AQA Economics 2024 Paper 1 model answers | Section B

Written by Tom Furber, an AQA A-Level Economics tutor. | Published 4th October 2026.

(Section A model answers are available here.)

Contents

Introduction

This page features full model answers for the AQA Economics A Level, Paper 1, 2024 past paper, Section A.

My tutor commentary on the answers is to be added over time.

The question paper containing the questions is available on the AQA website, linked here (external link to AQA).

Notes on the responses and how to use them

• In the actual exam, you only have to attempt one of the two Section A questions. Here I have written model answers for both questions.
• Answers are likely to score full marks or close to this. 
• I recommend having the question paper and answers up at the same time.
• Do not just copy answers. Instead, attempt the questions yourself without looking. Then compare your responses to the model answers, as well as using the mark scheme. For many questions, there are multiple ways to score highly.
• Answers are not to be copied without permission from the author.
• Some answers feature extra commentary or working from me. These are marked separately in “tutor’s commentary” boxes.
• I am not affiliated with any exam board. These model answers are written independently of the exam board.

Section B – Essay Set 1

Question 9 (15 marks) – imperfect and asymmetric information

Imperfect information is where not all parties have full information. Asymmetric information is when one party (buyers or sellers) has more information than the other party.

For imperfect information, consumers may lack information about the private benefits of consuming healthy food, underestimating the long-term health benefits, for example improvements in heart health from antioxidants from consuming apples. As a result, consumers believe the MPB curve is at MPB: partial information, leading to a free market outcome of (q1,p1). Yet if consumers had full information, they would realise the private benefit of consuming healthy food is higher at MPB1: full info, which leads to a full information outcome at (q2,p2). This results in underconsumption of apples of (q2-q1) in the free market, resulting in market failure, a misallocation of resources in the free market. This means there is a welfare loss due to the underconsumption.

For asymmetric information, sellers at a food market may have more information than buyers about the quality of fruits being sold. This is known as adverse selection. This could include information on the amount of pesticide used, the ripeness of some fruits or whether fruits are produced locally. In a farmers’ market in Ontario, Canada, some sellers were claiming their fruit was produced without chemicals when chemicals may have been used. Consumers, uncertain about the true quality of the fruits at the high street fruit market, may reduce their demand for fruits of high quality from D to D1, leading to equilibrium underconsumption of high quality fruits by (q1-q2) in the diagram below. At the same time, consumers may end up consuming more low-quality fruits than they would have under full information, as they mistakenly believe there’s a chance that low quality fruit is actually high quality. This shifts demand for low-quality fruits right leading to overconsumption and hence market failure. It is possible that the market for high quality fruits could unravel entirely, meaning no fruit is sold if demand falls sufficiently.

Question 10 (25 marks) – behavioural economics policies

Unhealthy food may be overconsumed in the free market because consumers may overestimate the private benefits from consumption, not taking into account the long-term health risks There may also be negative consumption externalities, where consuming unhealthy food leads to greater illness, leading to greater use of the NHS and higher NHS funding costs for taxpayers.

An example of a nudge could be red-yellow-green traffic light labelling of food items in supermarkets, based on how healthy they are. In Germany for example, some foods are labelled red under the “Nutri-score” system if they are unhealthy within that category of food items. The government could require companies to display such labelling. The red warning on a cake for example may signal to consumers that this cake is particularly unhealthy, leading some health-conscious consumers to reduce their demand. Where consumers face bounded rationality, consumers may be more likely to pay attention to the traffic light labelling, requiring a lower cognitive load, compared to reading and understanding a long list of ingredients. Another example of a behavioural economics technique could be requiring school canteens or supermarkets to put healthy food at eye level on the shelves, making it the default option for consumers , while moving unhealthy food further away from eye view. This nudge could reduce demand for unhealthy food further at school canteens, as consumers are less likely to notice the unhealthy food, with healthy food becoming the default option. These behavioural policies shift demand left from D to D1, resulting in a fall in the quantity of unhealthy food from q1 to q2, reducing the rate of illness to society.

However, traffic light labelling may be too small for consumers to observe or may not be informative about the general healthiness of an item. Nutri-score labelling only measures the health of an item relative to those in the same category, so consumers may look for more information. As a result, consumers may be overwhelmed by all the other labelling on food packaging such as sugar, salt , fibre per 100g and ingredient information that traffic light labelling does not get noticed. As a result, demand for unhealthy foods may not fall as much when nudges or behavioural techniques are used, so there is only a small reduction in the equilibrium quantity of unhealthy food.

Instead of nudges, a traditional poiy could be a tax. The UK Government could extend the Soft Drinks Industry (SDIL) to tax high sugar or salt foods (HSSFs). This acts as an extra cost for firms, shifting the supply of high sugar foods to the left from S to S+tax. This leads to the price of HSSFs rising from p1 to p2, as firms pass on some of the tax to consumers by raising prices. This creates a burden to consumers from the tax, as shown by the red consumer incidence area, incentivising consumers to reduce demand for HSSFs (contraction in demand). As a result, the equilibrium quantity of HSSFs consumed falls from q1 to q2, reducing consumption of unhealthy food. Firms may reduce the sugar content of their food to avoid paying the producer incidence of the tax shown in the diagram, as happened with sugary drinks after the SDIL, which could remove sugary drinks from shelves, reducing the equilibrium consumption of unhealthy food further.

However, the success of the tax depends on the price elasticity of demand (PED) for high-sugar foods. The PED may be inelastic for foods such as cakes as these may be addictive to some consumers. As a result, even if a tax on sugary foods is imposed, demand for unhealthy food may not fall as much. Meanwhile the consumer incidence may be larger as firms can pass on more of the tax to consumers without a significant fall in demand, increasing the amount consumers pay which could increase poverty rates. So the sugary foods tax could end up increasing poverty without significantly reducing the consumption of unhealthy food.

Overall, the taxation of unhealthy foods is likely to be a better policy than the use of nudges or other behavioural techniques. Tax revenue from the sugary foods tax can be hypothecated to reducing the impacts of taxes on the poor through welfare benefits, and taxes can reduce the consumption of unhealthy foods not just causing a contraction in demand but also by incentivising businesses to reformulate their products. Meanwhile, nudges may only have small effects on many consumers, leading to little influence on behaviour. If consumers realise they are being nudged, this could even backfire as consumers may rebel, viewing the nudges as paternalist. This could lead to consumers not changing their demand for unhealthy food. In practice, tax and nudge policies may be complements rather than substitutes. Revenue from the tax can fund nudge policies and nudge policies can shift demand left to dampen the price-raising effect of the tax.

Section B – Essay Set 2

Question 11 (15 marks) – consumer and producer surplus

Consumer surplus is the difference between what consumers are willing to pay and what they actually pay for a good or service. Producer surplus is the difference between the price producers are willing to sell for and the price at which they actually sell a good or service.

In a perfectly competitive market, there are many firms. firms are price takers and there is perfect information. An example is the market for the trading of foreign currencies. In this market, the competition between different sellers of a foreign currency may bring down prices. In this case, the consumer surplus is shown by the orange area between the market price and the demand curve in the diagram below., The producer surplus is shown by the blue area between the market price and the supply curve.

A monopoly market would have firms being price makers, with one firm having at least 25% market share. The diagram below shows a monopoly firm, such as Google with its 90% market share in internet search. Starting at the perfectly competitive outcome, where AR = AC (normal profit in the long run) in the diagram below, consumer surplus is area ABPc. The monopoly firm in the market for search engine advertising may choose to restrict the output of search engine advertising slots and increase the price of advertising slots, in order to increase and maximise profits. Specifically profit maximisation occurs where MR = MC, leading the monopoly to increase price from pc to pm and reduce the output from qc to q. As a result, consumer surplus falls due to the higher price and reduced quantity.

Producer surplus increases, which is reflected by the firm’s supernormal profit rising from zero under perfect competition in the long run to (pm-c)q in monopoly. This is because the monopoly firm Google can use its extra market power to increase profits, by restricting the quantity of advertising space and raising the price. This could explain the UK’s competition regulators believed Google’s prices for advertising space were 30-40% higher than competitors such as Bing. This results in an overall fall in the sum of consumer surplus and producer surplus in monopoly (compared to the allocatively efficient outcome at F where AR= MC), resulting in a deadweight loss of the shaded area EFG.

Question 12 (25 marks) – price discrimination

Price discrimination means setting different prices to different consumers for the same good. For train tickets from Chiltern Railways, there can be different prices for students vs commuters.  This is an example of third-degree price discrimination, where different consumer groups face different prices for the same good.

Price discrimination can make consumers worse off. First-degree price discrimination (FD-PD) involves charging each consumer a different price for the same good, specifically the maximum price consumers are willing to pay. Sealed bid auctions are likely to lead to the highest bidder paying what they are willing to pay for the good; large technology companies can also use data on consumers’ purchasing patterns to present different prices for each user, including supermarkets such as Metro trying “dynamic pricing”. This transfers surplus away from consumers towards producers, effectively making consumer surplus zero by eliminating the difference between what consumers are willing to pay and what they actually pay. In the diagram below for the market for supermarket groceries, each unit of groceries is sold according to the price given at that quantity by the demand curve. This means the orange area is transferred from consumer surplus to producer surplus, making consumers worse off.

However, this depends on the necessary conditions for price discrimination holding. Specifically firms need to be able to separate consumers into different people or groups, otherwise the firms cannot charge different prices. They need to prevent seepage, i.e. one consumer pretending to be another consumer to get a cheaper price. The process of separation and enforcement costs money, which means the firm may not be willing to prevent seepage. This could mean some consumers can get around the price discrimination and pay less than what they were willing to pay.

Some consumers benefit from third-degree price discrimination. For example suppose there are two groups of consumers, the group with the more elastic price elasticity of demand (PED) with flatter MR/AR curves in the right diagram and the group with the more inelastic PED with the more vertical AR/MR curves in the central diagram. In each submarket the firm will set the quantity so that MR=MC in that particular market, so profit for the submarket is maximised. For train companies, commuters may have more price-inelastic demand as they have to get to work, whereas students may be more flexible about when and how they travel, so their demand for train tickets may be  more elastic. To increase the revenue received from the elastic group, the firm can reduce its price from p to p2. In doing so, consumer surplus for students increases by the dark blue shaded area pJKp2. More students are able to afford train tickets for instance.

However, this depends how the gain in consumer surplus compares to the loss for commuters. Lower prices for students may be offset by higher prices for the group with price-inelastic demand, the commuters. To increase revenue received from the inelastic group, the firm can increase its price from p1 to p3, increasing total revenue and also total profits. This reduces consumer surplus for this group by the area p1EFp in the middle diagram. If this area is larger than the area pJKp2, then consumer surplus may fall overall, making consumers worse off.

Price discrimination can lead to higher profits, leading to more investment which can benefit consumers. Because of the option to charge different prices for different consumer groups, they can increase their profits. The higher  profits from both groups could make the firm dynamically efficient over time. It means that firms have the supernormal profits to reinvest in reducing costs  or improving quality of the product. Higher product quality for trains could include more comfortable seats or more legroom, increasing the welfare of consumers in both the elastic and inelastic group by increasing the utility from consuming a train ticket. Alternatively the reduced costs could be investing in energy efficiency so the trains can run on less energy. Lower costs could shift supply to the right over time. So the cost reduction could be passed on to the consumers in the form of lower equilibrium prices, increasing consumer surplus.

However, if profits go to dividends for shareholders instead of investment, this may reduce the extent  of dynamic efficiency benefits. Apple conducts price discrimination by charging different prices to consumers in different locations. For example, while Apple charges different prices for its iPhone to consumers in different countries, Apple also allocates 25% of its profits to dividends, which is a relatively high share, reducing the amount available to invest in quality improvement or cost reduction. So consumers may not benefit as much from price discrimination in this case.

Overall, price discrimination is likely to benefit most consumers, through the reinvestment of profit and lower prices for some consumer groups. Also price discrimination may be particularly helpful where there is fixed capacity. On trains for example, at peak times there may be less overcrowding, as some consumers switch to cheaper off-peak tickets. This could also increase consumer utility due to having more comfort and space. The effects of price discriminatoin on consumers depend on the level of regulation. Regulation to prevent significant price rises or to guarantee quality of service may help make price discrimination more beneficial for consumers, by protecting those who cannot afford to pay higher prices. This is the case with some train fares in the UK which face price caps.

Section B – Essay Set 3

Question 13 (15 marks) – economies of scale

Economies of scale are when an increase in firm output leads to lower long-run average cost (LRAC). Diseconomies of scale are when an increase in firm output leads to higher LRAC.

An example of internal (within-firm) economies of scale is technical economies of scale. As Apple produces a lot of iPhones, it can use the division of labour to become more productive, as workers get more experience on a given task. For example Apple may have design and software teams for iPhones in Silicon Valley in the US, while workers in its factory in Tamil Nadu in India and also in China under Foxconn may assemble the product on an assembly line. As Apple increases its output from q to q1 in the diagram below, its productivity grows, leading to LRATC falling from c to c1.

External economies of scale occur when the industry as a whole grows, LRAC falls, shifting the LRAC curve downwards. For example in Silicon Valley, there are lots of technology companies, such as Apple, Google, Meta within close proximity. This means that workers are incentivised to be based in the Silicon Valley area to access more jobs. This makes it quicker and cheaper for firms to hire, due to the larger pool of labour in the area. This lowers LRAC for all levels of firm output, shifting the firm’s LRATC curve down to LRATC1 in the diagram below. So for a given output level q, LRATC falls from c to c1.

Diseconomies of scale could include the bureaucracy of a large firm. Larger firms may have layers of management and different teams that need to coordinate to approve a decision. This makes the firm less productive as decisions are made at a slower pace, which may also reduce innovation levels. Apple has been criticised for more recent iPhone models being relatively similar and not delivering significant progress in innovation. Lower productivity could lead to higher LRAC as output rises, as each extra unit of output requires even more inputs to produce.

Question 14 (25 marks) – nationalisation

Nationalisation involves the government taking over ownership of a privately owned company. Water companies are an example of a privatised industry that could be renationalised.

Bringing water back into public ownership could lead to water and sewage companies taking into account negative externalities. Companies such as Thames Water have been criticised for excessive sewage disposal in waterways by regulator Ofwat. This can cause harm to open water swimmers who may suffer adverse health consequences as a result. This is a negative production externality that private firms may not take into account. Privately owned firms such as Thames Water may seek to maximise profits in order to pay shareholders higher dividends, not taking into account the external cost of sewage. As a result the free market produces where MPC = MPB at quantity q1. Yet, the socially optimal outcome occurs where MSC = MSB at q2, taking into account externalities. While there is overproduction of q1-q2 under privatisation, a nationalised company may have the objective of social welfare maximisation to satisfy voters. As a result, the nationalised firm produces at the socially optimal quantity where MSC=MSB at q2, eliminating overproduction. This leads to a welfare gain from correcting the market failure equal to the welfare loss from the shaded area ABE in the diagram.

However, this depends on the government correctly estimating the socially optimal quantity to produce. The government may lack information about the size of the external cost, i.e. the extent to which sewage spillages lead to health problems. As a result, the government may underestimate the size of the externality, leading to too small a reduction in sewage disposal. So the welfare loss does not shrink by much following nationalisation. So bringing water into public ownership may not necessarily help to resolve negative externalities.

One issue with nationalisation is the lack of incentive to control costs. Publicly owned coal companies in the UK such as the National Coal Board (NCB) were criticised for high costs relative to competitors from other countries such as India. A private firm, which may aim to maximise profits, is incentivised to cut costs to increase profits. Yet a nationalised firm may not aim for profit maximisation, resulting in higher costs relative to private firms. Moreover, a publicly owned coal company is somewhat shielded from competition. While a private firm may need to cut costs to stay competitive on price and avoid firm failure, a nationalised company can afford to make losses, knowing the government may bail out or subsidise the company to keep it afloat. As a result, nationalisation could shift MC and AC  up to AC1 and MC1 respectively. This reduces the output level of coal from q to q1 with AC rising. This could lead to the coal price rising from p to p1. Consumer surplus could fall as higher prices reduce consumer surplus. The firm could see lower profits, as happened with NCB which was dissolved in the 1980s, with supernormal profits falling from (p-c)q to zero.

However, in some cases nationalised firms could have a greater incentive to cut costs than private firms. Nationalised firms may take a longer term view, leading to greater investment in water infrastructure over time. Yet a private firm, such as Thames Water, may take a shorter term view, focusing on satisfying shareholders with high profits and dividends today, instead of facing the upfront cost of investment today. Indeed water companies have been accused of under-investment, with no new reservoirs built for two decades. Greater investment in infrastructure under nationalisation could reduce leaks from pipes, increasing productivity and lowering unit costs.

Overall, there is a case for some privatised industries to be brought back into public ownership. Not only could nationalisation help take into account external costs, it could also increase investment where private companies have failed to invest in water infrastructure. One issue is the upfront cost to the government of buying out private owners when nationalising the company, which could increase the budget deficit and government borrowing. So the government may lack funds to nationalise a large number of companies at once. So the government could seek to renationalise selected companies where the value of the company is low, for instance because it has racked up large debts, making it cheaper to buy. The government could also see nationalisation as an investment with financial returns in the form of profits for the government, offsetting the effect on the budget deficit over time.

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