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A-level
ECONOMICS
Paper 1 Markets and Market Failure
Time allowed: 2 hours
Materials
For this paper you must have:
• an AQA 12-page Answer Book
• a calculator.
Instructions
• Use black ink or black ball-point pen. Pencil should only be used for drawing.
• Write the information required on the front cover of your answer book.
The Paper Reference is 7136/1.
• In Section A, answer EITHER Context 1 OR Context 2.
• In Section B, answer ONE essay.
Information
• The marks for questions are shown in brackets.
• The maximum mark for this paper is 80.
• There are 40 marks for Section A and 40 marks for Section B.
Advice
• You are advised to spend 1 hour on Section A and 1 hour on Section B.
IB/M/Jun21/E7 7136/1
, 2
Section A
Answer EITHER Context 1 OR Context 2.
EITHER
Context 1 Total for this context: 40 marks
The pharmaceutical industry
Study Extracts A, B and C and then answer all parts of Context 1 which follow.
Extract A
Figure 1: Profitability of new patented Figure 2: Price of generic drugs compared to
drugs patented drugs, and number of
manufacturers
Mean rate of return
Year
on new drugs (%)
2010 10.1
2011 7.6
2012 7.3
2013 4.8
2014 5.5
2015 4.2
2016 4.2
2017 3.7
2018 1.9
2019 1.8
Source: Deloitte report, 2019 Source: Oxera report, 2019
Note: the mean rate of return is the average profit a Note: a generic drug is one which is no longer protected by a
pharmaceutical company can expect to make on a new patent, and so can be made by any pharmaceutical firm, not only
drug over its lifetime, as a percentage of its development cost. the original manufacturer.
Extract B: Rising prices in the global pharmaceutical market
Pharmaceutical drugs are very expensive to research and develop, costing an average of 1
$2.6bn. The most expensive, Zolgensma (a specialist gene therapy drug), costs $2.1 million
per patient. In order to encourage firms to invest in research and development, governments
grant patents for new drugs. Patents preserve a company’s intellectual property rights and give
the company a legal monopoly that usually lasts for 20 years. Global drug prices have soared. 5
The USA spent $334bn on prescription drugs in 2017, up 41% from 10 years ago. Some price
rises have been dramatic. The price of one antiparasitic drug, still protected by a patent, rose
from $13.50 to $750 per pill.
After the monopoly’s patent expires, other companies can manufacture and market the same
drug under its generic name, usually at a lower price. For generic drugs, the UK government’s 10
policy is to rely on competition in the market between suppliers to control their price. Despite
being a monopsony purchaser of these medicines in the UK, the NHS has relatively limited
influence over their price in what is a global market. During 2017–18, the prices of certain
generic drugs increased substantially, partly as a result of two large manufacturers having their
production suspended because of quality issues. For example, the price of a generic mental 15
health drug called Quetiapine peaked at £113.10 per 100mg, having previously cost £1.59.
IB/M/Jun21/7136/1
A-level
ECONOMICS
Paper 1 Markets and Market Failure
Time allowed: 2 hours
Materials
For this paper you must have:
• an AQA 12-page Answer Book
• a calculator.
Instructions
• Use black ink or black ball-point pen. Pencil should only be used for drawing.
• Write the information required on the front cover of your answer book.
The Paper Reference is 7136/1.
• In Section A, answer EITHER Context 1 OR Context 2.
• In Section B, answer ONE essay.
Information
• The marks for questions are shown in brackets.
• The maximum mark for this paper is 80.
• There are 40 marks for Section A and 40 marks for Section B.
Advice
• You are advised to spend 1 hour on Section A and 1 hour on Section B.
IB/M/Jun21/E7 7136/1
, 2
Section A
Answer EITHER Context 1 OR Context 2.
EITHER
Context 1 Total for this context: 40 marks
The pharmaceutical industry
Study Extracts A, B and C and then answer all parts of Context 1 which follow.
Extract A
Figure 1: Profitability of new patented Figure 2: Price of generic drugs compared to
drugs patented drugs, and number of
manufacturers
Mean rate of return
Year
on new drugs (%)
2010 10.1
2011 7.6
2012 7.3
2013 4.8
2014 5.5
2015 4.2
2016 4.2
2017 3.7
2018 1.9
2019 1.8
Source: Deloitte report, 2019 Source: Oxera report, 2019
Note: the mean rate of return is the average profit a Note: a generic drug is one which is no longer protected by a
pharmaceutical company can expect to make on a new patent, and so can be made by any pharmaceutical firm, not only
drug over its lifetime, as a percentage of its development cost. the original manufacturer.
Extract B: Rising prices in the global pharmaceutical market
Pharmaceutical drugs are very expensive to research and develop, costing an average of 1
$2.6bn. The most expensive, Zolgensma (a specialist gene therapy drug), costs $2.1 million
per patient. In order to encourage firms to invest in research and development, governments
grant patents for new drugs. Patents preserve a company’s intellectual property rights and give
the company a legal monopoly that usually lasts for 20 years. Global drug prices have soared. 5
The USA spent $334bn on prescription drugs in 2017, up 41% from 10 years ago. Some price
rises have been dramatic. The price of one antiparasitic drug, still protected by a patent, rose
from $13.50 to $750 per pill.
After the monopoly’s patent expires, other companies can manufacture and market the same
drug under its generic name, usually at a lower price. For generic drugs, the UK government’s 10
policy is to rely on competition in the market between suppliers to control their price. Despite
being a monopsony purchaser of these medicines in the UK, the NHS has relatively limited
influence over their price in what is a global market. During 2017–18, the prices of certain
generic drugs increased substantially, partly as a result of two large manufacturers having their
production suspended because of quality issues. For example, the price of a generic mental 15
health drug called Quetiapine peaked at £113.10 per 100mg, having previously cost £1.59.
IB/M/Jun21/7136/1
