2021 H2 Economics Paper 2 Essay 1: Suggested Answers
How to use these essay answers. The responses below, including the part (a) answer, are structured guides to the requirements of the question, the content, analysis and evaluation a strong answer must cover, rather than full essay prose with a written introduction and conclusion. Use them to see what to include and how to build the argument, then write it up in your own continuous prose, adding your own introduction and conclusion.
This essay explains how consumers and producers in the market for bicycles act rationally using the marginalist approach, then asks how government intervention could maximise social welfare given the external benefits of cycling and how likely it is to succeed.
An AI guided TYS coach, on every question.
Every ETG student gets access to our AI guided Ten Year Series coach on the ETG learning management system. It walks you through exactly how to approach every single essay question and every single case study question from the last ten years, step by step. TYS Crashcourse students get the same access.
Explain how economic theory suggests consumers act rationally to decide whether or not to buy a bicycle, and how producers of bicycles act rationally to determine their level of output.
Consumers. Consumers are rational agents who aim to maximise utility subject to a budget constraint. In deciding whether to buy a bicycle, a consumer weighs the expected utility of the purchase against its costs, including the price and the opportunity cost of forgoing other goods. This follows the marginalist approach, comparing the marginal utility of the bicycle with its price.
The consumer will buy the bicycle only if the additional satisfaction it provides is at least equal to its price. That marginal utility can come from several sources. For a consumer in a congested urban area, a bicycle may offer high utility as a cost effective and time saving mode of transport, especially where it cuts commuting time or transport costs. Consumers may also value the health benefits of cycling, such as improved fitness and recreation. A rational consumer buys if the price is no higher than the marginal utility, and forgoes the purchase if it is not, for example where there is good alternative transport or poor cycling infrastructure.
The decision is also bound by the budget constraint. Even if a bicycle offers high utility, the consumer must check that it fits within their income. If buying it means sacrificing other goods of higher utility, the rational decision may be to defer or cancel the purchase.
Producers. Producers aim to maximise profit, the difference between total revenue and total cost. To find the optimal output they apply the marginalist principle of equating marginal cost with marginal revenue. Where marginal cost exceeds marginal revenue, the extra bicycle costs more than it earns, so the firm reduces output to avoid losses. Where marginal revenue exceeds marginal cost, the extra bicycle earns more than it costs, so the firm expands output to raise profit. Profit is maximised at the output where marginal cost equals marginal revenue, since the firm is neither losing money on the last unit nor missing out by underproducing.
In the bicycle market this means that if a technological advance lowers marginal cost, producers raise output because each extra unit now costs less, while a fall in demand that lowers marginal revenue leads them to cut output, always returning to the point where marginal cost equals marginal revenue. Both consumers and producers therefore act rationally by applying marginalist principles to weigh costs against benefits.
Apply the marginalist approach to both agents: consumers compare marginal utility with price under a budget constraint, producers set output where marginal cost equals marginal revenue.
Discuss how government intervention in the market for bicycles could be used to maximise social welfare and consider how likely it is that such intervention will be successful in achieving this aim.
- Frame cycling as a source of positive externalities and define the resulting under consumption relative to the social optimum.
- Set out one intervention that raises private benefit and the channel by which it moves output towards the social optimum.
- Set out a second, cost side intervention and how it internalises the externality.
- Develop the practical limitations of these interventions, including cost, opportunity cost and operational problems.
- Weigh the welfare gains against the limitations across the policy options.
- Reach an evaluative judgment on how likely intervention is to maximise social welfare.
This part is gated. The full model answer with the worked positive externality diagram and the evaluation, with the diagrams and the full evaluation, is in the ETG TYS Answers book from SAP and is worked live in the TYS Crashcourse. ETG students also get the AI TYS coach that guides them through this exact question. Message the team to find out more.
Questions students ask
Where can I get the full worked answers to the 2021 H2 Economics paper 2 essay 1?
The full model answers, with the diagrams and the higher mark evaluation, are in the ETG TYS Answers book published by SAP and sold at Popular, and are worked live in the TYS Crashcourse. Every ETG student also gets the AI TYS coach on our learning management system, which guides you through how to tackle every essay and every case study question from the last ten years.
Are these the official 2021 A Level Economics answers?
No. SEAB sets and marks the A Level paper. These are suggested answers by Mr Eugene Toh, author of the H1 and H2 A Level Economics TYS answer keys, published by SAP and sold at Popular.
How should I use these suggested essay answers?
Treat them as a guide to the requirements of the question, the content, analysis and evaluation a strong answer must cover, not as full essay prose. Write the essay up in your own continuous prose, with your own introduction and conclusion.
Get the printable Summary and Diagrams pack.
The notes are free to read because the concepts should be. Join the mailing list for the 112 page Summary and Diagrams pack, drawn the way ETG teaches them, plus new chapters and worked answers as we publish. You can also follow along on Telegram.
Form not loading? Open the sign-up form.