AQA A-Level Economics: Markets, Demand and Supply
6 exam-style questions with full mark schemes and model answers. Write your own answer and the AI examiner marks it against the mark scheme.
Read the following extract and answer the question that follows.
The following extract was written for this exercise.
Aldoria is a small economy whose farmers are among the world's leading growers of vela beans, a speciality crop used to make a popular hot drink. Demand for the drink has been rising steadily as incomes in Aldoria's trading partners have grown. In the most recent season, however, an unusually dry summer cut the vela harvest sharply, and the free-market price of vela beans rose to record levels. Roasters and cafe owners complained of soaring costs, while some growers enjoyed their best revenues in years. Aldoria's government has so far left the vela market entirely to the price mechanism, but consumer groups are now calling for a maximum price to protect drinkers, and an opposition spokesperson has suggested a subsidy for growers instead. Economists note that demand for vela-based drinks is thought to be relatively price inelastic, while the supply of beans is highly inelastic in the short run because a new crop takes a full season to grow.
| Vela bean market, Aldoria | Two seasons ago | Last season |
|---|---|---|
| Harvest (thousand tonnes) | 600 | 480 |
| Free-market price (credits per tonne) | 2,000 | 2,750 |
| Estimated price elasticity of demand | -0.4 | -0.4 |
| Estimated short-run price elasticity of supply | +0.2 | +0.2 |
Question: Evaluate the likely effects of the fall in the vela harvest on the price and quantity of vela beans traded in Aldoria, and assess whether the government should intervene in this market. [25 marks]
In the competitive market for fresh bread in the town of Marlow, the price settles at its equilibrium level, where the quantity demanded equals the quantity supplied.
Explain what is meant by consumer surplus and producer surplus in this market, with the help of a diagram. [15 marks]
Insulin, a life-saving medicine, has very few substitutes and takes up a small share of a patient's budget. Cinema tickets, by contrast, have many close substitutes and are easily postponed.
Analyse why the price elasticity of demand for insulin is likely to differ from that for cinema tickets, with the help of a diagram. [9 marks]
Brindle Buses, the only operator on a rural route, raises its standard single fare. The table below shows the fare and the daily number of passenger journeys before and after the change.
| Before | After | |
|---|---|---|
| Fare per journey | £4.00 | £4.40 |
| Daily passenger journeys | 8,000 | 7,400 |
Calculate the price elasticity of demand (PED) for journeys on this route. State whether demand is price elastic or price inelastic, and explain what happens to Brindle Buses' daily fare revenue as a result of the fare rise. (6 marks)
A sudden surge in popularity causes the demand for moss agate, a semi-precious stone used in jewellery, to rise sharply in a free market.
Explain how the price mechanism performs its rationing, signalling and incentive functions following this rise in demand for moss agate. (5 marks)
In the economy of Verenia, average annual household income rises from £30,000 to £33,000. Over the same period, the average number of restaurant meals bought per household each year rises from 40 to 46.
Calculate the income elasticity of demand (YED) for restaurant meals in Verenia, and state whether restaurant meals are a normal good, an inferior good or, more specifically, a luxury. (4 marks)