AQA A-level Economics: Efficiency, market structure and surplus (7136) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

This set covers AQA A-level Economics (7136) content sections 4.1.5.10 and 4.1.5.11 (website numbering 3.1.5): efficiency, market structure and consumer and producer surplus. Neither section carries an AS-only or A-level-only marker in the specification. All markets, firms and figures are invented for practice. Draw each diagram as you work. Read the study guide first if a method is unfamiliar, and see the revision notes for a summary. Course pages: AQA A-level Economics hub and the checklist.

Questions

1. Distinguish between static efficiency and dynamic efficiency. [3]

2. A small pottery in Country A has the total costs below at five output levels (illustrative).

Output	20	40	60	80	100
Total cost	480	680	960	1,320	1,760

(a) Calculate average total cost at each output. [2] (b) State which of these outputs is productively efficient, and why. [1] (c) The market price is 16. Marginal cost rises from 14 (between 40 and 60 units) to 18 (between 60 and 80). Explain whether the pottery is close to allocative efficiency at 60 units. [2]

3. Explain how investment in human capital and in non-human capital may help a firm become dynamically efficient. [4]

4. In a competitive market in Country B, demand is P = 110 − 2Q and supply (the sum of firms’ marginal costs) is P = 20 + Q.

(a) Find the equilibrium quantity and price. [2] (b) Calculate consumer surplus. [2] (c) Calculate producer surplus. [2]

5. A single firm supplies a different market with demand P = 72 − Q and marginal cost MC = 12 + 0.5Q.

(a) Find the output and price at which this firm maximises profit. [3] (b) Work out the surplus lost relative to the output at which price equals marginal cost. [3]

6. In the market in question 4, output is restricted to 20 units.

(a) Calculate the deadweight loss. [3] (b) Explain why this loss is not simply a transfer from consumers to producers. [1]

7. A cinema in Town C has constant marginal cost of 5 per ticket. Adult demand is P = 35 − Q and student demand is P = 23 − Q. With one price for all, combined demand is P = 29 − 0.5Q and both groups buy.

(a) Calculate profit if the cinema charges one price. [2] (b) Calculate profit if it charges each group its own profit-maximising price. [2] (c) Calculate the change in consumer surplus when it moves from one price to two. [2]

8. In the market in question 4, suppose a seller practises perfect price discrimination. State the output, consumer surplus, producer surplus and deadweight loss, and comment on who gains. [4]

9. Two illustrative industries are compared.

Indicator	Industry X	Industry Y
Price-cost margin	30%	12%
R&D as a share of revenue	0.5%	6%
New products per firm per year	0.3	2.5
Yearly change in unit cost	−0.2%	−3.1%

Using the data, assess the two industries’ static and dynamic performance. [4]

10. Evaluate the view that a monopoly is always less efficient than a firm in a competitive market. [8]

11. Evaluate whether price discrimination improves economic welfare. [10]

Answers

1. Static efficiency is efficiency at one point in time with technology and capital given, covering productive and allocative efficiency [1]. Dynamic efficiency is efficiency over time through R&D, investment and technological change, which lower costs or improve products [1]. A firm can be statically inefficient (P above MC) yet dynamically efficient if it uses its profit for innovation [1]. [3] Examiner insight: A “distinguish” answer earns credit by stating the difference directly. Two separate definitions with no contrast leave the comparison unfinished.

2. (a) ATC = TC/Q [1]: 24, 17, 16, 16.5, 17.6 [1]. (b) 60 units, because ATC is lowest (16) of the outputs shown [1]. (c) Marginal cost around 60 units is between 14 and 18, about 16 [1], so price is close to marginal cost and the firm is close to allocative efficiency [1]. [5] Examiner insight: Say “of those shown”, because a table gives only some outputs. Link your claim to the numbers in part (c), since a bare assertion has nothing to support it.

3. Human capital: training and education raise worker productivity [1], which cuts unit costs over time or improves quality [1]. Non-human capital: new machinery, software or premises [1] allow cheaper production or new products, shifting the cost curve down [1]. [4] Examiner insight: Apply each type of capital to a firm and follow the chain to costs or products. Naming the two types without explaining the effect gains less.

4. (a) 110 − 2Q = 20 + Q gives 90 = 3Q [1], so Q = 30, P = 50 [1]. (b) CS = 0.5 × 30 × (110 − 50) [1] = 900 [1]. (c) PS = 0.5 × 30 × (50 − 20) [1] = 450 [1]. [6] Examiner insight: Show the base and the height. The height for CS is the demand intercept minus price, and for PS it is price minus the supply intercept.

5. (a) MR = 72 − 2Q [1]. Setting 72 − 2Q = 12 + 0.5Q gives 60 = 2.5Q, so Q = 24 [1]. Price from demand: P = 72 − 24 = 48 [1]. (b) Competitive output: 72 − Q = 12 + 0.5Q gives Q = 40 [1]. At Q = 24, MC = 24, so P − MC = 24 [1]. DWL = 0.5 × (40 − 24) × 24 = 192 [1]. [6] Examiner insight: Take the price off the demand curve. Marginal revenue and marginal cost fix output only, and mixing the curves up damages every later step.

6. (a) At Q = 20, demand price = 110 − 40 = 70, and supply price (MC) = 20 + 20 = 40 [1]. The lost units run from 20 to 30, and the gap is 30 [1]. DWL = 0.5 × 10 × 30 = 150 [1]. (b) Some of the lost surplus goes to nobody, because trades that would benefit both sides do not happen [1]. [4] Examiner insight: Distinguish a transfer from a loss. Saying “producers gain what consumers lose” only describes part of the change.

7. (a) MR = 29 − Q = 5, so Q = 24 and P = 29 − 12 = 17 [1]. Profit = 24 × (17 − 5) = 288 [1]. (b) Adults: 35 − 2Q = 5, Q = 15, P = 20, profit 15 × 15 = 225 [1]. Students: 23 − 2Q = 5, Q = 9, P = 14, profit 9 × 9 = 81. Total 306 [1]. (c) One price: adults buy 18 and students buy 6, so CS = 0.5 × 18 × 18 + 0.5 × 6 × 6 = 180 [1]. Two prices: 0.5 × 15 × 15 + 0.5 × 9 × 9 = 153. CS falls by 27 [1]. [6] Examiner insight: Treat each group as a separate market with its own MR = MC. Use the combined curve only for the single-price case.

8. Output is 30, where the last buyer pays 50 = MC [1]. CS is 0 [1]. PS is 900 + 450 = 1,350 [1]. Deadweight loss is 0, so it is allocatively efficient, but the seller captures all the gain, which raises an equity concern [1]. [4] Examiner insight: A good comment goes beyond efficiency. Mention who gains, since “no deadweight loss” alone gives a one-sided answer.

9. Industry X has a high margin of 30%, so price is likely well above marginal cost, which suggests weaker allocative efficiency [1]. Industry Y’s 12% margin suggests price closer to cost [1]. Y spends more on R&D, launches more products and cuts unit costs faster, so it is more dynamically efficient [1]. These are one set of figures, and margins or costs can reflect other things, so the cause is not proven [1]. [4] Examiner insight: Quote figures from both industries when you compare. Add a limit on the data to show evaluation, since an indicator seldom proves a cause.

10. Allocative: a monopoly sets P above MC and loses surplus, for example 192 in question 5 [2]. Productive: it may produce below the minimum-ATC output [1]. Against this, large economies of scale can give a lower ATC than many small firms [1]. Dynamic: supernormal profit can pay for R&D [1], but without rivals it may lack the pressure to innovate [1]. Much depends on regulation, entry threats and the time period [1]. Judgement: “always” is too strong, because the outcome turns on scale and use of profit [1]. [8] Examiner insight: Test the word “always” explicitly. A balanced answer reaches a conclusion that follows from the arguments it has made.

11. Define the type: charging different prices to groups for the same product [1]. Perfect discrimination removes deadweight loss [1], but consumer surplus falls to zero, which raises fairness concerns [1]. For third-degree discrimination, use question 7: profit rises by 18 but CS falls by 27, so welfare falls by 9 [2], because output stays at 24 while sales are shifted between groups [1]. It can raise welfare if it increases output, such as serving a low-income group that would otherwise not be served [1]. Extra profit might fund investment, or might just be kept [1]. It depends on the type, output change and use of profit [1]. Judgement: welfare can go either way, so it improves welfare only under stated conditions [1]. [10] Examiner insight: Support welfare claims with figures from a worked case. A final judgement should say under what conditions your answer holds.

Where marks are usually lost

• Using the monopoly’s MR as its price. Output comes from MR = MC, but price comes from the demand curve.
• Shading the wrong triangle for deadweight loss. Look for the wedge between the demand and MC curves across the units the monopoly leaves unmade.
• Writing “productively efficient” with no mention of average cost.
• Giving a formula with no numbers substituted, so the working cannot be followed.
• Calling profit a deadweight loss. It is a transfer.
• Describing price discrimination without reference to surplus.
• Listing conduct and performance indicators without saying what each shows.
• Reaching a one-sided conclusion on “always” statements.

Next steps

• Review the revision notes and the study guide.
• Visit the AQA A-level Economics hub and tick off the checklist.
• Take the free 10-minute diagnostics to find your gaps.
• Book a free trial class at /trial/.

Official syllabus

Source: the AQA specification for AS and A-level Economics (versions 7135 and 7136), for first teaching from September 2015, version 1.3, covering content sections 4.1.5.10 and 4.1.5.11.