2025 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, with examples, why a firm is able to charge different prices to different groups of consumers for the same product, then asks whether the gains outweigh the losses to consumers and producers from this pricing strategy.
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Using examples, explain why a firm is able to charge a different price to different groups of consumers for the same product.
Price discrimination occurs when a firm charges different prices to different groups of consumers for the same good or service, where the price differences are not due to differences in cost but to differences in consumers' willingness to pay or price elasticity of demand. For a firm to carry this out successfully, three conditions must be met.
Market power. Price discrimination is impossible in perfect competition because firms are price takers. A firm must have some degree of market power, allowing it to adjust prices without losing all its customers. This power stems from product differentiation, branding, service quality or high barriers to entry.
Ability to segment consumers. The firm must be able to separate consumers into groups with different price elasticities of demand or willingness to pay, and the segmentation must be observable and enforceable, using characteristics such as age, timing of purchase or location. Only when groups can be clearly distinguished can different prices be profitably charged.
No resale. If consumers paying the lower price can resell to those who would otherwise pay the higher price, the firm loses its ability to discriminate. The firm must therefore prevent resale physically (perishable goods), technologically (digital authentication) or legally (name specific tickets).
Example 1: student versus adult pricing at a restaurant. Restaurants typically operate under monopolistic competition, differentiating themselves through cuisine, branding, ambience and location, which gives each outlet some pricing power. Students tend to have lower incomes and so more price elastic demand than working adults, and restaurants segment the groups easily using student identification, offering students lower priced meals while adults pay more. A student cannot resell a cheaper meal to an adult because meals are consumed on the premises and verification ensures only eligible consumers enjoy the discount, so arbitrage is prevented.
Example 2: air tickets purchased early versus last minute. The airline industry is an oligopoly with high barriers to entry such as aircraft, airports and landing rights, giving airlines significant market power to set different prices for the same seat. Airlines distinguish early bookers, usually leisure travellers with flexible schedules and high price elasticity, from last minute bookers, often business travellers with fixed schedules and low elasticity, using booking data and dynamic pricing. Tickets are non transferable and tied to the passenger's identification, which prevents resale of cheaper early bird tickets and holds the discriminatory structure in place.
State and explain the three conditions (market power, segmentation by elasticity, no resale) and apply all three to at least two real examples.
Tests: Price discrimination, Monopoly
Discuss whether the gains outweigh the losses to consumers and producers from this type of pricing strategy.
- Frame the welfare question as turning on elasticity differences, the redistribution of surplus and whether output expands.
- Set out the gains and losses to consumers across the elastic and inelastic groups, in surplus terms.
- Set out the gains and losses to producers through revenue, output and capacity utilisation.
- Identify the condition on which the producer gains depend, namely enforceable segmentation against arbitrage.
- Weigh efficiency improvement against pure redistribution to decide where gains exceed losses.
- Reach an evaluative conclusion stating the circumstances under which the gains outweigh the losses.
This part is gated. The full model answer with the worked surplus analysis 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 2025 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 2025 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.
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