2025 H2 Economics Paper 2 Essay 2: 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 the likely impact of a rise in the price of eggs on household expenditure and on consumer surplus, then asks how a rise in egg prices affects a food producer's profits and whether it is likely to cause the producer to shut down.
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Explain the likely impact of this rise in price of eggs on household expenditure and on consumer surplus.
Price elasticity of demand measures the responsiveness of quantity demanded of a good to a change in its own price, ceteris paribus. Eggs are purchased by households directly and are also used in producing many food products, so a higher egg price raises production costs for those food products, shifting their supply leftward and raising their prices too.
Impact on household expenditure. Eggs and egg based food products have price inelastic demand because of their high degree of necessity. The higher feed and production costs reduce supply, shown by the supply curve shifting left from SS0 to SS1. At the initial price the quantity supplied falls, creating a shortage that exerts upward pressure on price, raising it from P0 to P1. Because demand is price inelastic, the rise in price more than offsets the fall in quantity, so household expenditure rises (from the area 0P0AQ0 to the larger area 0P1BQ1). On a supply and demand diagram this is a leftward supply shift against a steep, price inelastic demand curve.
Impact on consumer surplus. Consumer surplus is the difference between the price consumers are willing to pay and the price they actually pay. As price rises from P0 to P1, consumer surplus shrinks from the area above P0 up to the demand curve to the smaller area above P1, so consumers retain less surplus.
In conclusion, the rise in egg prices, driven by higher feed costs, increases household expenditure while reducing consumer surplus. Because eggs and egg based foods are necessities with price inelastic demand, households cannot significantly cut quantity demanded, so they spend more in total and are made worse off through a higher cost of living and a loss of welfare.
Define PED, use a leftward supply shift against price inelastic demand to show expenditure rising, and show consumer surplus contracting as price rises.
Discuss the impact of a rise in egg prices on profits of a food producer and whether this is likely to cause the food producer to shut down.
- Set up eggs as a variable input and trace a higher input price through the firm's cost curves to its profit maximising output.
- Identify the factors that determine the size of the profit fall, such as the cost share of eggs and the scope to substitute.
- Bring in the firm's ability to pass on the cost, conditioned by demand and competitive intensity.
- State the short run shutdown condition in terms of revenue against average variable cost.
- Apply the condition to different types of food producer to see who is at risk of shutdown.
- Distinguish short run shutdown from long run exit and conclude on when closure becomes likely.
This part is gated. The full model answer with the worked cost and revenue diagram and the shutdown analysis, 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 2?
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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