Wednesday 15 May 2024 Morning 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. A-level ECONOMICS Paper 1 Markets and Market Failure 2 IB/G/Jun24/7136/1 Section A Answer EITHER Context 1 OR Context 2. EITHER Context 1 Total for this context: 40 marks The market for university accommodation Study Extracts A, B and C and then answer all parts of Context 1 which follow. Extract A Table 1: Average weekly university rent, selected UK cities, 2015 and 2021 Figure 1: Number of full-time students at UK universities, and type of accommodation, 2015 to 2021 Selected UK cities Average weekly university rent, 2015 Average weekly university rent, 2021 Birmingham £113.88 £157.94 Brighton £143.00 £235.93 Bristol £141.58 £184.38 Liverpool £112.97 £136.61 Manchester £120.87 £180.60 UK average £121.16 £169.35 Source: Cushman Wakefield Student Accommodation Report, 2022 Extract B: A serious shortage of student accommodation The number of 18-year-olds in the UK applying to university is rising. In addition, there was a record number of 277 000 foreign students in 2022. Universities have expanded the number of places on offer to students, but the supply of student accommodation is highly inelastic. Providers of rental accommodation have been deterred by stricter rules on shared houses, higher taxes and greater rights for renters. Rising construction costs, interest rates and inflation have resulted in an insufficient number of new developments in many university cities. Supply shortages have been particularly acute in some cities, and certain universities have asked students to live at home. Shortages of accommodation could mean that some students are discouraged from applying to university. The average private sector rent outside London consumes almost three-quarters of the maximum student loan, and most students are ineligible for this maximum. Some of the top universities may become out of reach to poorer students who do not live locally. 5 10 Source: News reports, 2023 3 IB/G/Jun24/7136/1 Turn over ► Extract C: Policies to solve the shortage of student accommodation The causes of the shortage of student accommodation are varied and some, but not all, result from market failure. Rising rents ought to incentivise more supply, but that has not worked recently. Planning restrictions have limited the number of new building projects. Relaxing such rules might help, but local residents complain that high numbers of students can alter the nature of their communities. Subsidies to the builders of student accommodation could increase supply, but with a likely delay of many years. Some students have been offered financial incentives to defer their entry by a year or to live at home. To reduce further the demand for student accommodation, some people have urged the government to restrict foreign student numbers. However, the 22% of students who are foreign pay 44% of all tuition fees and so subsidise costs for UK students. Policies to tackle high rents could include rent subsidies from the government or an increase in the grants and loans available to students. In Scotland, university students have benefited from controls which limit rent increases to a fixed percentage each year. The National Union of Students is calling for nationwide rent controls. A maximum rent can help keep the cost of student accommodation lower than it would otherwise be, but risks some landlords withdrawing from the market. Some argue that high-quality student accommodation is a merit good and ought to be provided by the government at a fair rent. 5 10 15 Source: News reports, 2023 0 1 Inflation resulted in a basket of goods and services that cost £100 in 2015 costing £112 in 2021. Using this information and the data in Extract A (Table 1), calculate the percentage increase in average university rent, in real terms, between 2015 and 2021. Give your answer to one decimal place. [2 marks] 0 2 Explain how the data in Extract A (Figure 1 and Table 1) show that the supply of university and private rental accommodation has failed to match the increase in student numbers between 2015 and 2021. [4 marks] 0 3 Extract B (lines 3–4) states that ‘Universities have expanded the number of places on offer to students, but the supply of student accommodation is highly inelastic’. With the help of a diagram, explain the impact of the increase in the number of students attending university on the market for student accommodation. [9 marks] 0 4 Extract C (lines 14–16) states that ‘A maximum rent can help keep the cost of student accommodation lower than it would otherwise be, but risks some landlords withdrawing from the market’. Using the data in the extracts and your knowledge of economics, discuss the advantages and disadvantages of policies the government might introduce to improve the market for student accommodation. [25 marks]