Practise 126 real questions on The price system and the microeconomy (further) from 2021 to 2026. See the answer and explanation as soon as you answer.
The price system and the microeconomy (further) is one of the 11 main topics in our A Level Economics (Cambridge (CAIE) 9708) question bank, and about 14% of its real questions come from it. Tayyari Karo has 126 real questions on this topic from 2021 to 2026, from Paper 3, Paper 4; 100 are multiple choice and marked instantly, and the rest are structured questions with a model answer. By difficulty: 59 medium, 54 hard, 13 easy.
Work through the questions below, then open the explanation for each one. Redo the ones you missed a few days later.
These are real past-paper questions. Think of your answer first, then open the explanation.
What is a characteristic of monopolistic competition?
Answer: D. product differentiation
Monopolistic competition has many firms selling differentiated products with low barriers to entry, so only normal profit in the long run.
Which combination of statements about small firms and large firms is most likely to be correct?
Answer: C. Small firms can do well when each item produced is different; large firms may arise from internal growth or mergers.
Small firms often thrive producing customised/differentiated products, and large firms grow either organically (internal growth) or through mergers/takeovers (external growth) — both statements are accurate, unlike the absolute claims in the other options.
A major UK chemical firm was bought by its rival, a Dutch chemical firm. What definitely occurred when the Dutch firm bought the UK firm?
Answer: C. horizontal integration
Horizontal integration is the merger/takeover of firms operating at the same stage of production in the same industry — since both are chemical firms, this is definitely horizontal integration. Economies of scale, increased profits, or a partnership structure are not guaranteed outcomes.
What would definitely result from the divorce of ownership and control?
Answer: B. the principal agent problem
When a firm's owners (shareholders/principals) are separate from its managers (agents), the managers may pursue their own objectives (e.g. sales/growth maximisation) rather than the owners' goal of profit maximisation — this conflict of interest is the principal-agent problem, which necessarily arises from the separation of ownership and control.
What is a correct statement of the equi-marginal utility rule?
Answer: B. The marginal utility of X divided by the price of X must equal the marginal utility of Y divided by the price of Y.
The equi-marginal (utility-maximising) rule states that a consumer maximises utility where the marginal utility per dollar spent is equalised across goods: MUx/Px = MUy/Py.
What identifies the output level required to meet the stated aim of a monopoly firm?
Answer: D. revenue maximising: produce where marginal revenue is zero
Total revenue is maximised where marginal revenue equals zero (the point at which further output would start to reduce total revenue). Profit maximisation actually requires MC = MR (not average revenue); sales/quantity maximisation (subject to normal profit) requires AR = ATC, not MR = ATC; efficiency conditions relate to MC = AR (allocative) or minimum ATC (productive), not minimum MC.
'The growth of a firm using a takeover is desirable because it enables consumers to benefit from lower prices and the firm to gain additional profits.' Evaluate this statement.
Indicative content — AO1/AO2: a takeover is a form of external growth of a firm (as opposed to internal/organic growth); it differs from a merger (two firms uniting to form one new company) in that a takeover occurs when one firm buys another; takeovers can be horizontal or vertical (backward/forward) integration; horizontal integration can bring economies of scale, lowering costs and potentially prices for consumers; vertical integration can bring further cost savings that may be passed on to consumers; firms may also raise profits through increased market share and total revenue. …
The full model answer is in the app.
Explain what economists mean by collusion and consider the view that collusion will occur only in a certain type of market structure.
Collusion occurs when firms find it in their interest to co-operate with rivals to maximise (joint) profits, usually by agreeing to fix output and/or price (a cartel, formal collusion, usually illegal) or via tacit/informal collusion (a dominant firm sets price/output and others follow). Conditions favouring collusion: similar products/production methods; large firms, often with a dominant firm; significant barriers to entry; a stable market; limited government interference. …
The full model answer is in the app.
| Session | Paper 3 | Paper 4 |
|---|---|---|
| May/June 2026 | 7 | 2 |
| May/June 2025 | 9 | 2 |
| October/November 2025 | 6 | 2 |
| May/June 2024 | 10 | 2 |
| October/November 2024 | 12 | 1 |
| May/June 2023 | 9 | 5 |
| May/June 2022 | 11 | 1 |
| October/November 2022 | 12 | 4 |
| May/June 2021 | 12 | 6 |
| October/November 2021 | 12 | 1 |
126 real A Level Economics (9708) questions on The price system and the microeconomy (further) from 2021 to 2026, from Paper 3, Paper 4. Each one shows the year, session and paper it came from.
Yes. Every question shows the correct answer and a short explanation the moment you answer.
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