OCR GCSE Economics: Supply side policies and the limitations of markets (J205) – 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 sections 3.7 and 3.8 of the OCR GCSE (9-1) Economics (J205) specification, Version 2.0 (June 2026): supply side policies, externalities and government correction. The specification is untiered. All countries, firms and figures are invented and illustrative.

Related pages: study guide, revision notes, the OCR GCSE Economics hub, the printable checklist and the free 10-minute diagnostics.

Questions

1. Explain what is meant by the term negative externality. [2]

2. State two supply side policies and, for each, state one economic objective it could help achieve. [4]

3. Country B has 10 million workers and produces £250bn of output a year. After a training policy, output is £258.75bn and the workforce is unchanged.

(a) Calculate output per worker before and after the policy. [2] (b) Calculate the percentage rise in output per worker. [2]

4. In a small town, the weekly market for disposable cups has demand Qd = 1,600 − 40P and supply Qs = 40P, where P is the price in pounds. Each cup causes £4 of external cost through litter.

(a) Calculate the equilibrium price and quantity. [2] (b) The government introduces a tax of £4 per cup. Supply becomes Qs = 40(P − 4). Calculate the new equilibrium price and quantity. [3] (c) Calculate the tax revenue. [1] (d) Calculate the external cost avoided by the tax. [2]

5. A region’s market for adult literacy classes has demand Qd = 900 − 10P and supply Qs = 20P − 300. Each class place gives £6 of external benefit.

(a) Calculate the equilibrium price and quantity. [2] (b) The government pays a subsidy of £6 per place. Supply becomes Qs = 20(P + 6) − 300. Calculate the new equilibrium price and quantity. [3] (c) Calculate the cost of the subsidy to the government. [1]

6. Explain two reasons why a government information campaign may fail to reduce a negative externality. [4]

7. A government sets a legal limit on the waste a factory may release into a river.

(a) Explain how the limit corrects a negative externality. [3] (b) Explain one cost of this policy. [2]

8. A local government is considering free vaccination clinics, provided by the state. Explain one benefit and one cost of this policy, including an opportunity cost. [4]

9. Country E plans a training programme that costs £5bn a year. It is expected to raise annual output by 1.6% of its current output of £300bn. The government receives 30% of any extra output as tax revenue.

(a) Calculate the extra output. [2] (b) Calculate the net annual cost to the government. [2] (c) A new health centre costs £50m. Calculate how many health centres £5bn could build. [1] (d) Evaluate whether the government should go ahead with the programme. [4]

10. A chemical factory in a town releases fumes that harm local residents. Evaluate whether a tax on the factory’s output is the best way to reduce this problem. [8]

11. After a tax on a good, its price rises from £8.00 to £8.80 and the quantity sold falls from 5,000 to 4,700 units.

(a) Calculate the price elasticity of demand. [3] (b) Explain what the result means for the tax as a way of cutting consumption. [2]

Answers

1. A cost [1] imposed on a third party and not reflected in the market price [1]. [2] Examiner insight: name the third party and say the cost is not paid by the buyer or seller; “pollution is bad” alone does not show it is an externality.

2. Any two policies, each with an objective: for example, education and training [1] to raise growth or cut unemployment [1]; investment in transport [1] to raise growth or lower costs and ease price rises [1]. [4] Examiner insight: the objective must be one of the economic objectives, such as growth, low unemployment or price stability, and it should match the policy chosen.

3. (a) Before: £250bn ÷ 10 million = £25,000 per worker [1]. After: £258.75bn ÷ 10 million = £25,875 [1]. [2] (b) Rise = £25,875 − £25,000 = £875 [1]; £875 ÷ £25,000 × 100 = 3.5% [1]. [2] Examiner insight: show the change divided by the original value; dividing by the new value gives a different answer.

4. (a) 1,600 − 40P = 40P, so 80P = 1,600 [1]; P = £20 and Q = 800 [1]. [2] (b) Set 1,600 − 40P = 40P − 160 [1]; 80P = 1,760 [1]; P = £22 and Q = 720 [1]. [3] (c) 720 × £4 = £2,880 [1]. [1] (d) Fall in quantity = 800 − 720 = 80 cups [1]; 80 × £4 = £320 [1]. [2] Examiner insight: write each step of the algebra; working that is written out is easier to check and shows your method clearly.

5. (a) 900 − 10P = 20P − 300, so 30P = 1,200 [1]; P = £40 and Q = 500 [1]. [2] (b) Set 900 − 10P = 20P − 180 [1]; 30P = 1,080 [1]; P = £36 and Q = 540 [1]. [3] (c) 540 × £6 = £3,240 [1]. [1] Examiner insight: a subsidy is paid on every unit sold after the subsidy, so use the new quantity, not the old one.

6. Any two developed reasons. People may ignore the message [1] because the harmful product is enjoyable or habit-forming, so behaviour barely changes [1]. Firms may advertise heavily [1], which can outweigh the campaign’s message [1]. Other valid reasons include slow results and uncertainty. [4] Examiner insight: a development such as “because …” or “which means …” is needed after each reason; a list of two phrases shows less reasoning.

7. (a) The law caps the waste, so the factory cannot ignore the harm [1]. It must adopt cleaner methods or cut output [1]. The external cost falls, and output moves closer to the level best for society [1]. [3] (b) Firms face higher costs, for example for cleaner equipment [1]; these may be passed on as higher prices or fewer jobs [1]. (Enforcement cost to the government is also valid.) [2] Examiner insight: a cost should be developed into a consequence for a named group, such as firms, consumers or taxpayers.

8. Benefit: free access means more people are vaccinated [1], which cuts the spread of disease to others, a positive externality [1]. Cost: it is paid for from taxation [1]; the opportunity cost is that the money could have been spent on another service such as schools [1]. [4] Examiner insight: “opportunity cost” means naming the next best use of the money; saying “it costs a lot” is not an opportunity cost.

9. (a) 1.6% × £300bn [1] = £4.8bn [1]. [2] (b) Extra tax = 30% × £4.8bn = £1.44bn [1]; net cost = £5bn − £1.44bn = £3.56bn [1]. [2] (c) £5bn ÷ £50m = 100 health centres [1]. [1] (d) Benefit: output rises by £4.8bn a year, and skills may last [1]. Cost: £5bn is spent and £3.56bn net, so on a yearly basis the extra output is less than the outlay [1]; the opportunity cost is 100 health centres [1]. Judgement: it depends on how long the benefit lasts and on whether skills match jobs, so go ahead only if the gains are long-lasting [1]. [4] Examiner insight: use the figures you have calculated in the evaluation, then finish with a judgement that gives a reason.

10. Explain: a tax raises the factory’s costs, so supply falls, price rises and output falls, reducing fumes [1]; ideally the tax equals the external cost [1]. Benefit: it raises revenue that could fund other services or clean-up [1], and firms can choose how to cut output [1]. Limit: the external cost is hard to measure [1], and if demand is inelastic, output falls little [1]. Alternative: a legal limit gives certainty but costs more to enforce [1]. Judgement: a tax with a limit on the worst emissions may work best, because the tax encourages cleaner methods while the limit sets a cap [1]. [8] Examiner insight: “evaluate” in the specification means weighing up both sides or comparing alternatives, then reaching a supported judgement; a one-sided answer, or one without a final choice, has not done this.

11. (a) Price change = 0.80 ÷ 8.00 × 100 = +10% [1]; quantity change = −300 ÷ 5,000 × 100 = −6% [1]; PED = −6 ÷ 10 = −0.6 [1]. [3] (b) Demand is price inelastic [1], so the price rise causes a smaller percentage fall in quantity; the tax raises revenue but cuts consumption only slightly [1]. [2] Examiner insight: show the percentage changes before dividing, and say what the sign and size mean for the policy.

Where marks are usually lost

• Describing an externality without mentioning a third party.
• Using the old quantity instead of the new one when calculating tax revenue or subsidy cost.
• Calculating percentage change against the new value instead of the original.
• Describing what a policy is without explaining its effect on output.
• Giving “it costs money” as an opportunity cost, with no alternative named.
• Treating a tax as certain to work, with no thought of elasticity or measurement.
• Giving one-sided evaluation, or no judgement at the end.
• Forgetting to link a supply side policy to an objective.

Next steps

• Read the revision notes and the study guide.
• Visit the OCR GCSE Economics hub and the printable checklist.
• Try all free 10-minute diagnostics.
• Ready for lessons? Book a free trial class.

Official syllabus

OCR GCSE (9-1) Economics (J205), specification Version 2.0 (June 2026), first assessment 2019, published by OCR. Sections 3.7 and 3.8.