Written by Tom Furber, an A-Level Economics tutor (Edexcel specialist). | Published 1st April 2022 | Updated 21st August 2026.
Students have asked for further examples of answers to 25-mark questions for Edexcel A Economics A Level. Below I have given an example model answer on market-based supply-side policies. This shows how to analyse, evaluate and draw diagrams for privatisation and deregulation.
Question
The question contains a mini extract, followed by the practice question. This is written in the style of a Paper 2 Section C 25 mark question.
The Deregulation Bill (external link) in the UK changed 182 different parts of regulation. For example, eliminating health and safety rules for self-employed workers in low-risk jobs, affecting 800,000 self-employed workers.
Evaluate the effectiveness of market-based supply-side policies such as privatisation and deregulation (25 marks).
Possible Answer
Knowledge, application and analysis (KAA) paragraph 1 – Deregulation
A market-based supply-side policy is deregulation. Deregulation reduces costs for firms in terms of the costs paid to lawyers or to hire staff to comply with the regulations. This decrease in costs shifts short-run aggregate supply (SRAS) to the right from SRAS to SRAS1. Also deregulation may remove barriers to entry, allowing more firms to enter markets and further increasing short-run aggregate supply. With more entrepreneurs in the market, the increase in the quantity of factors of production shifts LRAS to the right from LRAS to LRAS1. Lower business costs from deregulation increase profits for firms, leading to higher investment in new capital, which increases the quality and quantity of capital, which further increases the productive potential (LRAS) of the economy. This leads to real GDP increasing from Y to Y1, leading to economic growth. Increasing real GDP and profits are likely to increase government revenue from taxes too. So the government can reduce the budget deficit and achieve budget balance. For an example of deregulation, consider the Deregulation Bill in the UK, which eliminated health and safety rules for 800,000 self-employed workers in low-risk jobs.
Evaluation 1
However this depends on the type of regulation – some regulations are beneficial for businesses and increase productive potential. For example the Companies Act 2006 legally requires large companies to pay for independent audits of financial statements. This makes company financial statements more trustworthy, so investors are more willing to invest in UK companies, boosting investment in UK companies which increases the number and size of companies, increasing aggregate supply. Removing such regulations would reduce investor confidence and reduce aggregate supply.
KAA 2 – Privatisation
Privatisation is the transfer of ownership of a firm from government to private owners, such as with Royal Mail. A private firm has the incentive to maximise profits to satisfy shareholders and to survive in the face of competition, whereas government owned firms will likely survive if they sustain heavy losses due to government subsidies. So to increase profits, the privatised firm may cut average costs, reduce X-inefficiency as it now has an incentive to cut costs and in doing so, increase productivity. In the case of Royal Mail, this has meant lower delivery times for mail. This means the LRAS shifts right from LRAS to LRAS1. In addition, firms, after being privatised, can list their company on the stock exchange where shareholders can buy their company’s shares. The revenue from selling shares brings an increase in investment, both from domestic sources and from abroad, into UK companies. This shifts AD to the right from AD to AD1, as I is a component of AD (AD = C + I + G + X -M). This increases the rate of economic growth, with real GDP rising from Y to Y1 without causing inflation as the price level remains at PL. This will also increase employment, as labour demand is derived demand from demand for goods and services.
Evaluation 2
However the success of privatisation depends on how the firms try to increase their profits. The firms may choose to fire workers to cut costs and increase profits, increasing the rate of unemployment. Royal Mail cut 1600 jobs after the privatisation. Higher unemployment could force some people into poverty, while increasing inequality as shareholders earn higher dividends. Higher unemployment could also mean lower spending in local shops, causing a negative multiplier effect, reducing AD and slowing economic growth.
Conclusion
Overall market-based supply-side policies such as deregulation and privatisation can be effective in achieving economic growth, as they lower costs, encourage competition and boost productive capacity. However these policies may come with tradeoffs, for instance increasing inequality and reducing worker protections. The success of privatisation and deregulation depends on how firms allocate their extra profits. Some water companies such as Thames Water have been accused of allocating profits towards shareholder dividend payouts, rather than investment, in which case LRAS may not increase.
Tutor’s Commentary
Overall this answer should score in the top bands for A-level Economics Edexcel A. It should score close to full marks or full marks.
Note the structure of each KAA point:
- Explain the point.
- Include a diagram. For 25 markers for Edexcel, level up the complexity of the diagram. For macro, this can involve showing two curves shifting on the same diagram. For micro or tariff macro diagrams, showing areas can also help.
- Extend the worded analysis, for instance by linking to macroeconomic objectives
- Make sure to feature a real world example within your KAA paragraph.
The use of examples in this answer helps to support the analysis.
Note the conclusion is not a summary of arguments. A conclusion should do the following:
- Make a decision about whether the policies are effective and then tries to justify it.
- Add what the final judgement may depend on and refers to real world context.
FAQs on the 25 mark question on market-based supply-side policies
Which diagrams should I use for supply-side policies in 25 mark questions?
The simplest diagram is an AD-LRAS diagram with LRAS shift right. Accompanied by detailed explanation, this can score highly.
If you want to lean more into diagrams, you could combine the LRAS shift with another shift. For example an SRAS shift to the right if the policy also lowers business costs.
See the example diagrams in the essay above.
How do I build a chain of reasoning for supply-side policies?
For the 25 mark questions, there are a few stages:
- Explain the effects of policies:
- How does the policy affect the quality or quantity of factors of production supplied? This will explain how the policy shifts LRAS.
- How does the policy affect business costs or aggregate demand?
- Draw the diagram and show what happens to equilibrium outcomes
- Explain the effects on macroeconomic objectives as a result of the diagram.
The first stage is the most difficult but also the most important.
For example, privatisation may encourage firms to cut costs to prevent shutdown or to make extra profits to pay shareholders higher dividends. This could encourage efficiency gains to produce the same output with fewer inputs, increasing productivity.
How do I evaluate market-based supply-side policies?
Often market-based supply-side policies may lead to tradeoffs with inequality, the environment or even employment.
The effectiveness of privatisation depends on how firms use their profits. Some water companies have been criticised for using profits to pay dividends to shareholders, rather than reinvesting back into water infrastructure.
In my essay above, I also note that some regulations can create certainty and increase business confidence to invest. For example, financial market regulation to reduce the chance of a financial crisis.
You can find more evaluation and analysis points for these policies in my supply-side policy notes.
Related resources for model answers and supply-side policies
Click these links below for more model answers on:
- Government intervention (25 mark question).
- Quantitative easing (25 mark question).
- Monopoly (25 mark question).
- All model answers.
See this link for detailed content notes on supply-side policies for Edexcel A.
More Edexcel A style resources
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