Edexcel A-Level Economics A 2027 Predicted Practice Paper — Paper 1

Answer ALL questions. Write your answers in the spaces provided. You must write down all the stages in your working.

Section A

Multiple-choice and short-answer questions. Answer all questions in Sections A and B.

• 1

  Question SECTION-A1 (1 mark)

  A firm operating in a perfectly competitive market is a price taker. Which one of the following best explains why? A) It faces a downward-sloping demand curve for its output. B) It supplies a very large share of total market output. C) It produces a homogeneous good and is one of very many small firms. D) It can raise its price without losing any customers.

  A. AB. BC. CD. D

  (Total for Question SECTION-A1 is 1 mark)
• 2

  Question SECTION-A2 (1 mark)

  The price elasticity of demand for a good is -0.4. If the price of the good rises by 10%, the quantity demanded will: A) fall by 4% B) fall by 25% C) rise by 4% D) fall by 40%

  A. AB. BC. CD. D

  (Total for Question SECTION-A2 is 1 mark)
• 3

  Question SECTION-A3 (1 mark)

  Which one of the following is most likely to shift the long-run aggregate supply (LRAS) curve of an economy to the right? A) A rise in the general price level B) A fall in the exchange rate C) A permanent increase in the size of the labour force through net inward migration D) An increase in household consumption

  A. AB. BC. CD. D

  (Total for Question SECTION-A3 is 1 mark)
• 4

  Question SECTION-A4 (1 mark)

  A negative production externality exists in a market. In the absence of intervention, which one of the following is true at the free-market equilibrium? A) Marginal social cost is below marginal private cost. B) The good is under-produced relative to the social optimum. C) Marginal social cost exceeds marginal social benefit at the market output. D) There is no welfare loss.

  A. AB. BC. CD. D

  (Total for Question SECTION-A4 is 1 mark)
• 5

  Question SECTION-A5 (1 mark)

  The table shows an economy's data for one year. Households' disposable income: GBP 800bn; Consumption: GBP 720bn. Assuming a linear consumption function with autonomous consumption of GBP 80bn, the marginal propensity to consume (MPC) is: A) 0.90 B) 0.80 C) 0.10 D) 0.20

  A. AB. BC. CD. D

  (Total for Question SECTION-A5 is 1 mark)
• 6

  Question SECTION-A6 (1 mark)

  Which one of the following would be recorded as a credit on the current account of the UK balance of payments? A) A UK resident buying shares in a US technology firm B) A UK firm exporting machinery to Germany C) The UK government making a loan to a foreign government D) A UK tourist spending money on holiday in Spain

  A. AB. BC. CD. D

  (Total for Question SECTION-A6 is 1 mark)
• 7

  Question SECTION-A7 (4 marks)

  Explain, using a supply and demand diagram, the likely effect on the market for domestically produced solar panels of a government subsidy paid to solar-panel manufacturers.

  (Total for Question SECTION-A7 is 4 marks)
• 8

  Question SECTION-A8 (4 marks)

  A country's Consumer Prices Index (CPI) rises from 104.0 to 107.12 over one year. Calculate the rate of consumer price inflation over the year, and explain one limitation of using the CPI to measure changes in the cost of living.

  (Total for Question SECTION-A8 is 4 marks)
• 9

  Question SECTION-A9 (5 marks)

  With reference to a relevant example, explain the difference between a progressive tax and a regressive tax, and explain the likely effect of shifting from a regressive to a more progressive tax system on the distribution of income.

  (Total for Question SECTION-A9 is 5 marks)
• 10

  Question SECTION-A10 (6 marks)

  Examine the extent to which a rise in the central bank's policy interest rate is likely to reduce the rate of demand-pull inflation in an economy.

  (Total for Question SECTION-A10 is 6 marks)

Section B

Data response question. Answer all questions in Sections A and B.

• 1

  Question SECTION-B1 (5 marks)

  Extract B1 (StudyVector original data): The fictional economy of Marovia is a small open economy. Over 2025 its real GDP grew by 2.4%, the unemployment rate fell from 5.1% to 4.3%, CPI inflation rose from 2.0% to 4.6%, and average nominal wages grew by 3.1%. The central bank's inflation target is 2.0%. With reference to Extract B1, calculate the approximate change in real average wages in Marovia over 2025, and state what this implies for the average worker's living standards.

  (Total for Question SECTION-B1 is 5 marks)
• 2

  Question SECTION-B2 (8 marks)

  With reference to Extract B1, use an AD/AS diagram to analyse two possible causes of the rise in CPI inflation in Marovia from 2.0% to 4.6%.

  (Total for Question SECTION-B2 is 8 marks)
• 3

  Question SECTION-B3 (10 marks)

  Extract B2 (StudyVector original data): In response to inflation, Marovia's central bank raised its policy interest rate from 2.5% to 4.5% during 2025. Household debt in Marovia averages 130% of disposable income, and 60% of mortgages are on variable interest rates. With reference to Extract B2, analyse the likely impact of the increase in the policy interest rate on aggregate demand in Marovia.

  (Total for Question SECTION-B3 is 10 marks)
• 4

  Question SECTION-B4 (12 marks)

  Extract B3 (StudyVector original data): Marovia's government is considering two policies to ease cost-of-living pressures on low-income households: (i) a temporary cut in the sales tax (VAT) on domestic energy from 10% to 5%, or (ii) a targeted cash transfer paid directly to the lowest-income 30% of households. Discuss the relative merits of these two policies as a means of protecting the living standards of low-income households in Marovia.

  (Total for Question SECTION-B4 is 12 marks)
• 5

  Question SECTION-B5 (15 marks)

  Extract B4 (StudyVector original data): Marovia's currency, the maro, depreciated by 8% against its trading partners' currencies during 2025. Marovia imports most of its energy and food but exports manufactured goods, for which world demand is price sensitive. Evaluate the likely effects of the depreciation of the maro on Marovia's current account of the balance of payments.

  (Total for Question SECTION-B5 is 15 marks)

Section C

Choice of extended open-response question. Answer all questions in Sections A and B.

• 1

  Question SECTION-C1 (25 marks)

  "Supply-side policies are always more effective than demand-side policies in achieving long-run improvements in economic performance." Evaluate this statement, using examples to support your answer. In your answer you should consider the effects on economic growth, inflation, unemployment and one other macroeconomic objective of your choice.

  (Total for Question SECTION-C1 is 25 marks)