parkrun_ConDoc.pdf and http://www.telegraph.co.uk/news/2017/04/14/ councils-banned-charging-runners-take-part-regular-saturday/)
(d) Calculate the annual revenue raised by charging £12 per GP visit. Assume there will be 450 million GP visits per year and 90% of these will not be charged. You are advised to show your working. (4)
June 2019 · AS Paper 1 · Q6(f) 20 marks AO1=4, AO2=4, AO3=6, AO4=6 20-mark essay Either/or
Data and extracts for question 6Health provision Figure 1: National Health Service (NHS) in England: Government spending and projected funding gap, £ billions, 2015 to 2020 140 Government spending required to meet forecast demand 130 120 £ billions 110 100 Government spending on the NHS 90 0 2015 2016 2018 2019 2017 2020 (Source: https://www.economist.com/news/britain/21706563-nhs-mess- reformers-believe-new-models-health-care-many-pioneered) Figure 2: Percentage of NHS patients in England waiting over 18 weeks for non-emergency treatment 12% 10% 10.1% Jan 2017 8% 5.7% Jan 2013 6% 4% 2% 0% Jan 2013 Jan 2014 Jan 2015 Jan 2016 Jan 2017 (Source: https://www.statista.com/chart/8813/more-and- more-people-made-to-wait-by-the-nhs/) Extract A Hospitals already full National Health Service (NHS) managers’ warned that bed occupancy rates are approaching 99% in some parts of the country, compared with recommended levels of 85%. In 2017 the number of patients waiting for non-urgent treatment passed the four million mark, the highest figure for almost a decade. 5 The chief executive of the NHS suggested that waiting list targets for routine operations such as hip and knee replacements would have to be sacrificed in order to protect other services, including accident and emergency (A&E) and cancer care. However, the government has insisted waiting time targets must still be met. Recently the Chancellor awarded the NHS £2.8 billion over three years, including £1.6 billion 10 in 2018 - less than the £4 billion which NHS officials had asked for to keep up with an ageing population and new medical technologies. NHS managers said there was now very little spare capacity in the system, warning of shortages of paramedics, doctors, A&E consultants and nurses. (Source: adapted from http://www.telegraph.co.uk/news/2017/12/07/hospitals- already-full-bursting-pressures-mount-warn-nhs-chiefs/) Extract B How health care is funded Most countries have a mixed economy of health provision typically funded from taxation, patient fees and private health insurance. The NHS was launched in the UK in 1948 to ensure direct state provision by the government of health care ‘free at the point of use’. The NHS is mainly funded from 5 general taxation. However, some NHS patients pay for some of their medical care, such as prescriptions to buy medicine. In the ongoing debate about how best to fund the NHS, some people have proposed introducing a £12 charge for visiting a General Practitioner (GP) doctor. Proponents argue that such a charge would deter overuse of GP services by those who do not have 10 genuine health needs. It would also raise additional money for the NHS and create incentives which will stimulate innovation and more choice. Estimates suggested that a £12 charge on the 450 million visits a year to GPs could have raised enough to cover hospitals’ overspend in 2016. Based on exemptions for prescriptions, 90% of patients will not be charged including the elderly, children and low 15 income groups. There would also be administrative costs of collecting the charge and verifying exemptions. These arrangements would significantly reduce the amount a charge would generate, assuming no one paying would be dissuaded from visiting their GP. The proportion of people in the UK taking out private health insurance (PHI) to pay for private health care has increased to 10.6%, despite significant increases in the 20 prices of treatment in private hospitals. Some economists argue that the government should provide subsidies to encourage people to take out private health insurance. This would reduce the burden on the NHS by taking some people out of the state system. Furthermore it is argued that private health care increases choice for users, encourages competition and drives up standards of care. 25 A typical PHI policy for a healthy 35-year-old costs about £650 a year but this rises steeply to £2 300 for those aged 70, when claims are far more likely. The level of contribution is based on their risk of requiring health care. PHI also tends to incur high management and administrative costs due to the resources required to assess risk and claims. Also there is the possibility of market failure given asymmetric information. 30 (Source: adapted from https://www.kingsfund.org.uk/ publications/how-health-care-is-funded) Extract C Public parks are a public good Public parks are places which people can use for free to exercise or to relax. Parkrun Limited organises free weekly runs in local parks attracting hundreds of joggers per park to enjoy healthy exercise. The government is proposing to ban local authorities charging Parkrun for the use of public parks to fund the maintenance of public parks. The 5 government considers that it is appropriate for the public to pay a reasonable sum for the private use of a facility such as a tennis court or a football pitch which may be used exclusively. However, the government does not consider it appropriate for a local authority to charge a volunteer community group ‘seeking to provide a free weekly event’ for the use of a public park. Parkrun share the park with other park users. Although a running 10 course may be marked out there is no restriction on other people using the park. (Source: adapted from © Crown Copyright Running Free – Government consultation on preserving the free use of public parks, April 2017, https://www.gov.uk/ government/uploads/system/uploads/attachment_data/file/608372/ Parkrun_ConDoc.pdf and http://www.telegraph.co.uk/news/2017/04/14/ councils-banned-charging-runners-take-part-regular-saturday/)
(f) Evaluate possible ways the government could intervene to reduce the excess demand for state-funded health care. (20)
June 2019 · Paper 3 · Q1(d) 25 marks AO1=4, AO2=4, AO3=8, AO4=9 25-mark essay Either/or
Data and extracts for question 1Markets for food and drinks high in fat, salt or sugar (HFSS) Figure 1: UK market share of potato crisps, 2017 Market share Market share Price Firm Brand Size of firm of product (£) Walkers All Walkers 55.3% of which: 35 g 28.1% 0.45 Regular Standard Regular Max 50 g 7.4% 0.63 Sensations 40 g 2.0% 0.59 Doritos 40 g 4.7% 0.45 Other 13.1% KP KP 50 g 22.7% 0.52 Tayto Golden Wonder 4.2% <40g 3.1% 0.38 40g+ 1.1% 0.72 Other Other 17.8% (Source: adapted from https://academic.oup.com/restud/article/3108825/ The-Effects-of-Banning-Advertising-in-Junk-Food 6 April 2017) Extract A The effects of a total ban on advertising of HFSS foods Food and drinks which are high in fat, salt or sugar (HFSS) tend to be sold in highly concentrated markets. Tough new rules banning advertisements for HFSS products, such as those for confectionery, fizzy drinks and potato crisps, come into effect in July 2017 as a means to reduce consumption. The rules apply to media targeted at under-16s and will 5 mean a major reduction in the number of advertisements children see for HFSS products in posters near schools, in films targeted at children, on catch-up television and in social media if it is directed at children. There are three main factors that will determine the effectiveness of the intervention: first, whether advertising acts to expand the market share or steal rivals’ market share. 10 Secondly, how firms in the market adapt their behaviour in response to the ban. Thirdly, what substitute products do consumers turn to if they opted out of the targeted market. Results from a recent survey in the UK suggest that the total quantity of crisps sold would fall by around 15% in the presence of an advertising ban, or by 10% if firms respond with price cuts, since the ban acts to make the market more competitive and firms respond to 15 the ban by, on average, lowering their prices. The survey showed that following a ban, consumers are more likely to switch to another junk food than to a healthy food, which (in addition to the pricing response of firms) acts to partially offset any health gains from the policy. (Source: adapted from The Effects of Banning Advertising in Junk Food Markets, Dubois, Pierre; Griffith, Rachel, Review of Economic Studies Copyright © 2017, Oxford University Press https://academic.oup.com/ restud/article/3108825/The-Effects-of-Banning-Advertising-in-Junk-Food 6 April 2017 and https://www.asa.org.uk/news/tougher-new-food-and- drink-rules-come-into-effect-in-children-s-media.html 30 June 2017) Extract B Taxing HFSS foods and subsidising healthy eating widens inequality Since low-income groups spend a higher proportion of their income on food and tend to eat less healthily, they are the main targets of taxes on products that are high in fat, salt or sugar (HFSS). Subsidies on healthy food are seen as an alternative policy approach to encourage healthy eating. While data on the impact of such policies are scarce, a recent 5 study on the distributional impacts of HFSS taxes and healthy food subsidies found that these actually widened health and fiscal inequalities. The policies tend to be regressive and favour higher-income consumers. Taxes on unhealthy food increase prices which have a greater impact on low income groups rather than higher income groups. Lower income groups prefer to buy HFSS food. 10 Subsidies encouraged all income groups to buy more fruit and vegetables. However, those on higher incomes proved more responsive and the average share of budget spent on healthy food actually increased for the higher income groups who were more likely to buy the subsidised healthy food and then spend the savings they had enjoyed on yet more healthy food. The diets of the higher income groups before the subsidy tended 15 to be healthier. The choices of the higher income groups are more responsive to price changes. By contrast, lower income groups, if they responded to lower prices, often used the money saved to buy unhealthy items or something else entirely. The long-term benefits of a healthier diet are harder to grasp for consumers when information gaps exist. Often the immediate boost of a tasty treat is more appealing. Taxes and subsidies 20 do not change that. Other strategies are needed to promote healthy eating, especially education. (Source: adapted from Economist 5 October 2017 https://www.economist. com/news/finance-and-economics/21730033-study-suggests- lower-income-families-end-up-paying-more-their-food-taxing-fat and https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3031005 The Economic Journal September 2017 Vol 127 Issue 604) Extract C Tax on fatty foods in Denmark is an economic disaster Denmark introduced a specific tax on saturated fat in October 2011. Recognised as a world-leading public health policy, it was abandoned just 15 months later having been both an economic and political disaster. Indirect taxes of this sort are invariably regressive, disproportionately affecting the 5 elderly and the poor. The specific tax led to prices rising on average 15% for highest-fat products, yielding a total decrease of 5% in the intake of saturated fat from products such as minced beef and cream. 80% of Danish consumers did not change their shopping habits at all. The behavioural change was economically damaging as consumers switched to cheaper brands and crossed the border to Sweden and Germany to do their shopping. 10 Danish tax revenue fell as a result. (Source: adapted from https://iea.org.uk/in-the-media/press-release/ evidence-shows-a-fat-tax-would-hit-poorest-the-hardest 25 May 2013 and https://www.cambridge.org/core/journals/public-health-nutrition/article/ effects-of-the-danish-saturated-fat-tax-on-the-demand-for-meat-and-dairy- products/984CF03634C819D50E66C7B5DC5209DA/core-reader)
(d) Evaluate the microeconomic and macroeconomic effects of increased government spending on education to promote healthy eating in the UK. (25)
June 2019 · Paper 3 · Q1(e) 25 marks AO1=4, AO2=4, AO3=8, AO4=9 25-mark essay Either/or
Data and extracts for question 1Markets for food and drinks high in fat, salt or sugar (HFSS) Figure 1: UK market share of potato crisps, 2017 Market share Market share Price Firm Brand Size of firm of product (£) Walkers All Walkers 55.3% of which: 35 g 28.1% 0.45 Regular Standard Regular Max 50 g 7.4% 0.63 Sensations 40 g 2.0% 0.59 Doritos 40 g 4.7% 0.45 Other 13.1% KP KP 50 g 22.7% 0.52 Tayto Golden Wonder 4.2% <40g 3.1% 0.38 40g+ 1.1% 0.72 Other Other 17.8% (Source: adapted from https://academic.oup.com/restud/article/3108825/ The-Effects-of-Banning-Advertising-in-Junk-Food 6 April 2017) Extract A The effects of a total ban on advertising of HFSS foods Food and drinks which are high in fat, salt or sugar (HFSS) tend to be sold in highly concentrated markets. Tough new rules banning advertisements for HFSS products, such as those for confectionery, fizzy drinks and potato crisps, come into effect in July 2017 as a means to reduce consumption. The rules apply to media targeted at under-16s and will 5 mean a major reduction in the number of advertisements children see for HFSS products in posters near schools, in films targeted at children, on catch-up television and in social media if it is directed at children. There are three main factors that will determine the effectiveness of the intervention: first, whether advertising acts to expand the market share or steal rivals’ market share. 10 Secondly, how firms in the market adapt their behaviour in response to the ban. Thirdly, what substitute products do consumers turn to if they opted out of the targeted market. Results from a recent survey in the UK suggest that the total quantity of crisps sold would fall by around 15% in the presence of an advertising ban, or by 10% if firms respond with price cuts, since the ban acts to make the market more competitive and firms respond to 15 the ban by, on average, lowering their prices. The survey showed that following a ban, consumers are more likely to switch to another junk food than to a healthy food, which (in addition to the pricing response of firms) acts to partially offset any health gains from the policy. (Source: adapted from The Effects of Banning Advertising in Junk Food Markets, Dubois, Pierre; Griffith, Rachel, Review of Economic Studies Copyright © 2017, Oxford University Press https://academic.oup.com/ restud/article/3108825/The-Effects-of-Banning-Advertising-in-Junk-Food 6 April 2017 and https://www.asa.org.uk/news/tougher-new-food-and- drink-rules-come-into-effect-in-children-s-media.html 30 June 2017) Extract B Taxing HFSS foods and subsidising healthy eating widens inequality Since low-income groups spend a higher proportion of their income on food and tend to eat less healthily, they are the main targets of taxes on products that are high in fat, salt or sugar (HFSS). Subsidies on healthy food are seen as an alternative policy approach to encourage healthy eating. While data on the impact of such policies are scarce, a recent 5 study on the distributional impacts of HFSS taxes and healthy food subsidies found that these actually widened health and fiscal inequalities. The policies tend to be regressive and favour higher-income consumers. Taxes on unhealthy food increase prices which have a greater impact on low income groups rather than higher income groups. Lower income groups prefer to buy HFSS food. 10 Subsidies encouraged all income groups to buy more fruit and vegetables. However, those on higher incomes proved more responsive and the average share of budget spent on healthy food actually increased for the higher income groups who were more likely to buy the subsidised healthy food and then spend the savings they had enjoyed on yet more healthy food. The diets of the higher income groups before the subsidy tended 15 to be healthier. The choices of the higher income groups are more responsive to price changes. By contrast, lower income groups, if they responded to lower prices, often used the money saved to buy unhealthy items or something else entirely. The long-term benefits of a healthier diet are harder to grasp for consumers when information gaps exist. Often the immediate boost of a tasty treat is more appealing. Taxes and subsidies 20 do not change that. Other strategies are needed to promote healthy eating, especially education. (Source: adapted from Economist 5 October 2017 https://www.economist. com/news/finance-and-economics/21730033-study-suggests- lower-income-families-end-up-paying-more-their-food-taxing-fat and https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3031005 The Economic Journal September 2017 Vol 127 Issue 604) Extract C Tax on fatty foods in Denmark is an economic disaster Denmark introduced a specific tax on saturated fat in October 2011. Recognised as a world-leading public health policy, it was abandoned just 15 months later having been both an economic and political disaster. Indirect taxes of this sort are invariably regressive, disproportionately affecting the 5 elderly and the poor. The specific tax led to prices rising on average 15% for highest-fat products, yielding a total decrease of 5% in the intake of saturated fat from products such as minced beef and cream. 80% of Danish consumers did not change their shopping habits at all. The behavioural change was economically damaging as consumers switched to cheaper brands and crossed the border to Sweden and Germany to do their shopping. 10 Danish tax revenue fell as a result. (Source: adapted from https://iea.org.uk/in-the-media/press-release/ evidence-shows-a-fat-tax-would-hit-poorest-the-hardest 25 May 2013 and https://www.cambridge.org/core/journals/public-health-nutrition/article/ effects-of-the-danish-saturated-fat-tax-on-the-demand-for-meat-and-dairy- products/984CF03634C819D50E66C7B5DC5209DA/core-reader)
(e) Evaluate the likely microeconomic and macroeconomic effects of imposing a tax on HFSS foods. (25)
June 2018 · AS Paper 1 · Q3(b) 2 marks AO1=2 Short answer
Data and extracts for question 33 In the UK charges for dental treatment vary. For example, the following charges can be made for a tooth filling: • National Health Service (NHS) dental treatment £50.50 Private dental treatment £95–£700 • A dentist can choose to offer NHS treatment, private treatment or both.
(b) Explain one possible reason why the state provides NHS dental treatment. (2)
June 2018 · AS Paper 1 · Q6(e) 15 marks AO1=3, AO2=3, AO3=3, AO4=6 15-mark response
Data and extracts for question 6Energy markets Figure 1: Annual surplus or shortage of uranium, measured in millions of kilograms 25 Kg millions 15 5 0 -5 -15 -25 Figures from 2016 are forecast (Source: adapted from http://www.telegraph.co.uk/business/2016/11/20/uranium- the-unloved-metal-whose-price-is-poised-to-go-radioactiv/) Extract A Uranium: the unloved metal Uranium is a fuel source for nuclear energy production. The price of uranium has fallen to a 13-year low. Uranium is a relatively common metal but locating it in the right concentrations can be difficult. Australia has the biggest known resource of uranium, followed by Kazakhstan. Kazakhstan’s production has increased significantly since 2007, 5 accounting for a large proportion of the surplus of this metal. Given the large stockpiles of uranium some firms have ceased production. The biggest impact on the uranium market has been the devastating accident at the nuclear power station in Fukushima, Japan, in 2011. The accident caused a leak of radiation. The accident reduced confidence in the entire nuclear industry, as high doses 10 of radiation leaks increase the risk of cancer. In addition the high cost of safely storing radioactive waste has delayed the building of new nuclear power stations. Japan initially closed all of its 50 nuclear power stations which reduced the demand for uranium. But it has since concluded that nuclear power must be part of its mix of energy suppliers. Despite this setback in 2016 work started on a new uranium mine in Spain to meet 15 the expected rise in demand for the metal. Uranium is a controlled material, so mining companies have to comply with many regulations before opening a new mine. When it opens in 2018, this will be the only uranium mine in Europe, producing 2.2 million kilos a year. It has been in development for more than a decade. Most developed countries, with the notable exception of Germany, have concluded that 20 nuclear power is an essential part of their energy supply. The US and UK are committed to building new nuclear power stations, the latter providing a £30 billion subsidy to build a new nuclear plant at Hinkley Point. China is also building a further 60 nuclear power stations. Supporters of nuclear power say it provides a reliable source of energy at a time when 25 the world’s population is increasing, unlike solar power and wind power which both vary with the weather. In addition they argue that no country can significantly reduce carbon emissions, which are causing climate change, without nuclear. France and the UK have committed themselves to shut down all coal-fired power stations by 2025. So demand for uranium over the next two decades seems guaranteed. 30 (Source: adapted from Uranium: the unloved metal whose price is poised to go radioactive, Jon Yeomans, The Telegraph, 20 November 2016 http://www.telegraph.co.uk/business/2016/11/20/uranium-the- unloved-metal-whose-price-is-poised-to-go-radioactiv/) Extract B Irrational consumers pay the price The UK Government has announced that it might introduce maximum price controls on energy used by households. The UK’s largest energy suppliers are braced for what could be the industry’s most significant government intervention following a decade of rising energy bills and low 5 numbers of consumers switching between energy providers. The Prime Minister promised to intervene because the energy market is “manifestly not working” for consumers. Energy prices have risen by 158% in the last 15 years, and four million households, especially those on low incomes, are still on the most expensive energy rates. 10 Some energy analysts have warned the Government against taking a highly interventionist approach that could undermine the energy market and leave customers paying higher prices in the future. (Source: adapted from http://www.telegraph.co.uk/business/2017/03/22/ governments-pledge-cut-energy-prices-risks-leaving-consumers/) Extract C The economics of climate change Rising carbon dioxide emissions result from the increase in the use of coal, gas and oil in transport and for energy production. In addition, deforestation, food production and processing methods make the problem worse. These carbon emissions are causing a rise in global average temperatures, known as climate change. Climate change could cause 5 hundreds of millions of people to suffer hunger, water shortages and coastal flooding. Three elements of policy are required for an effective global response to reduce carbon emissions. The first is the pricing of carbon, implemented through tax, trading pollution permits or regulation. The second policy is to support innovation and the deployment of low-carbon technologies. And the third is action to remove barriers to energy efficiency, 10 and to inform, educate and persuade individuals about what they can do to respond to climate change. (Source: adapted from www.sternreview.org.uk/)
The UK Government is considering introducing a maximum price for energy. (e) Discuss the likely microeconomic effects of this decision on energy producers and consumers. Include a supply and demand diagram in your answer. (15)
June 2018 · AS Paper 1 · Q6(g) 20 marks AO1=4, AO2=4, AO3=6, AO4=6 20-mark essay Either/or
Data and extracts for question 6Energy markets Figure 1: Annual surplus or shortage of uranium, measured in millions of kilograms 25 Kg millions 15 5 0 -5 -15 -25 Figures from 2016 are forecast (Source: adapted from http://www.telegraph.co.uk/business/2016/11/20/uranium- the-unloved-metal-whose-price-is-poised-to-go-radioactiv/) Extract A Uranium: the unloved metal Uranium is a fuel source for nuclear energy production. The price of uranium has fallen to a 13-year low. Uranium is a relatively common metal but locating it in the right concentrations can be difficult. Australia has the biggest known resource of uranium, followed by Kazakhstan. Kazakhstan’s production has increased significantly since 2007, 5 accounting for a large proportion of the surplus of this metal. Given the large stockpiles of uranium some firms have ceased production. The biggest impact on the uranium market has been the devastating accident at the nuclear power station in Fukushima, Japan, in 2011. The accident caused a leak of radiation. The accident reduced confidence in the entire nuclear industry, as high doses 10 of radiation leaks increase the risk of cancer. In addition the high cost of safely storing radioactive waste has delayed the building of new nuclear power stations. Japan initially closed all of its 50 nuclear power stations which reduced the demand for uranium. But it has since concluded that nuclear power must be part of its mix of energy suppliers. Despite this setback in 2016 work started on a new uranium mine in Spain to meet 15 the expected rise in demand for the metal. Uranium is a controlled material, so mining companies have to comply with many regulations before opening a new mine. When it opens in 2018, this will be the only uranium mine in Europe, producing 2.2 million kilos a year. It has been in development for more than a decade. Most developed countries, with the notable exception of Germany, have concluded that 20 nuclear power is an essential part of their energy supply. The US and UK are committed to building new nuclear power stations, the latter providing a £30 billion subsidy to build a new nuclear plant at Hinkley Point. China is also building a further 60 nuclear power stations. Supporters of nuclear power say it provides a reliable source of energy at a time when 25 the world’s population is increasing, unlike solar power and wind power which both vary with the weather. In addition they argue that no country can significantly reduce carbon emissions, which are causing climate change, without nuclear. France and the UK have committed themselves to shut down all coal-fired power stations by 2025. So demand for uranium over the next two decades seems guaranteed. 30 (Source: adapted from Uranium: the unloved metal whose price is poised to go radioactive, Jon Yeomans, The Telegraph, 20 November 2016 http://www.telegraph.co.uk/business/2016/11/20/uranium-the- unloved-metal-whose-price-is-poised-to-go-radioactiv/) Extract B Irrational consumers pay the price The UK Government has announced that it might introduce maximum price controls on energy used by households. The UK’s largest energy suppliers are braced for what could be the industry’s most significant government intervention following a decade of rising energy bills and low 5 numbers of consumers switching between energy providers. The Prime Minister promised to intervene because the energy market is “manifestly not working” for consumers. Energy prices have risen by 158% in the last 15 years, and four million households, especially those on low incomes, are still on the most expensive energy rates. 10 Some energy analysts have warned the Government against taking a highly interventionist approach that could undermine the energy market and leave customers paying higher prices in the future. (Source: adapted from http://www.telegraph.co.uk/business/2017/03/22/ governments-pledge-cut-energy-prices-risks-leaving-consumers/) Extract C The economics of climate change Rising carbon dioxide emissions result from the increase in the use of coal, gas and oil in transport and for energy production. In addition, deforestation, food production and processing methods make the problem worse. These carbon emissions are causing a rise in global average temperatures, known as climate change. Climate change could cause 5 hundreds of millions of people to suffer hunger, water shortages and coastal flooding. Three elements of policy are required for an effective global response to reduce carbon emissions. The first is the pricing of carbon, implemented through tax, trading pollution permits or regulation. The second policy is to support innovation and the deployment of low-carbon technologies. And the third is action to remove barriers to energy efficiency, 10 and to inform, educate and persuade individuals about what they can do to respond to climate change. (Source: adapted from www.sternreview.org.uk/)
(g) Evaluate ways in which government intervention could be used to reduce carbon emissions. Use at least one appropriate diagram in your answer. (20)
June 2018 · Paper 3 · Q1(c) 8 marks AO1=2, AO2=2, AO3=2, AO4=2 8-mark response
Data and extracts for question 1Branded coffee shops Figure 1: Market share of UK branded coffee shops, 2015, percentages Others Costa Coffee 29% 31% Pret a Manger 5% Morrisons Starbucks 6% 13% Tesco Caffè Nero 7% 9% (Source: http://metro.co.uk/2015/12/14/the-uks-most-popular- coffee-shop-has-been-revealed-5564569/) Figure 2: Number of Starbucks coffee shops worldwide, 2003–2016 Number of coffee shops 30 000 25 085 25 000 23 043 21 366 19 767 20 000 18 066 17 003 16 63516 858 16 680 15 011 15 000 12 440 8 569 10 241 10 000 7 225 5 000 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 (Source: https://www.statista.com/statistics/266465/ number-of-starbucks-stores-worldwide/) Figure 3: Price comparison in selected London coffee retailers, February 2017 Coffee style Starbucks Costa Coffee Caffè Nero Greggs McDonald’s Espresso Double £2.00 £2.00 £1.70 £1.65 £0.99 Latte Medium £2.60 £2.50 £2.50 £1.80 £1.79 Latte Large £2.80 £2.70 £2.80 £2.10 £2.09 (Source: data collected from coffee shops in Holborn, London on 25 February 2017) Extract A Starbucks in Britain – a loss-making business? Coffee shops are among the most profitable parts of the food and drink industry, and few are doing quite as well as Starbucks, a US-based transnational company. Starbucks may be complaining of adverse global market conditions but that did not stop the world’s biggest coffee chain from reporting record annual profits in 2016. It made a profit of 5 almost US$4.2 billion for the year, up 16% on 2015. That was mainly the result of a strong performance in its biggest market, America, where revenue rose 11%. The fastest growth was in the China and Asia Pacific region, with revenue up 23%. Howard Schultz, the CEO of Starbucks, said its Chinese coffee shops were the most efficient and profitable. While Starbucks still makes most of its profit in the US, Mr Schultz has said expansion in China 10 will secure its future for “decades to come” and announced plans to more than double the number of shops in China to 5 000 by 2021. However its British subsidiary, at first glance, appears to be doing less well. It has announced its first ever profit in Britain in 2015 – of just £1 million – despite opening its first coffee shop in the UK in 1998. It now has 849 UK outlets. The main reason why 15 Starbucks has reported persistent losses in the UK is not due to a lack of demand for its coffee, but to minimise its tax bill. It is claimed that some of Starbucks’ revenue earned in the UK is transferred to its Dutch subsidiary, which is charged lower rates of tax. Starbucks is not finding life as easy in Britain as in the USA. It faces competition from home-grown chains such as Costa and Caffè Nero. Accusations of tax avoidance have also 20 damaged Starbucks’ sales to the benefit of its competitors. A survey found that a third less people rated Starbucks as their preferred coffee shop than they did before the tax- avoidance allegations were first published. These issues have forced Starbucks to change its strategy. It has slowed down its expansion plans in the UK and has closed 67 underperforming coffee shops over the past 25 year. It has also tried to repair its reputation by transferring its European headquarters from Amsterdam to London. (Sources: adapted from The Economist 14 February 2015 http://www.economist.com/ news/business-and-finance/21643271-tax and Starbucks company report 2016 and http://s21.q4cdn.com/369030626/files/doc_financials/ 2015/Starbucks-Fiscal-2015_Financial-Highlights.pdf) Extract B Tax on disposable coffee cups? Two and a half billion disposable cups are thrown away every year in the UK, that is, seven million every day. Only one in 400 is recycled. The UK Environment Minister has suggested that a coffee cup tax could work in a similar manner to the plastic bag charge. The 5 pence a bag charge has led to an 85% reduction in the number of bags 5 being given out since October 2015. It is estimated that introducing a tax on disposable coffee cups would cut usage by two billion every year. One environment spokesperson, Kate Parminter, said: “We’ve seen how dramatically a small charge has affected public behaviour when it comes to the plastic bags and it is clearly time to extend it to coffee cups. Most people purchase a tea or coffee and throw away the cup without even 10 thinking about it, but a charge would increase our awareness of the environmental impact.” In response, another MP welcomed her comments but said he did not believe a tax was the solution. He said: “My initial reaction is charging 5p or 10p for the cup will not work. It will not encourage people to take their own cups in if a coffee goes up from £2.60 to 15 £2.65. I suspect a more technological answer is what we need – either the composition of the disposable cups being changed so they’re more easily recyclable, or changing the technology in the recycling.” Disposable coffee cups contain a plastic coating inside the cups which prevent them from becoming soggy, making them difficult to recycle. There are just two specialist 20 facilities in the UK that have the required equipment to separate plastic from paper for recycling. Almost no recycled paper is used in the production of disposable cups, meaning that some 43 000 trees must be cut down annually to keep up with the demand. CO emissions of around 83 000 tonnes are generated every year for their production. 25 (Sources: adapted from http://www.independent.co.uk/news/uk/politics/disposable-coffee- cups-could-be-taxed-like-plastic-bags-environment-minister-says-a6938126.html 05/09/16 and https://www.cchdaily.co.uk/lib-dems-call-5p-plastic-bag-tax-coffee-cups) Extract C German city of Freiburg takes action on cutting the use of disposable coffee cups The ‘Freiburg cup’, made from dishwasher-proof plastic, can be reused hundreds of times. Cups are issued with a one-euro deposit, and can be returned to any of the participating coffee shops in the German city. The cups, which are provided to coffee shops by local councils, are washed in the cafés and bakeries that have signed up to the scheme before 5 being reused. 56 coffee retailers have signed up, and 10 000 cups are being used. One of the main obstacles facing a wider-reaching scheme, however, is the number of café chains in Germany that are unwilling to use unbranded multi-use cups, particularly Starbucks and McDonald’s. Starbucks already offers a discounted coffee for customers with a multi-use cup, but only if it is bearing the unmistakable Starbucks logo. 10 (Source: adapted from http://www.dw.com/en/germanys-love-for-coffee-to-go- leaves-environmental-groups-demanding-action/a-36689719)
(c) Examine the advantages of using an indirect tax as a means of reducing the use of disposable coffee cups. (8)
June 2017 · AS Paper 1 · Q4(b) 1 mark Multiple choice
Data and extracts for question 44 The excess supply of carbon steel has recently caused its global price to fall below $530 per tonne. (Source: adapted from http://www.meps.co.uk/allproducts%20steel%20price.htm)
Steel production leads to high levels of carbon emissions. (b) Which one of the following is likely to result in an increase in carbon emissions? (1) A Introducing a tradable pollution permits scheme B Shutting down steel factories C Subsidising the steel industry to install cleaner technology D Reducing indirect taxes on steel products
June 2017 · AS Paper 1 · Q5(a) 3 marks AO1=1, AO2=1, AO3=1 Short answer
Data and extracts for question 55 Universities UK raised concerns about the proposal to reduce the maximum tuition fees (fee cap) for undergraduate courses in England from £9 000 to £6 000. It stated “This unfunded proposal to reduce the fee cap would damage the quality of experience our universities could deliver to students and remove opportunities for those seeking to benefit from a university education”. (Source: adapted from tuition fees 2015 Times letter Universities UK http://www.universitiesuk.ac.uk/highereducation/ Pages/UUKboardFeesLetter.aspx#.VjoQRbfhDIU)
(a) Explain why reducing the tuition fee cap may result in excess demand for university places. (3)
June 2017 · AS Paper 1 · Q6(g) 20 marks AO1=4, AO2=4, AO3=6, AO4=6 20-mark essay Either/or
Data and extracts for question 6The market for cigarettes Figure 1: Price elasticity of demand - a comparison between tobacco and e-cigarettes Price of packet of 20 Price of tobacco cigarettes e-cigarette kit £7.70–£9.50 £9.99–£19.99 Average price per Single cigarette equivalent tobacco cigarette price of an e-cigarette 48p 7p Price elasticity of demand Price elasticity of demand for tobacco cigarettes for e-cigarettes –0.35 –1.9 (Source: adapted from https://www.blucigs.co.uk/united-kingdom/kits/all-kits) Extract A Government intervention on tobacco There was a time when smoking was fashionable. Television and magazine advertisements glorified smoking. Everyone from your dad to your doctor smoked in all places – cars, restaurants and even hospitals. Tobacco is still the single biggest cause of cancer in the world and the leading cause of preventable deaths. Nearly 80% of the 1 billion smokers worldwide live in low- and 5 middle-income countries. Bans on tobacco advertising, promotion and sponsorship can reduce tobacco consumption. Comprehensive smoking bans covering indoor workplaces, public places and public transport have been introduced in 48 countries. Tobacco taxes are the most cost-effective way to reduce tobacco use, especially among 10 the young and people in low-income groups. A tax increase that raises tobacco prices by 10% decreases tobacco consumption by 4% in high-income countries and 5% in low- and middle-income countries. However, some 8 million people are expected to die each year by 2030 – because they have smoked tobacco or have been exposed to passive smoking. The use of alternative 15 products such as electronic cigarettes (e-cigarettes) are gaining in popularity but information about their effects is uncertain. Little research has yet been done about the long-term health effects of e-cigarettes and the nicotine dispensed by e-cigarettes is highly addictive. The illegal tobacco market still counts for 1 in every 10 cigarettes consumed globally. In addition, tobacco companies still spend tens of billions of dollars 20 each year on advertising and promoting tobacco products and sponsoring events. They continuously challenge the regulatory measures governments are taking. (Source: adapted from http://www.who.int/topics/tobacco/en/ and http://www.who.int/ mediacentre/commentaries/reducing-tobacco-use/en/) Extract B Free market approach Are free markets incompatible with good health? If the solution to every problem involves banning advertising, raising prices and restricting availability, you might easily conclude that the free market is the disease and government regulation is the cure. From this perspective, the providers of food, alcohol and tobacco are determined to push the most unhealthy products on the public at the lowest prices. 5 Contrary to this viewpoint, the profit motive is not unhealthy. Businesses have an obvious incentive to keep their customers alive and customers have a strong incentive to seek out healthier options. Any company that can make a scientifically sound health claim gains a competitive advantage over its rivals. Health sells. In contrast, government regulation can lead to negative health outcomes. Markets can correct themselves long before 10 government failures are even acknowledged. Over a million Britons, almost all of whom are smokers or ex-smokers, use e-cigarettes, as a less hazardous product than cigarettes and yet e-cigarettes face increased regulations and in many countries they are banned. It is neither consistent nor ethical to prevent smokers from switching to much safer alternatives. Efforts to regulate e-cigarettes are a far greater threat to public health than 15 the products themselves. We argue that the interests of consumers are nearly always better advanced by the provision of accurate information and free choice than by prohibitions and regulations. The government policy of small but steady tax rises on tobacco and ever-larger warning labels is becoming less effective and leads to unintended consequences. 20 (Source: adapted from http://www.iea.org.uk/blog/free-market-solutions-in-health- should-be-allowed-to-flourish, Christopher Snowdon, 11th July 2013)
(g) Evaluate the impact of government intervention in the cigarette market. (20)
June 2017 · Paper 1 · Q7 25 marks AO1=4, AO2=4, AO3=8, AO4=9 25-mark essay Either/or
7 In 2015 a report by Public Health England recommended the imposition of a 20% tax on the sale of soft drinks that contain high levels of sugar. Evaluate the likely microeconomic effects of such a tax.
June 2016 · AS Paper 1 · Q2(b) 1 mark Multiple choice
Diagram A shows the market for nursery school places. Diagram A Costs/ benefits £ MPC=MSC V R P1 Pe T MSB S MPB 0 Qe Q1 Quantity of nursery school places (b) Which one of the following measures could a government introduce to achieve the social optimum consumption of nursery school places? It could introduce a: (1) A maximum price of 0P1 per unit B subsidy of RS per unit C tax of VT per unit D minimum price of 0P1 per unit
June 2016 · AS Paper 1 · Q3(b) 3 marks AO1=1, AO2=2 Short answer
Data and extracts for question 33 The area around Lake Naivasha in Kenya supplies 70% of the UK cut-rose flower market. Much of the water which the flower farms are dependent on is extracted from the lake. This has resulted in damage to fish stocks and increasing competition for water. (Source: adapted from ‘Flower Struggles’, Matthew Wilson, House and Home, Financial Times, 28 February/1 March 2015)
(b) Explain one measure the Kenyan government could use to reduce the impact of water extraction from Lake Naivasha. (3)
June 2016 · AS Paper 1 · Q6(f) 20 marks AO1=4, AO2=4, AO3=6, AO4=6 20-mark essay Either/or
Data and extracts for question 6The market for housing Figure 1 – Estimates of the price elasticity of supply of new housing, selected countries 2.5 2.0 1.5 Price elasticity of supply 1.0 0.5 0.0 (Source: adapted from Caldera Sánchez, A. and Å. Johansson (2011), “The Price Responsiveness of Housing Supply in OECD Countries”, Figure 3, OECD Economics Department Working Papers, No. 837, OECD Publishing. http://dx.doi.org/10.1787/5kgk9qhrnn33-en) Figure 2 – Index of UK house prices (1993 = 100) 400 375 350 325 300 275 250 225 200 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 2015 (Source: http://www.nationwide.co.uk/about/house-price-index/download-data#~ ) Extract A Problems facing UK first time buyers Over a third of aspiring first time buyers in the UK have given up hope of ever being able to save for a deposit to buy a property, new research has found. A deposit is the minimum amount that must be paid upfront when buying a property, which is a proportion of the price of the property. The UK Government has a Help to Buy scheme designed to help people buy a home. The 5 government subsidises the mortgage (loan) needed to buy a property, so buyers require a smaller amount saved as a deposit. Under this scheme, first time buyers need as little as a 5% deposit to qualify for a mortgage. This is due to end in the first few months of 2017. The research from mortgage insurer Genworth says this will mean a return to 20% deposits, which would see the average time needed to save for a deposit rise from three 10 years to over 10 years. “Trying to buy your first home in the current climate is like chasing a runaway train. Even with good salaries that could comfortably support a mortgage, thousands of aspiring first time buyers can only save modest sums, especially those who are already paying rent. This deposit trap is why many feel they are left with the all or nothing choice of 15 borrowing from family or waving goodbye to ever owning a home,” said Simon Crone, a vice president at Genworth. “Help to Buy has significantly improved access to mortgages with deposits that are actually realistic to save. The numbers using the scheme may be modest, but it has made significant inroads in the short-term to boost access at the lower end of the property 20 market,” he pointed out. (Source: adapted from http://www.propertywire.com/news/europe/ uk-first-time-buyers-201409309641.html September 2014) Extract B Housing and flood defences A radical new approach to housing and a £2.3 billion of investment in flood defences were announced as part of the UK Government’s new National Infrastructure Plan 2014. One key proposal is for the government to plan, build and sell homes. An initial programme on a government-owned former airfield near Cambridge will see the development of 10 000 homes. This approach will fast track the development by 5 providing certainty and making new homes available more quickly. The government will make the initial investment but expects that later costs will be met through the sale of land and homes. It will also evaluate the feasibility and economic effects of rolling out this model on a wider scale, to support and accelerate housing supply. The plan also commits to £2.3 billion of capital investment to over 1400 flood defence 10 projects in a 6-year programme of investment. As a result, over 300 000 homes will be better protected and over £30 billion of economic damages prevented. Major projects that will benefit include £42 million for the Oxford Flood Alleviation Scheme, £80 million for the Humber Estuary and over £17 million for Tonbridge, Yalding and the surrounding communities. 15 (Source: adapted from https://www.gov.uk/government/news/ambitious-plans-for-housing-flood-defence- and-roads-set-out-in-national-infrastructure-plan-2014)
(f) Evaluate the likely microeconomic effects of government intervention in the UK housing market. (20)
June 2016 · AS Paper 1 · Q6(g) 20 marks AO1=4, AO2=4, AO3=6, AO4=6 20-mark essay Either/or
Data and extracts for question 6The market for housing Figure 1 – Estimates of the price elasticity of supply of new housing, selected countries 2.5 2.0 1.5 Price elasticity of supply 1.0 0.5 0.0 (Source: adapted from Caldera Sánchez, A. and Å. Johansson (2011), “The Price Responsiveness of Housing Supply in OECD Countries”, Figure 3, OECD Economics Department Working Papers, No. 837, OECD Publishing. http://dx.doi.org/10.1787/5kgk9qhrnn33-en) Figure 2 – Index of UK house prices (1993 = 100) 400 375 350 325 300 275 250 225 200 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 2015 (Source: http://www.nationwide.co.uk/about/house-price-index/download-data#~ ) Extract A Problems facing UK first time buyers Over a third of aspiring first time buyers in the UK have given up hope of ever being able to save for a deposit to buy a property, new research has found. A deposit is the minimum amount that must be paid upfront when buying a property, which is a proportion of the price of the property. The UK Government has a Help to Buy scheme designed to help people buy a home. The 5 government subsidises the mortgage (loan) needed to buy a property, so buyers require a smaller amount saved as a deposit. Under this scheme, first time buyers need as little as a 5% deposit to qualify for a mortgage. This is due to end in the first few months of 2017. The research from mortgage insurer Genworth says this will mean a return to 20% deposits, which would see the average time needed to save for a deposit rise from three 10 years to over 10 years. “Trying to buy your first home in the current climate is like chasing a runaway train. Even with good salaries that could comfortably support a mortgage, thousands of aspiring first time buyers can only save modest sums, especially those who are already paying rent. This deposit trap is why many feel they are left with the all or nothing choice of 15 borrowing from family or waving goodbye to ever owning a home,” said Simon Crone, a vice president at Genworth. “Help to Buy has significantly improved access to mortgages with deposits that are actually realistic to save. The numbers using the scheme may be modest, but it has made significant inroads in the short-term to boost access at the lower end of the property 20 market,” he pointed out. (Source: adapted from http://www.propertywire.com/news/europe/ uk-first-time-buyers-201409309641.html September 2014) Extract B Housing and flood defences A radical new approach to housing and a £2.3 billion of investment in flood defences were announced as part of the UK Government’s new National Infrastructure Plan 2014. One key proposal is for the government to plan, build and sell homes. An initial programme on a government-owned former airfield near Cambridge will see the development of 10 000 homes. This approach will fast track the development by 5 providing certainty and making new homes available more quickly. The government will make the initial investment but expects that later costs will be met through the sale of land and homes. It will also evaluate the feasibility and economic effects of rolling out this model on a wider scale, to support and accelerate housing supply. The plan also commits to £2.3 billion of capital investment to over 1400 flood defence 10 projects in a 6-year programme of investment. As a result, over 300 000 homes will be better protected and over £30 billion of economic damages prevented. Major projects that will benefit include £42 million for the Oxford Flood Alleviation Scheme, £80 million for the Humber Estuary and over £17 million for Tonbridge, Yalding and the surrounding communities. 15 (Source: adapted from https://www.gov.uk/government/news/ambitious-plans-for-housing-flood-defence- and-roads-set-out-in-national-infrastructure-plan-2014)
(g) Evaluate the case for government provision of goods and services such as flood defence schemes or housing. (20)

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