Market Failure (Edexcel A Level Economics A): Exam Questions

The external benefits of higher education include increased tax revenue, faster economic growth, greater innovation and labour market flexibility.

(Source adapted from: https://www.timeshighereducation.com)

A company that provides drinking water and treats waste water has been fined £180000 after an incident that killed about 2500 fish. The charges relate to an illegal discharge of sewage from the waste water treatment plant that polluted nine kilometres of the River Severn, a popular tourist destination.

(Source: adapted from https://www.leaderlive.co.uk)

The food delivery industry

Figure 1: Market share for third‑party food delivery services in the UK, 2019

Extract B

What is the true cost of the food delivery service?

The food delivery industry has boomed in recent years. Just Eat, Uber Eats and Deliveroo all offer very similar services – third‑party food delivery firms that take up to 30% of the price of restaurant meals and deliver them to customers within a certain radius. The average spend per customer is around £15 with a £5 delivery fee, about five times more expensive than cooking at home and the same price as eating in the restaurant. Cash rich, time poor professionals increasingly turn to food delivery.

Food delivery comes with many layers of packaging. In the UK, there are 200 million meals annually with around 1.4 billion individual pieces of plastic for heat retention and protection when travelling, but does it really have to be plastic? People tend to order more food, often high in fat, sugar, and salt, and don’t even have to get up from their sofa.

But there are concerns that the delivery firms are exploiting employees who have no alternative. There is an issue of low pay and informal contracts. Delivery drivers are classed as ‘independent contractors' and therefore not subject to some employment rights, including a guaranteed minimum wage, sick pay, pensions, or holiday pay. Drivers are paid either a flat hourly rate, or a fee per delivery. Factors such as delivery distance, speed, how busy it is and whether there are multiple drop-offs are all factored into how much a driver is paid. Deliveroo says its wages amount to around £10 per hour, but drivers say that during 2020 their pay has been as low as £1 per hour. Drivers are not paid extra for petrol or to maintain their vehicles. Many drivers are recent immigrants or students, who do not have property or savings to fall back on.

The government could address this by widening minimum pay legislation to contracted workers, by setting codes of practice, or by setting recommended wage targets. Furthermore, there are health and safety issues for workers. Vehicle safety checks, length of shifts, and safety equipment are of concern. However, there are still people who benefit from working flexibility.

(Source: adapted from https://www.theguardian.com)

Extract B

Food waste in the supply chain

A report from the British Retail Consortium reveals that supermarkets are directly responsible for around 0.2 million tonnes of food waste every year. This is due to the expiry of use-by-dates and poor handling of stock.

However, 4.1 million tonnes of food waste occurs annually in the food supply chain before it even reaches the supermarkets, indicating the existence of information gaps. The supermarkets are cooperating with food suppliers and farmers to try to reduce this waste. This involves improving forecasts for supply and demand of food and increasing the reliability of transportation and storage.

Consumers, the final stage of the supply chain, waste a further 7 million tonnes of food each year. This suggests irrational behaviour. Supermarkets are also working with consumers to reduce the waste by providing advice on how to store and use leftover food. The development of packaging designs to keep food fresher for longer is one of the innovations under way to reduce waste.

(Source: adapted from ‘Supermarkets tally up food waste bill’. Will Nicholls, in Businessgreen, 19th January 2015.http://www.businessgreen.com)

Chile’s copper mining is on a downward track. There was a time when investing in Chilean mining meant guaranteed success. After 1990, when military rule was replaced by an elected government, market reforms and restored relations with the US and UK meant foreign companies were keen to exploit vast copper reserves. The existence of large copper reserves in a stable country with a business-friendly government is rare, making Chile much more attractive to investors than countries such as Zambia.

By mid-2015, however, the copper price hit a six-year low. Chilean mines are becoming less productive. After 20 years of heavy digging, the ore is lower grade and much further down. The deeper pits take longer to mine and use more fuel. Wages are high, and trade unions are powerful. A mining truck driver earns $70 000 a year, $10 000 more than the US equivalent. Many mining projects that were planned are being postponed, and investors are looking to Peru; even the US copper mining industry is becoming more competitive.

Energy supply is also a worry, as Chile produces virtually no fossil fuels and relies on imported coal and liquid natural gas to power its mines. Energy costs account for 18% of the cost of copper production.

Water supply is also becoming a major problem. Farmers and communities accuse mining companies of causing water shortages to keep their operations running. A prolonged drought has not helped. Mining firms are turning to desalination plants or using untreated seawater. However pumping water 200 kilometres from the Pacific Ocean to the copper mines is costly.

Chile’s environmentalist movement has forced the government to tighten regulations. In 2001, it took 236 days to get an environmental impact assessment of a new mine approved. By 2013, this had increased to 506 days.

(Source: adapted from http://www.ft.com)

Extract B

Thomas Cook’s environmental impact

Thomas Cook Group plc’s operations included its airline and 560 high street travel agents providing flights, hotels and package holidays. The environmental impact of the travel industry is significant. It accounts for 8% of all global carbon emissions. Thomas Cook recognised the risks presented by climate change and actively engaged in reducing their airline emissions. Its plans included using more efficient aircraft and using lower-carbon fuel. In 2018, Thomas Cook was included in the top 10 of the world’s most fuel-efficient airlines.

(Source adapted from: https://www.thomascookgroup.com)

Extract C

Educational Website and TV Programmes

BBC Bitesize is a learning platform created by the BBC in 1998. The online study resource allows parents to teach their children from home, using ready-made lesson plans and study guides with questions for all ages. The revision sessions are free to watch and they are available for children aged five up to their late teens. The guides are written by teachers and subject experts, so they are reliable and follow the National Curriculum. Last year Bitesize attracted around two million weekly unique browsers with a peak week of 3.3 million in the GCSE exam period.

Oak National Academy is a freely available learning resource website created for pupils aged four to sixteen. Launched in 2020, as a response to the global health crisis, the website includes lesson slides, video lessons, worksheets, and quizzes conforming to the national curriculum in England. Ministers have set aside £43 million to fund the Oak National Academy over the next three years.

(Source adapted from: https://www.bbc.co.uk)

Vodafone–Three UK Merger

Figure 1 — Market shares before merger (2024)

S&P Global Market Intelligence Report

Extract A — Company perspective (2024)

In December 2024, Vodafone and Three UK announced their merger, aiming to combine resources and strengthen their position in the UK mobile market. Company executives highlighted plans to invest heavily in 5G networks, promising faster speeds and wider coverage, including in rural areas. They also stated that joining forces would help reduce duplicated costs, allowing the combined company to offer more reliable services to customers.

Industry observers noted that fewer large providers could change the way consumers experience the market. While some welcomed the potential for improved coverage and new service options, others worried that fewer big players might influence the prices customers pay or slow the introduction of new features. Vodafone–Three assured the public that they would maintain competitive pricing and keep agreements with smaller mobile operators to provide access to their network.

Analysts suggested that the merger could reshape customer choices. With fewer big providers, some consumers might find it harder to switch operators quickly, especially in areas with limited coverage. On the other hand, the company argued that investment in technology would lead to faster, more reliable services, which could benefit everyone. The impact on prices, however, remained uncertain, with potential differences between urban and rural areas.

Extract B — Regulator perspective (CMA, 2025)

The CMA carefully reviewed the Vodafone–Three merger, focusing on how the change might affect consumers and smaller providers. Officials noted that mobile phones are essential services, and significant changes in the number of big providers could influence what customers pay and how quickly new services appear. The review included customer surveys, market data, and discussions with smaller companies that rely on the larger networks to operate.

To address concerns, the CMA required Vodafone–Three to commit to specific measures. These included limits on certain tariff increases, guarantees that smaller operators could continue to access their network, and a major investment plan to improve 5G coverage. Regulators said these measures would help ensure customers benefit from better services while still allowing the company to operate efficiently and cover its costs.

Officials emphasised the ongoing importance of monitoring the market. They noted that even with the commitments in place, some areas could see slower changes or smaller improvements than others. Customers might notice differences in service quality depending on location, and pricing decisions by Vodafone–Three would continue to be watched closely. Analysts commented that how the company balances its investments with day-to-day operations would determine whether consumers see noticeable benefits over the next few years.

Extract C — Consumer and analyst perspectives (2025)

Consumer reactions to the merger were mixed. Some welcomed the promise of faster networks and better coverage, especially in cities where signal strength had previously been a problem. University students and young professionals expressed optimism that faster, more reliable services would make online study and work easier, with fewer interruptions during calls or streaming.

Some local communities have expressed concern that additional mobile masts needed for the merger’s 5G expansion may affect landscapes, create noise during construction, and raise worries about environmental and health impacts.

Other consumers expressed concern that with one fewer major provider, prices could rise and switching options might become more limited. Advocacy groups noted that while some households might see little change, customers in areas served mainly by the two largest providers could face fewer alternatives. Analysts pointed out that even modest price increases could affect low-income users more than others, highlighting regional differences in service experience and affordability.

Economic commentators suggested that the long-term effects of the merger would depend on how the company balances its expansion plans with day-to-day operations. While new 5G infrastructure might improve quality, the reduction in major competitors could subtly influence customer choices and pricing. Smaller operators struggle to enter or expand due to high network costs, but some niche providers continue to compete using existing infrastructure through leasing agreementsConsumers and smaller companies would need to watch whether promised improvements actually materialise across the country or remain concentrated in certain areas.

The UK Energy Drinks Market

Figure 1: Market share of energy drink brands (2024)

Source: UK Beverage Association, 2024

Figure 2: UK Energy Drink Consumer Survey (2024)

Survey of 1,200 UK consumers aged 16–25

Extract A: Marketing activities

Energy drink brands in the UK have increased spending on marketing and sponsorship over the past five years. Red Bull and Pulse Energy sponsor large-scale events such as international esports tournaments, extreme sports, and music festivals. Volt and Atomic Rush focus on smaller regional sponsorships and university-level sports partnerships.

Marketing campaigns often use short-form video content on TikTok, YouTube, and Instagram, featuring athletes, musicians, and online personalities popular with young adults. Retailers confirm that Red Bull and Pulse Energy benefit from prominent in-store displays and greater online visibility through delivery apps and supermarket websites. Smaller brands typically rely on local advertising and word-of-mouth promotion.

Consumer interviews suggest that while some buyers are influenced by advertising and limited-edition product launches, others prioritise taste, caffeine strength, or packaging convenience. Some respondents said they try new products when they appear in stores or when friends recommend them.

Extract B: Production, distribution and packaging

Most energy drink manufacturers in the UK import ingredients such as caffeine and taurine, though bottling and packaging are mainly carried out domestically. Red Bull and Pulse Energy have expanded UK-based facilities in recent years, whereas Volt and Atomic Rush use third-party production. Analysts note that fluctuating aluminium and transport costs have affected packaging prices, putting pressure on profit margins.

Distribution networks are dominated by major supermarket chains, with convenience stores and petrol stations providing secondary outlets. Online grocery platforms have seen rapid growth since 2020, and many smaller companies use direct-to-consumer websites to reach niche markets. However, large retailers often charge listing fees or require promotional commitments that can be difficult for newer entrants to meet.

Product development has focused on sugar-free and low-calorie lines in response to shifting consumer tastes and public-health initiatives. Several companies have trialled recyclable packaging and smaller cans aimed at environmentally aware consumers. Manufacturers typically expand output in summer months to match higher demand linked to festivals and sporting events.

Extract C: Consumer behaviour, health and regulation

Surveys of young adults aged 16–25 show that energy drinks have become a regular feature of social and academic life. Many report drinking them during study sessions, part-time work, and social occasions. Some participants describe energy drinks as “essential” for concentration and staying awake during exams or night shifts, while others associate them with parties, gaming, and sporting activity.

Lifestyle patterns strongly influence brand choice. Products associated with gaming or music are especially popular among frequent consumers, while fitness-oriented individuals are more likely to select brands advertising “low sugar” or “natural” ingredients. Several respondents say they first tried a brand because of sponsorships at festivals or university events. Peer influence also matters: many consumers report choosing the brand their friends prefer, though some state that taste and perceived energy boost outweigh social factors.

Focus-group discussions highlight how consumption habits vary by gender and activity. Male respondents are more likely to purchase large cans before exercise or gaming sessions, whereas female consumers often prefer smaller cans or sugar-free options. Some mention switching brands when new flavours are released or when prices are discounted at convenience stores.

Health organisations, including the British Dietetic Association and the Royal Society for Public Health, have expressed concern about the growing consumption of high-caffeine, high-sugar drinks among young adults. Studies have linked frequent use to disrupted sleep patterns, anxiety, and cardiovascular strain. Several schools and universities have restricted sales on campus, citing wellbeing concerns.

Public debate has turned to possible government intervention. Suggested measures include clearer caffeine labelling, age restrictions on purchases, and limits on marketing directed at under-18s. Government bodies have also suggested introducing a tax on energy drinks to discourage overconsumption among young adults and to fund public health initiatives. Industry reactions vary: Red Bull has said its products are intended for adults and already meet existing guidelines, while Pulse Energy has stated that any new regulations would mainly affect advertising rather than production. Smaller brands argue that tighter advertising rules could reduce the dominance of the largest firms by giving newer entrants greater visibility.

Consumer groups have also called for educational campaigns about caffeine consumption, claiming that awareness is low among younger people. Surveys indicate that many consumers underestimate the caffeine content of energy drinks compared with coffee. Some analysts believe that long-term health campaigns could gradually shift demand toward low-sugar or functional beverages, reshaping the competitive landscape of the industry.

Figure 1: Income Inequality in Africa

Figure 2: Major Exports of Selected African Countries (2024)

Extract A: Ghana

Ghana's economy has shown resilience despite recent challenges. In 2023, the country's GDP growth rate reached 2.9%, a slight decline from 5.7% in 2022. This slowdown was attributed to global economic pressures, including the effects of the COVID-19 pandemic and fluctuations in commodity prices. However, Ghana's diversified economy, with significant contributions from sectors like agriculture, services, and manufacturing, has helped mitigate the impact of these external shocks.

The government has implemented various reforms to stabilise the economy. In June 2025, Ghana's parliament approved a $2.8 billion debt relief agreement with 25 creditor nations, including major economies like China, France, the United States, Germany, and the United Kingdom. This move is part of the country’s broader efforts to manage its severe economic crisis and is essential to the continuation of an ongoing three-year, $3 billion bailout programme from the International Monetary Fund (IMF) initiated in May 2023.

Despite these efforts, challenges remain. Inflation has been a persistent issue, affecting the cost of living for many Ghanaians. The government continues to focus on fiscal discipline, infrastructure development, and attracting foreign investment to ensure sustainable economic growth in the coming years.

Extract B: Malawi

Malawi's economic performance in 2023 was modest, with a real GDP growth rate estimated at 1.5%, a slight improvement from 0.9% in 2022. The economy remains heavily reliant on agriculture, which employs over 80% of the population. However, the sector faces challenges such as vulnerability to climatic shocks, limited access to modern farming techniques, and inadequate infrastructure.

The country has also faced external shocks that have hindered economic progress. In early 2024, Malawi experienced the adverse effects of the El Niño weather event, which negatively impacted agricultural productivity. Additionally, the government's decision to freeze USAID funding has had a devastating impact, affecting more than $350 million in annual aid, which constitutes over 13% of Malawi's budget. This aid has been crucial for sectors like healthcare, education, and infrastructure.

In response to these challenges, Malawi is seeking to diversify its economy. The government is focusing on boosting sectors such as tourism, mining, and manufacturing to reduce dependency on agriculture and enhance economic resilience. However, these efforts require substantial investment and time to yield significant results.

Extract C: Why Developing Asian Economies Grow Faster Than Developing African Countries

Several factors contribute to the faster economic growth of developing Asian economies compared to their African counterparts. One key factor is the emphasis on industrialisation. Many Asian countries have rapidly industrialised, leading to increased productivity and exports. This shift has been supported by policies that encourage manufacturing and infrastructure development.

Higher investment in education has resulted in a more skilled workforce in many Asian countries. This has facilitated technological adoption and innovation, driving economic growth. In contrast, some African countries face challenges in improving education systems, which can hinder human capital development.

Significant improvements in infrastructure, such as transportation and energy, have facilitated economic activities in Asian economies. In many African countries, inadequate infrastructure remains a barrier to economic growth, affecting productivity and competitiveness.

Generally, better governance and political stability in many Asian countries have attracted more foreign investment. In contrast, some African countries face challenges related to political instability and governance issues, which can deter investment and hinder growth.

The International Energy Agency has predicted that oil use by cars will peak in 2025 because of the increasing number of drivers switching to electric vehicles.

(Source adapted from: https://www.thetimes.co.uk)

In September 2016 the government approved the building of an £18 billion nuclear power station, Hinkley Point C, which will supply 7% of UK electricity for up to 60 years. The power station is funded by Chinese and French investment.