EnglandEconomics

Individuals, firms, markets and market failure

20 dot points across 20 inquiry questions. Click any dot point for a focused answer with worked past exam questions where available.

How do we measure the welfare gains that buyers and sellers get from trading?

Consumer surplus and producer surplus, how they are shown on a demand and supply diagram, and how they change when price, demand or supply changes.
An answer to AQA A-Level Economics 4.1.4, covering consumer surplus and producer surplus, how each is shown on a demand and supply diagram, and how they change when price, demand or supply shifts.
7 min answer →

How do a firm's costs behave as output changes?

Fixed and variable costs, total, average and marginal cost, the shapes of the short-run cost curves, and the relationship between marginal and average cost.
An answer to AQA A-Level Economics 4.1.5, covering fixed and variable costs, total, average and marginal cost, the shapes of the short-run cost curves, and the relationship between marginal cost and average cost.
8 min answer →

What determines how much of a good consumers want to buy?

The demand curve, the law of demand and diminishing marginal utility, the conditions of demand and the causes of shifts in demand, and the distinction between movements along and shifts of the curve.
A focused answer to AQA A-Level Economics 4.1.3, covering the demand curve, the law of demand, diminishing marginal utility, the conditions of demand that shift the curve, and the difference between movements along and shifts of demand.
8 min answer →

How do economists think, and what is the difference between positive and normative statements?

Economics as a social science, the use of models and ceteris paribus, positive versus normative statements, and the role of value judgements in economic decision making.
A focused answer to AQA A-Level Economics 4.1.1, covering economics as a social science, the use of models and ceteris paribus, the distinction between positive and normative statements, and how value judgements shape policy.
8 min answer →

Why do average costs fall as firms grow larger, and why can they eventually rise?

Internal and external economies of scale, diseconomies of scale, the long-run average cost curve, minimum efficient scale, and the link to returns to scale.
An answer to AQA A-Level Economics 4.1.5, covering internal and external economies of scale, diseconomies of scale, the long-run average cost curve, minimum efficient scale, and the link to returns to scale.
8 min answer →

How responsive are demand and supply to changes in price, income and other prices?

Price, income and cross elasticity of demand and price elasticity of supply, their calculation and determinants, and the link between price elasticity of demand and total revenue.
An answer to AQA A-Level Economics 4.1.3, covering price, income and cross elasticity of demand and price elasticity of supply, how each is calculated and what determines it, and the relationship between price elasticity of demand and total revenue.
9 min answer →

How can government correct market failure, and why might intervention make things worse?

Government intervention to correct market failure through taxes, subsidies, regulation, price controls, tradable permits and provision, and the causes of government failure.
An answer to AQA A-Level Economics 4.1.7, covering how government corrects market failure through indirect taxes, subsidies, regulation, price controls, tradable permits and state provision, and the causes of government failure.
9 min answer →

Why do free markets sometimes fail to allocate resources efficiently?

Market failure and the types of efficiency, positive and negative externalities in production and consumption, and the welfare loss they create.
An answer to AQA A-Level Economics 4.1.7, covering market failure and the types of efficiency, positive and negative externalities in production and consumption, the divergence of private and social costs and benefits, and the resulting welfare loss.
9 min answer →

How does a monopoly set price and output, and is monopoly good or bad for welfare?

The monopoly model, barriers to entry, the determination of price and output, the costs and benefits of monopoly, natural monopoly, and sources of monopoly power.
An answer to AQA A-Level Economics 4.1.5, covering the monopoly model, barriers to entry, how price and output are determined, the costs and benefits of monopoly including natural monopoly, and the sources of monopoly power.
9 min answer →

Why do a few large firms behave so differently from many small ones?

The characteristics of oligopoly, concentration ratios, interdependence and the kinked demand curve, collusion and cartels, and price and non-price competition.
An answer to AQA A-Level Economics 4.1.5, covering the characteristics of oligopoly, concentration ratios, interdependence and the kinked demand curve, collusion and cartels, and price and non-price competition.
9 min answer →

How do firms behave in a perfectly competitive market in the short and long run?

The assumptions of perfect competition, short-run and long-run equilibrium, the entry and exit of firms, and the efficiency properties of the model.
An answer to AQA A-Level Economics 4.1.5, covering the assumptions of perfect competition, short-run and long-run equilibrium, how entry and exit drive profit to normal, and the efficiency properties of the model.
8 min answer →

How does the production possibility frontier show scarcity, and why do economies specialise and trade?

The production possibility frontier (PPF), opportunity cost shown by movements along it, economic growth and shifts of the PPF, specialisation, the division of labour, and the functions of money.
A focused answer to AQA A-Level Economics 4.1.2, covering the production possibility frontier, opportunity cost and economic growth shown on it, specialisation, the division of labour and its advantages and disadvantages, and the functions of money.
9 min answer →

How are prices set in a free market, and how do markets respond to change?

The determination of equilibrium market prices, how excess demand and excess supply are eliminated, the functions of the price mechanism, and the effect of shifts in demand and supply.
An answer to AQA A-Level Economics 4.1.4, covering how equilibrium market prices are determined, how excess demand and supply are removed, the rationing, signalling and incentive functions of the price mechanism, and how markets adjust to shifts.
8 min answer →

Why and how do firms charge different prices for the same product?

Price discrimination, the conditions required for it, the degrees of price discrimination, and its effects on firms, consumers and economic welfare.
An answer to AQA A-Level Economics 4.1.5, covering price discrimination, the conditions required for it to work, the three degrees of price discrimination, and its effects on firms, consumers and economic welfare.
8 min answer →

What is the difference between production and productivity, and why does productivity matter?

Production and productivity, the difference between them, specialisation and the division of labour, and the law of diminishing returns and returns to scale.
An answer to AQA A-Level Economics 4.1.5, covering the difference between production and productivity, the role of specialisation and the division of labour, the law of diminishing returns in the short run, and returns to scale in the long run.
8 min answer →

Why does the market under-provide certain goods, and what does information have to do with it?

Public goods and the free-rider problem, merit and demerit goods, information gaps and asymmetric information, and the under- or over-provision of these goods.
An answer to AQA A-Level Economics 4.1.7, covering public goods and the free-rider problem, merit and demerit goods, information gaps and asymmetric information, and why the market under- or over-provides these goods.
8 min answer →

How do firms measure revenue and profit, and what is the profit-maximising rule?

Total, average and marginal revenue, the distinction between normal and supernormal profit, the profit-maximising rule, and alternative objectives of firms.
An answer to AQA A-Level Economics 4.1.5, covering total, average and marginal revenue, the difference between normal and supernormal profit, the profit-maximising rule where marginal cost equals marginal revenue, and alternative objectives of firms.
8 min answer →

What determines how much of a good firms are willing to sell?

The supply curve and the law of supply, the conditions of supply that shift it, the distinction between movements and shifts, and the role of profit, costs and indirect taxes and subsidies.
An answer to AQA A-Level Economics 4.1.3, covering the supply curve and the law of supply, the conditions of supply that shift it, the difference between movements and shifts, and how costs, profit, indirect taxes and subsidies affect supply.
7 min answer →

Why must every economy make choices, and what does each choice cost?

Scarcity, the fundamental economic problem, finite resources and infinite wants, the factors of production, opportunity cost, and the basic economic questions of what, how and for whom to produce.
A focused answer to AQA A-Level Economics 4.1.2, covering scarcity, finite resources and infinite wants, the four factors of production, opportunity cost, and the three basic economic questions every economy must answer.
8 min answer →

What determines wages and employment in a labour market?

The demand for and supply of labour, wage determination in competitive labour markets, the marginal revenue product of labour, monopsony and trade unions, and wage differentials.
An answer to AQA A-Level Economics 4.1.6, covering the demand for and supply of labour, wage determination in competitive markets, the marginal revenue product of labour, monopsony and trade unions, and the causes of wage differentials.
9 min answer →