OCR A Level Economics: The environment and market failure (H460) – 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.

These questions cover the topic Environment in Component 1, Microeconomics, of the OCR A Level Economics (H460) specification, Version 3.0 (June 2026), for first assessment in 2021. All data are invented and illustrative. Teaching is in the study guide and the revision notes. See the OCR Economics hub, the printable checklist and the free 10-minute diagnostics.

Questions

1. A lake in Country E supplies a town with drinking water, hosts a sailing club and takes treated sewage from a works. Identify which function of the environment each use represents. [3]

2. A quarry in Country A has MPB: P = 100 − 4Q and MPC: P = 16 + 2Q. Dust costs nearby farms £18 for each unit produced.

(a) Calculate the market quantity and price. [2] (b) Find MSC and calculate the socially optimal quantity and price. [3] (c) Calculate the welfare loss. [2] (d) Calculate the tax per unit that achieves the optimum and the revenue raised. [2]

3. Households in Country G use diesel generators that pollute their neighbours.

(a) Using a diagram described in words, explain how this causes market failure. [4] (b) Explain why a landowner who plants woodland creates a different market failure. [2]

4. In a model of Country H, degradation D = 8 + 2.4Y − 0.06Y², where Y is income per head in thousands.

(a) Calculate D when Y = 10, and the income at the turning point. [3] (b) Explain two reasons why degradation may fall beyond the turning point. [2] (c) State one limit of the environmental Kuznets curve as a guide to policy. [1]

5. Real GDP in Country J grows 2.5% a year.

(a) Emissions per unit of GDP fall 3.5%. Calculate the percentage change in emissions. [2] (b) Find the fall in emissions per unit of GDP that would hold total emissions constant. [2]

6. Country K holds 450 million units of ore and extracts 15 million a year.

(a) Calculate how many years the ore lasts at a constant rate. [1] (b) Extraction instead grows 3% a year. Show in which year the ore runs out. [3] (c) Give one reason the actual path may differ. [1]

7. A fuel in Country L rises in price from £2.00 to £2.50 after a tax. Monthly sales fall from 1,000 to 940 units.

(a) Calculate PED from these figures. [2] (b) Calculate the price rise needed for a 15% fall in quantity, assuming this elasticity. [2] (c) Explain what the result implies for the effectiveness of the tax. [3]

8. A firm in Country M faces compliance costs of £1,500 for an emissions standard. The chance of inspection is 0.2 and the fine is £4,000.

(a) Calculate the expected fine and state whether the firm will comply, assuming it only seeks to minimise cost. [2] (b) Calculate the minimum fine that would deter it. [2] (c) Explain one other limit of environmental standards. [2]

9. Firms P and R must cut pollution by 50 tonnes in total. Marginal abatement cost: P = 0.5q, R = 2q, where q is tonnes cut. Total cost is 0.25q² for P and q² for R.

(a) Calculate the total cost if each cuts 25 tonnes. [2] (b) Calculate the cuts and permit price under tradable permits. [3] (c) Calculate the total cost saving and each firm’s net cost after trading. [3]

10. For each of information provision, government expenditure and public and private partnerships, give one strength and one limit in reducing environmental degradation. [6]

11. Evaluate whether economic growth will cause environmental degradation and limit sustainable development. [10]

12. Evaluate the effectiveness of a global agreement, compared with national taxes, in cutting emissions of a global pollutant. [10]

Answers

1. Drinking water: provider of resources [1]. Sailing: provider of amenities [1]. Absorbing treated sewage: absorber of waste [1]. [3] Examiner insight: Name the function and tie it to the use. A use with no function named is hard to credit.

2. (a) 100 − 4Q = 16 + 2Q [1]; Q = 14, P = £44 [1]. (b) MSC = 16 + 2Q + 18 = 34 + 2Q [1]; 100 − 4Q = 34 + 2Q gives Q = 11 [1] and P = £56 [1]. (c) ½ × 18 × (14 − 11) [1] = £27 [1]. (d) Tax = MEC = £18 [1]; revenue = 18 × 11 = £198 [1]. [9] Examiner insight: Show the equations. Written working lets a reader follow your reasoning even if a figure slips, so set each step out.

3. (a) Consumers ignore the harm to neighbours, so MSB is below MPB [1]. The market quantity is where MPB = MPC [1], which is above the optimum where MSB = MSC [1]. Resources are over-allocated to generator use, with a welfare loss triangle [1]. (b) Woodland gives a positive externality of production, such as cleaner air [1]; MSC is below MPC, so the market output is too low [1]. [6] Examiner insight: A labelled diagram description, with the market and social points named, supports the explanation.

4. (a) D = 8 + 24 − 6 = 26 [1]; Y = 2.4 ÷ (2 × 0.06) [1] = 20 [1]. (b) Any two: cleaner technology [1]; a shift to services, or stronger regulation funded by higher income [1]. (c) It is a pattern, not a law, and damage may be irreversible before the turn [1]. [6] Examiner insight: Give reasons for the downward slope, not just its shape.

5. (a) 1.025 × 0.965 = 0.9891 [1]; emissions fall 1.09% [1]. (b) 1 − 1 ÷ 1.025 [1] = 2.44% [1]. [4] Examiner insight: Multiply the growth factors. Subtracting 3.5 from 2.5 treats percentages as additive.

6. (a) 450 ÷ 15 = 30 years [1]. (b) Cumulative use is 15 × (1.03ⁿ − 1) ÷ 0.03 [1]. After 21 years it is 430.1 [1]; after 22 years 458.1, which exceeds 450, so it runs out during year 22 [1]. (c) New discoveries, higher prices cutting demand, or recycling [1]. [5] Examiner insight: Test the years either side of the answer so the conclusion is clear.

7. (a) Price +25%, quantity −6% [1]; PED = −6 ÷ 25 = −0.24 [1]. (b) 15 ÷ 0.24 = 62.5% [1]; so the price must rise by 62.5% [1]. (c) A value between 0 and −1 means demand is inelastic [1], so use falls proportionately less than price rises [1]. The tax raises revenue but needs to be large, which has equity effects on poorer households [1]. [7] Examiner insight: The sign matters. State that PED is negative and what an inelastic value means for the policy.

8. (a) 0.2 × 4,000 = £800 [1]; below £1,500, so it will not comply [1]. (b) 1,500 ÷ 0.2 = £7,500 [1]; a fine above this deters [1]. (c) Monitoring is costly [1], and the standard gives no incentive to cut beyond it [1]. [6] Examiner insight: Linking the numbers to the idea of deterrence makes the point stronger than stating the arithmetic alone.

9. (a) P: 0.25 × 625 = 156.25 [1]; R: 625; total £781.25 [1]. (b) Equal marginal cost: 0.5qP = 2qR with qP + qR = 50 [1]; qP = 40, qR = 10 [1]; price = 0.5 × 40 = £20 [1]. (c) Cost = 0.25 × 1,600 + 100 = 500; saving = £281.25 [1]. R buys 15 permits (£300): net cost R = 100 + 300 = £400 [1]; P sells them: net cost P = 400 − 300 = £100 [1]. [8] Examiner insight: Show the equal marginal cost condition before the answers. A quantity without that condition is hard to justify.

10. Information: cheap [1]; slow to change behaviour and hard to measure [1]. Government expenditure: acts where markets will not [1]; has an opportunity cost [1]. Partnership: brings private capital and skill [1]; long contracts may give poor value [1]. [6] Examiner insight: Pair each strength and limit with its own policy. Generic points that fit all three gain less.

11. For: more output uses more resources and creates more waste [1]; non-renewable stocks are finite [1]; the extraction path in question 6 shows how fast growth can use up a stock [1]. Against: growth funds clean technology and enforcement [1]; rising prices push substitutes and recycling [1]; question 5 shows emissions can fall while GDP rises if intensity falls fast enough [1]. Sustainable development needs present needs met without harming future ones [1]. The environmental Kuznets curve suggests degradation may fall at higher incomes, but only for some pollutants and with a possible irreversible cost [1]. The outcome depends on technology, policy and the resource [1]. Judgement: growth need not cause harm, but without policy it is likely to for non-renewable resources and global pollutants [1]. [10] Examiner insight: A reasoned conclusion that names what the outcome depends on gains more credit than two lists.

12. A global pollutant is not confined by borders, so only action covering most emitters addresses the whole problem [1]. National taxes use prices and have legal force [1], but a country acting alone may see firms relocate, leaving world emissions unchanged [1]. A global agreement avoids this leakage [1]. However, countries gain from others cutting while they do not (free riding) [1], and costs fall unevenly between richer and poorer countries [1]. Enforcement is weak [1], and agreement may take years [1]. National taxes can raise revenue and apply quickly [1]. Judgement: an agreement is needed for a global pollutant, but works only with national policies to deliver it [1]. [10] Examiner insight: Compare the two policies directly, not one after the other. A final judgement should name the condition on which it depends.

Where marks are usually lost

• Writing a quantity without the equations that produced it.
• Placing MSC below MPC for a negative externality of production.
• Diagrams without a labelled market point, social point and welfare triangle.
• Adding percentages instead of multiplying growth factors.
• Giving PED without a sign or without saying what it implies.
• Describing a policy without judging how well it works at the level asked.
• Saying growth must harm, or must help, the environment with no weighing of both.
• Forgetting that permits cap the quantity and a tax sets the price.

Next steps

• Re-read the study guide on any weak area.
• Use the revision notes for a final check.
• Visit the OCR Economics hub and the checklist.
• Take the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

OCR, A Level in Economics (H460) specification, Version 3.0 (June 2026), for first assessment in 2021, Component 1 content, area of study Market failure and government intervention, topic Environment.