Econ AS Paper 1 2023

1 (a) Which one of the following is the percentage increase in the maximum price to

the average household bill?

C – 54%

1 (c) Define the term ‘equilibrium price’.                                                                              (1)

The price at which supply equals demand.

2 (a) Using the data provided, explain one likely factor that may influence the price

elasticity of supply of gas.                                                                                                  (3)

Factor - lack of space capacity / supply is price inelastic.

Gas prices increased while production fell in 2021.

Suggests that producers were unable to increase output in response to higher prices.

Bc gas extraction requires time-consuming investment and infrastructure.

So, in the short run suppliers cannot respond to price rises, making supply relatively inelastic.

(b) Which one of the following can be inferred from the table?                                    (1)

C - The demand and supply of gas are both price inelastic

3 (a) Define the term ‘specialisation’.                                                                               (1)

When a firm, individual, or country concentrates on producing a narrow range of goods or services.

b) Which one of the following is a positive economic statement?                                (1)

A - Disruption to global supply chains will reduce the level of trade

(c) Explain one likely advantage of specialising in the production of goods to trade.

(2)

Allows firms to reduce unit costs.
By focusing on a narrow range of products, firms can become more efficient and productive —> lowers average costs and increases profits.

4 (a) Explain one reason why it is rational for a firm to raise prices when there is

excess demand.                                                                                                                   (3)

Firms aim to maximise profits.
A shortage of goods (crisps and petrol) means businesses will increase prices.
When demand exceeds supply, consumers are willing to bid up prices, allowing firms to charge more without losing sales.

(b) Which one of the following is the most likely cross price elasticity of demand for

close substitutes?   

D - +2.1

5 (a) With reference to the above information, define the term ‘mixed economy’.    (2)

Part of the economy is left to the free market and other is managed by the govt.
E.G Govt. furloughing 11.7 million workers and paying 80% of their wages at a cost of £70 billion, while firms remained privately owned.

(b) The diagram shows the production possibility frontier of an economy. Assuming

the economy is at point W, annotate the diagram to show the opportunity cost of

producing more consumer goods.                                                                                    (1)

DIAGRAM

(c) Which one of the following is a likely advantage of a command economy?         (1)

A - Low levels of unemployment

6 (a) With reference to Figure 1 and Extract A, explain the relationship between price

elasticity of demand and total revenue.                                                                            (5)

Positive relationship between price and total revenue when demand is price inelastic.

When PED is inelastic —> rise in price leads to a proportionally smaller fall in quantity demanded —> total revenue increases.

Figure 1: Shows price elasticity of demand for streamed TV services = −0.6 —> inelastic demand.

Extract A supports this. Netflix’s subscriber demand = highly inelastic; only 3% of customers would definitely cancel after the £1 price rise to £9.99.

Because demand is inelastic, firms like Netflix can raise prices without a significant fall in subscriptions, increasing total revenue.

E.G. A 10% increase in price would lead to only a 6% fall in quantity demanded, increasing total revenue overall.

(b) With reference to Extract B, explain two external benefits associated with the consumption of ‘public service broadcasting’ (line 2).                                                   (6)

1. The provision of impartial news and information.
   Extract B: 1 of the BBC’s public purposes is “to provide impartial news and information”.
   Creates an external benefit because better-informed citizens are able to make more rational economic and political decisions —> improves democratic participation and leads to better outcomes for society as a whole, not just individual viewers.

2. Educational value of public service broadcasting.
   Extract B: BBC aims “to support learning for people of all ages”.
   Benefits third parties bc higher education levels increase human capital, leading to higher productivity, higher wages, and increased economic growth —> benefits the wider economy beyond those who directly consume the programmes.

(c) ‘Television content is a public good’ (Extract B). Assess this statement. (10)

• Television content (specifically public service broadcasting) = public good bc displays the characteristics of non-rivalry and non-excludability.

• Broadcasting is non-rivalrous —> 1 person watching a programme does not reduce the ability of others to watch the same content at the same time.

• Largely non-excludable —> households only need access to a TV aerial or broadband connection to consume the service.

 

• Public service broadcasting e.g. BBC = free-to-air and funded mainly through the TV licence fee.

• The marginal cost of providing television content to an additional viewer is close to zero, meaning that allocative efficiency would imply a price of zero.

• Due to non-excludability, private firms would struggle to profit from providing such content, as consumers could free ride, which justifies government intervention in provision.

 

• BUT, claims that TV content = public good can be challenged.

• Technological developments have increased excludability —> subscription services e.g. Netflix and Sky use encryption, set-top boxes and account restrictions to prevent non-payers from accessing content.

• Means that TV content is better described as a quasi-public good, rather than a pure public good.

• Some rivalry exists, e.g. through caps on account sharing, which limit how many users can consume content simultaneously.

• TV licence fee may be regressive, potentially excluding lower-income households.

• Weakens argument that public service broadcasting is fully non-excludable.

Overall, while public service broadcasting retains strong public good characteristics, especially non-rivalry, the growth of subscription-based platforms means that television content as a whole is not a pure public good. The extent to which the statement holds depends on the type of television content being considered.

(d) Using examples from the information provided, explain what is meant by both

‘substitutes’ and ‘complementary goods’.                                                                        (4)

• Substitute good = one that can be used instead of another good to satisfy the same want.

• E.G. Netflix and Disney+ are substitutes, as consumers can switch between different streaming services to watch television content.

• Complementary good = one that is consumed together with another good —> demand for one increases demand for the other.

• E.G. Streamed TV services are complementary to flat-screen televisions, as consumers need a television to watch the content.

(e) Discuss likely reasons why the market price of streaming television content is

increasing. Draw a supply and demand diagram to support your answer.     (15)

Both demand and supply-side pressures.

Price Determination

• Price determined by interaction of demand and supply; price rises when demand ↑ or supply ↓.

Demand-Side Factors

• Demand grown due to high-quality original content (e.g., The Mandalorian, Stranger Things) ↑ consumers willingness to pay.

• Netflix: 13M UK subscribers; popular plan 62% more expensive than 2014.

• Lockdowns ↑ demand → as demand curve shifts right → price rises.

Supply-Side Factors

• Rising production costs: original shows ~£10M per episode; saturated advertising market.

• Competition (Disney+, Amazon Prime) exists, but high cost of gaining subscribers through marketing and promotions limits supply.

• Supply curve shifts left → meaning less content is available at each price.

Diagram Effect

• Demand curve: D1 → D2 (right shift)

• Supply curve: S1 → S2 (left shift)

• New equilibrium price: P1 → P2; quantity may ↑ slightly or remain stable.

Limitations on Price Rises

• Market saturation and availability of substitutes (Apple TV) limit future price increase.

• Demand relatively inelastic —> tolerates small price rises without large subscriber losses.

• Public service broadcasting (BBC) unaffected → part of market not price-sensitive.

Conclusion

• Rising prices due to strong demand and higher production costs.

• Future price rises depend on market saturation, consumer response, substitutes.

(g) Evaluate the possible disadvantages of a free market approach to the provision of television content.                                                                                                              (20)

Free-Market Approach

• Funded via subscriptions (Netflix, Disney+) & advertising (commercial TV).

• Encourages efficiency, innovation, and high-quality content (“streaming wars”).

• Large subscriber base spreads production costs → lower price per user.

Disadvantages / Market Failures

• Excessive advertising → reduces viewer satisfaction; profit prioritized over consumer welfare.

• Under-provision of public service broadcasting: educational content, minority programming, impartial news may be insufficient.

  • Example: BBC public purposes unlikely to be met if left to profit-driven firms.

  • Externalities: MSB > MPB → free market under-consumes (H < J on diagram).

• High production costs: without public funding, some programmes may never be created.

• Inequality of access: only those who can pay subscriptions get high-quality content.

Limitations of Free-Market Advantages

• Cost of content remains high despite efficiency gains.

• Technology shifts (digital platforms, smartphones) challenge revenue sustainability.

• Public funding (licence fee) is regressive → affects low-income households.

Conclusion

• Free market encourages efficiency, innovation, high-quality content.

• Disadvantages: market failures (under-provision, excessive ads, inequality).

• Government intervention or public funding necessary to ensure socially desirable outcomes and universal access.