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GCSE
ECONOMICS
Paper 1 How markets work

Specimen Time allowed: 1 hour 45 minutes

Materials
You will need no other materials.
You may use a calculator.

Instructions
• Use black ink or black ball-point pen.
• Fill in the boxes at the top of this page.
• Answer all questions.
• You must answer the questions in the spaces provided. Do not write on blank pages.
• Do all rough work in this book. Cross through any work you do not want to be marked.

Information
• The marks for questions are shown in brackets.
• The maximum mark for this paper is 80.
• Questions should be answered in continuous prose. You will be assessed on your ability to:
- use good English
- organise information clearly
- use specialist vocabulary where appropriate.
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Section A

Answer all questions in the spaces provided

0 1 Which of the following best states the basic economic problem?

A Limited resources, limited wants

B Limited resources, unlimited wants

C Unlimited resources, limited wants

D Unlimited resources, unlimited wants

[1 mark]

0 2 In which occupations do wages tend to be lowest?

A In those where there is an excess supply of labour

B In those where the workers are paid on a monthly basis

C In those where the work is dangerous

D In those where workers need long training

[1 mark]

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0 3 Which of the following would be classed as an economic resource?

A Income

B Land

C Opportunity cost

D Productivity

[1 mark]

0 4 Which of the following could lead to a reduction in the quantity demanded of a

product?

A A fall in the price of the product

B An increase in the advertising budget for a product

C A rise in the income of buyers of the product

D A rise in the price of the product

[1 mark]

0 5 Which of the following best describes the equilibrium price in a market?

A Where all consumers are satisfied

B Where profit is maximised

C Where supply equals demand

D Where supply exceeds demand

[1 mark]

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0 6 Which of the following best explains why prices tend to be lower in a competitive
market rather than in a monopoly?

A A competitive market has more economies of scale

B A monopoly has less influence on the market

C New firms are free to enter the competitive market

D Profits are lower in a monopoly

[1 mark]

0 7 Which of the following would lead to a rightward shift of the supply curve for cars?

A A fall in the price of cars

B A new technological development

C An increase in the price of steel

D An increase in wages paid to car factory workers

[1 mark]

0 8 A 10% increase in the price of grapes leads to a 4% increase in the quantity supplied.
What is the price elasticity of supply of grapes in this case?

A -2.5

B +0.4

C +2.5

D +4.0

[1 mark]

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0 9 Which of the following would be most likely to lead to a decrease in the price of a
good?

A A decrease in demand and an increase in supply

B A decrease in demand and a decrease in supply

C An increase in demand and a decrease in supply

D An increase in demand and an increase in supply

[1 mark]

1 0 A firm is able to buy raw materials in bulk at a reduced average cost from its
suppliers. This an example of:

A Diseconomies of scale

B Managerial economies of scale

C Purchasing economies of scale

D Technical economies of scale

[1 mark]

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1 1 State two sectors of the economy.

[2 marks]

Sector 1

Sector 2

1 2 Explain one negative externality that could occur due to the building of a new airport.

[2 marks]

1 3 Explain one possible effect on the equilibrium market price of an increase in

production costs for firms.

[2 marks]

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1 4 Figure 1 shows data relating to a small business selling boxes of organic

vegetables in a small town.
Figure 1

Fixed costs £1,500.00

Variable costs per box £4.00
Current output level (boxes) 500

1 4 . 1 Using Figure 1 calculate the average cost of a box of organic vegetables based on
the current output level. Show your working.
[2 marks]

1 4 . 2 Explain one possible reason why average cost per unit may increase as the output
level of a business increases.
[2 marks]

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1 5
Figure 2
Two businesses are producing sofas for sale to households; SofaSogood plc sells its
sofas from a warehouse located on the outskirts of a large town and are sold direct to
consumers. Handcraft Furniture Ltd sells sofas from a shop located in a small town
which are produced in premises located behind the shop.

The sofas are aimed at different markets and are sold for significantly different prices.
Data relating to each business is shown below.

Handcraft
SofaSogood plc Furniture Ltd
Number of workers employed 75 12
Average yearly income of consumers £24,000 £55,000
Method of production Machine intensive Hand-made
Discount offered by suppliers 10% 1%
Annual production level 5,000 sofas 300 sofas

1 5 . 1 Using Figure 2, analyse why the price of a sofa sold by Handcraft Furniture Ltd is
likely to be more expensive than a sofa sold by SofaSogood plc.
[6 marks]

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1 6 State two of the main economic groups.

[2 marks]

Group1

Group 2

1 7 Explain why the demand for food is relatively price inelastic.

[2 marks]

1 8 Explain why online retailing is an example of a market.

[2 marks]

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1 9 Figure 3 shows data relating to UK expenditure on eating out.

Figure 3
UK expenditure on eating
Year
out per person per week
2011 £11.93
2012 £12.09
2013 £12.31
2014 £12.40

1 9 . 1 Using Figure 3, calculate the percentage change in weekly expenditure on eating out
between 2011 and 2014. Give your answer to one decimal place and show your
working.
[2 marks]

1 9 . 2 Explain one possible reason for a rise in UK expenditure on eating out.

[2 marks]

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2 0 Firms selling ice-creams in the UK find that they sell more in the summer than in
the winter because the warm weather makes eating ice-creams more popular for
consumers.

Figure 4 is a supply and demand diagram for ice-creams in winter.

Figure 4

2 0 . 1 Draw and label on the diagram in Figure 4, to show the effects of warmer summer
weather on the market for ice-creams.
[3 marks]

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2 1 Figure 5

A small, independent fast-food shop is considering whether or not to introduce a new

machine to speed up production. The machine would be able to produce burgers to
order and enable the production of burgers to be split into different stages so that each
worker would be involved in only one stage of the process.

The shops sales are in decline with customers regularly complaining about having to
wait a long time for their orders. It is hoped that the installation of the machine will
enable sales to rise but the machine would be an expensive investment.

The current workforce of the shop are worried about the changes but the managers
claim that the investment could lead to many benefits. Regardless of whether the
investment in the machine goes ahead, the management of the shop are worried about
the low-price competition they face from a larger fast-food chain soon to open in the
local area.

2 1 . 1 Using Figure 5, assess whether the decision to install the machine will be
beneficial for the business and the workers.
[9 marks]

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Extra Space

Turn over for Section B

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Section B
Answer all questions in the spaces provided

Item A – Supermarkets

Figure 6
The supermarket industry in the UK has for many years been dominated by the Big 4 supermarkets,
of which Tesco is the market leader. The industry is often described as an oligopoly, with the Big 4
competing against each other through the number of stores they have, the customer service they
offer, their loyalty schemes and through heavy advertising.

Market Share of Big 4 and Discount Supermarkets

Supermarket Group Supermarket Type Market

Share
(%)
Tesco 28.3
Sainsbury’s 17.0
The Big 4 Supermarkets
Asda 16.2
Morrisons 11.0
Aldi Discount Supermarkets 5.5
Lidl 4.2

The Big 4 have been accused of taking advantage of their oligopoly position by charging high prices
and treating their suppliers unfairly. There have been reports of the supermarkets putting pressure
on suppliers to lower their prices and threatening to go elsewhere if the suppliers did not comply.
The government has the power to fine supermarkets that are found to be doing this, but to date this
power has not been used.

The activities of the supermarkets involves them shipping food long distances around the country,
using practices that result in vast amounts of waste. Although some supermarkets donate their food
waste to charities for distribution there is no legal requirement surrounding food waste.

Two German discount supermarket chains, Aldi and Lidl, started operations in the UK in the 1990s.
From very small beginnings, these two retailers have rapidly opened new stores throughout the UK
and are having a noticeable impact on the Big 4.

The discount supermarkets charge lower prices than the Big 4 and despite this they are able to be
profitable by operating efficiently and keeping the productivity of their employees high. Customer
facilities are not as good as those of the Big 4, for instance, these stores do not usually have cafes,
petrol stations or toilet facilities for customers.

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Figure 7
One criticism of the Big 4 relates to the low wages paid to some employees.

Minimum hourly wage rates at supermarkets

Supermarket Group Hourly wages paid

to store assistants
Tesco £7.39
Sainsbury’s £7.36
Aldi £8.40
Lidl £8.20
National Living Wage £7.20
National Living Wage in London £9.35

There are about 10,000 UK store employees at both Aldi and Lidl, which is far fewer than the
300,000 who work at Tesco. Employees at the discount stores are expected to work hard and to be
flexible in their work. They must agree to adjust their working hours to fit in with peak demand and
be willing to move between tasks in the stores as they are needed. Many of the staff are students
who fit in the work around their studies.

Another criticism of the supermarket industry is the use of special offers that do not save the
consumer any money. As well as this, they have also been criticised for being involved in price fixing
which has kept the prices of some goods artificially high.

2 2 Give a definition of productivity.

[2 marks]

2 3 Using Figure 7, calculate the difference in net pay of a Tesco store assistant and Aldi
store assistant working a 40 hour week, with deductions of 20%. Show your working.
[3 marks]

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2 4 The National Living Wage (NLW) government policy target is to increase the NLW
to £9 per hour by 2020.

Using Figure 7, explain two possible impacts of this policy on the UK supermarket
industry.
[6 marks]

Impact 1

Impact 2

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2 5 Using Figure 6, analyse the impact of the discount supermarkets entering the UK
supermarket industry.
[6 marks]

Turn over for the next question

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2 6 Do you think the government should intervene further in the UK supermarket

industry?

Use Figure 6 and 7 and your own economic knowledge to justify your view.

[15 marks]

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Extra Space

Question 26 continues on the next page

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END OF QUESTIONS

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