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AQA Economics A-level: example 25 mark essays (A* grade)

Subject: Economics

Age range: 16+

Resource type: Assessment and revision

Last updated

24 April 2023

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AQA Economics A-level: Example 25 mark essays - specification 7135, 7136

Includes 25 mark essays:

• Assess whether you agree that governments should subsidize companies who are developing cars which run on clean fuels such as hydrogen (25 marks)
• Assess whether you agree that the government should give financial assistance to firms producing cars in the UK to increase their competitiveness (25 marks)
• Assess whether you agree that the implementation of pollution permits could play a role in reducing global warming (25 marks)
• Discuss the view that falling unemployment will inevitably lead to trade-offs with other macroeconomic policy objectives (25 marks)
• Evaluate policies that the government could use to reduce obesity, referring to classical solutions such as taxes, subsidies and regulations, and behavioural solutions such as nudges and default choice (25 marks)
• Using your knowledge of behavioural economics and neoclassical economics, evaluate the possible policies that could be used to reduce congestion in the UK’s cities. (25 marks)
• Evaluate the view that imposing a tax is the most effective government policy for reducing the market failure arising from overconsumption of unhealthy food and drink (25 marks)
• Using the extracts and your economic knowledge, assess whether you agree that fixing a maximum price for energy that is sold households is the best way of dealing with market failure in the UK energy industry (25 marks)
• Using the extracts and your economic knowledge, assess the view that inequality is ‘good for us all’ (25 marks)

9 and 15 mark essays:

• With the help of a diagram, explain how export subsidies may help promote economic growth in India (9 marks)
• Explain how government policies can reduce the natural rate of unemployment (15 marks)
• Explain why, in a free market, sugary drinks may be overconsumed (15 marks)
• To what extent do you agree that expansionary monetary policy is always effective in creating economic growth? (25 marks)

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AQA Economics A-Level (A* Notes, Essay Examples and Plans)

AQA Economics A-level: specification 7135, 7136 *I sat my Economics exam in summer 2018 and achieved A star grades across all three papers. Here is a bundle of all my content/theory notes and 25 mark essay examples and plans! Includes: Paper 1 - Micro * Economic Problem and Methodology * Supply and Demand * Production, Costs and Revenue * Market Structure * Labour Market * Income and Wealth * Market Mechanism, Market Failure and Government Intervention Paper 2 - Macro * Macroeconomic performance * Aggregate Demand and Aggregate Supply * Economic Performance * Financial Markets * Fiscal and Supply Side * International Economy Paper 3 - Synoptic * Synoptic practice questions * AND **A* Example 25 mark essays and practice questions covering: ** Includes 25 mark essays: * Assess whether you agree that governments should subsidize companies who are developing cars which run on clean fuels such as hydrogen (25 marks) * Assess whether you agree that the government should give financial assistance to firms producing cars in the UK to increase their competitiveness (25 marks) * Assess whether you agree that the implementation of pollution permits could play a role in reducing global warming (25 marks) * Discuss the view that falling unemployment will inevitably lead to trade-offs with other macroeconomic policy objectives (25 marks) * Evaluate policies that the government could use to reduce obesity, referring to classical solutions such as taxes, subsidies and regulations, and behavioural solutions such as nudges and default choice (25 marks) * Using your knowledge of behavioural economics and neoclassical economics, evaluate the possible policies that could be used to reduce congestion in the UK’s cities. (25 marks) * Evaluate the view that imposing a tax is the most effective government policy for reducing the market failure arising from overconsumption of unhealthy food and drink (25 marks) * Using the extracts and your economic knowledge, assess whether you agree that fixing a maximum price for energy that is sold households is the best way of dealing with market failure in the UK energy industry (25 marks) * Using the extracts and your economic knowledge, assess the view that inequality is 'good for us all' (25 marks) 9 and 15 mark essays: * With the help of a diagram, explain how export subsidies may help promote economic growth in India (9 marks) * Explain how government policies can reduce the natural rate of unemployment (15 marks) * Explain why, in a free market, sugary drinks may be overconsumed (15 marks) Essay plan * To what extent do you agree that expansionary monetary policy is always effective in creating economic growth? (25 marks)

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johnjordiroberts

Would you offer them?

Hi - the questions listed in my resource are the only ones I have the online copies of!

Yes, once I've located the physical copies of my macro essays, I will upload them onto here!

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yashikamanji888

Hi, these are great essays! I just wanted to know whether they are written by you or are these exemplars from the exam board?

Hiya! Thank you. They've all been written by me, based on marking criteria, guidance from my A-level Econ teacher and past paper feedback xx

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How to Write Essays for AQA A-Level Economics

How should you structure your response to a 25-mark question? This post covers a few possible ways you could structure your answer.

There is no “right” structure. Different structures, including ones not mentioned here, can access high marks. However starting off with a general structure can be a good way to start off writing essays in economics.

What matters most importantly is making sure to show your knowledge, apply to the real world, analyse and evaluate. Having depth to your answers is helpful too.

To practice your essay writing skill on up-to-date questions, see the link below for practice papers for A-level exams in 2024.

Below I suggest one possible essay structure and then apply it to an example essay.

Suggested Structure

Introduction – this is where you should define key terms.

• In each point, you are looking to make your point and explain it through a chain of analysis and (often) a graph.
• Adding a fact or information about the current state of the economy helps achieve application points. For statistics on the UK economy, I usually use the website Trading Economics .
• Particularly where the point feels short or when you have the time, consider an additional chain of analysis to extend the point.

Evaluation: I have discussed evaluation examples in my previous posts. See the blue buttons below for these posts:

Conclusion:

• Answer the question directly, using the wording of the question.
• Justify your answer to the question. For example, is there an important factor that sways your point of view?
• You could also add a bonus evaluative factor that may support your point of view or that could

Example Essay Plan

Consider the following essay title that I have made up:

“Evaluate whether the UK Government should increase the corporate tax rate for the UK economy” (25 marks).

To answer this question using the structure above, we could write about the following:

Introduction:

• Define key terms e.g. corporate tax rate, what the corporate tax rate is in the UK.
• Effect on aggregate demand.
• Reduced incentive to invest means lower investment so aggregate demand shifts left on an aggregate demand – aggregate supply diagram. So real GDP will fall.
• This could be extended by discussing multiplier and/or accelerator effects.
• Add a fact about how the current UK Government has planned corporation tax rates to rise.
• Investment may depend on factors other than corporate tax rates, for example economic growth via the accelerator effect, the expected profitability of the investment, etc. So the fall in investment could be minor.
• Effect on long-run aggregate supply.
• Reduced incentive to grow or start a business, as well as lower investment, may decrease productivity and productive potential. The LRAS may shift left and real GDP could fall.
• It could also mean businesses are more likely to avoid or evade taxes, or even move abroad to an area with lower tax rates. This could further harm productive capacity.
• Adding information about the UK economy’s weak productivity record in recent decades could support this point.
• This depends on the rates of corporate tax in other countries. If other countries raise their corporation tax at the same time, then businesses are less likely to move abroad. Recently world leaders agreed to a 15% minimum corporate tax rate for example.
• Raising corporate tax increases tax revenue for a given level of economic activity.
• This means a reduced budget deficit, reduced future debt interest payments and less of an impact on future generations from current budget deficits.
• A fact about the UK Government’s currently high budget deficit, because of pandemic spending, could support this point.
• This depends on the current position of the UK economy on the Laffer curve.
• If the corporation tax rate is currently raising peak revenue on the Laffer curve, then increasing tax rate may decrease revenue, as it reduces incentives to start a business or expand, reducing taxable corporate profits.

• A final judgement on the question. For example, higher corporate tax rates could be effective at raising revenue.
• A justification: This is because governments have committed to a minimum global corporate tax rate and so there is less likely to be moves abroad to avoid the tax. You could argue the other way round instead.
• A factor that may influence your judgement. For example, the level of interest rates could affect the level of interest payments and in turn whether the Government needs to raise as much revenue in the short term.

Alternative Structure

Other teachers suggest this structure below. This structure allows more depth to points but should also come with a longer conclusion ideally and can be appropriate depending on the essay title:

Introduction

Point 1 – for

Point 2 – against

This can work too, provided the analysis and evaluation is sufficiently detailed.

More Resources

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For practice AQA Economics-style papers, please see the link below (paid resource):

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AQA A Level Economics : Past Papers

Concise resources for the A Level AQA Economics course.

Economics (7136)

A-Level Economics Model Answers (for Edexcel Past Papers)

Download A-Level Economics Model Answers for Edexcel past papers below for A2 and AS. These candidate responses were extracted from Edexcel exam board’s examiners’ reports and were graded by Edexcel examiners. All new specification Economics papers and their model answers are now available including Paper 1 (Microeconomics), Paper 2 (Macroeconomics) and Paper 3 (Synoptic).

Relevant resources: Download Edexcel A2 Economics past papers for students studying A2 Economics in their second year. Download Edexcel AS Economics past papers for students studying AS Economics in their first year. Visit our Edexcel Economics notes & questions by topic for practicing and revising certain areas of the course.

Economics Model Answers for A2 (Year 2)

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Edexcel 2018 AS Economics A Paper 1 Model Answers Download

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Need help with these Edexcel Economics past papers? Ask our Economics Tutor a free question or get a personalised 1 to 1 online lesson with us today. Alternatively, check out our Edexcel Economics revision notes to refresh your memory.

Other Resources

Looking for the full version of the Examiner Reports and more? You can find more Economics past papers and mark schemes on Edexcel’s resource page . Copyright for these examination papers belongs to their respective examination boards but not Qurious Education Ltd.

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AQA A-Level Economics Past Papers

This section includes recent A-Level Economics past papers from AQA (7135 & 7136). You can download each of the AQA A-Level Economics past papers and marking schemes by clicking the links below.

June 2022 - AQA A-Level Economics Past Papers (7136)

A-Level Paper 1: Markets and Market Failure (7136/1) Download Past Paper    -    Download Mark Scheme

A-Level Paper 2: National and international economy (7136/2) Download Past Paper    -    Download Mark Scheme

A-Level Paper 3: Economics principles and issues (7136/3) Download Insert    -    Download Past Paper    -    Download Mark Scheme

November 2021 - AQA A-Level Economics Past Papers (7136) (Labelled as June 2021)

November 2020 - AQA A-Level Economics Past Papers (7135 & 7136) (Labelled as June 2020)

A-Level Paper 3: Economics principles and issues (7136/3) Download Insert    -    Download Past Paper    -    Download Mark Scheme  

AS Paper 1: The Operation of Markets and Market Failure (7135/1) Download Insert    -    Download Past Paper    -    Download Mark Scheme

AS Paper 2: The National Economy in a Global Context (7135/2) Download Insert    -    Download Past Paper    -    Download Mark Scheme

June 2019 - AQA A-Level Economics Past Papers (7135 & 7136)

June 2018 - AQA A-Level Economics Past Papers (7135 & 7136)

June 2017 - AQA A-Level Economics Past Papers (7135 & 7136)

A-Level Paper 3: Economics principles and issues (7135/3) Download Insert    -    Download Past Paper    -    Download Mark Scheme

AQA A-Level Economics Specimen Papers (7136)

For more A-Level Economics past papers from other exam boards  click here .

AQA A-Level Economics | Every 25 Mark Essay

Every 25 Mark Essay for AQA A-Level Economics in ONE PLACE

Y13 Microeconomics

Use the extracts and your knowledge of economics to assess whether the benefits outweigh the costs when the Government privatises organisations such as Royal Mail and opens up the market to competition. (June 2017)

Use the extracts and your knowledge of economics to evaluate the policies that government might use to reduce the gender pay gap. (June 2017)

Evaluate the view that government regulation of monopolistically competitive markets is unnecessary, and that polices to encourage competition and prevent the abuse of monopoly power should focus entirely on oligopolies and monopolies. (June 2017)

To what extent can the problem of poverty in the UK be solved through the operation of market forces? Justify your answer. (June 2017)

Evaluate the view that imposing a tax is the most effective government policy for reducing the market failures arising from overconsumption of unhealthy food and drink. (June 2017)

Use the extracts and your knowledge of economics to assess the view that the government should intervene further in the banking sector to promote greater competition. (June 2018)

Use the extracts and your own knowledge of economics to evaluate whether governments should allow markets to respond freely to the opportunities and challenges presented by technological progress, without any state intervention. (June 2018)

Assess the view that regulation is a better policy for dealing with the problem of air pollution than the allocation of property rights or taxation. (June 2018)

Assess the view that, in the UK, the consequences of wealth inequality are more damaging than the consequences of income inequality. (June 2018)

Evaluate the view that a firm making low profits must be inefficiently managed. (June 2018)

Use the extracts and your knowledge of economics to assess the view that the increasing scarcity of sand is a problem best solved by market forces, rather than through government intervention. (June 2019)

Use the extracts and your knowledge of economics to evaluate the case for renationalising railways in the UK. (June 2019)

Using examples to illustrate your answer, assess the usefulness of behavioural economic theory compared to traditional economic policies in helping governments to correct market failures (June 2019)

Discuss the validity of the traditional economic assumption that the main objective of firms is to maximise profits. (June 2019)

Discuss the view that a national minimum wage is beneficial for an economy. (June 2019)

Using the extracts and your knowledge of economics, evaluate policies, if any, that governments in developed countries should pursue to reduce waste and encourage the recycling of waste products. (June 2020)

Using the extracts and your knowledge of economics, assess policies that might be used to improve the provision of social care in the UK. (June 2020)

Discuss whether governments should consider increasing the regulation and taxation of technology firms which have acquired significant global monopoly power. (June 2020)

Evaluate the view that government intervention to reduce inequality will lead to an improvement in economic welfare. (June 2020)

Assess the view that price discrimination is always damaging. (June 2020)

Using the extracts and your knowledge of economics, assess the view that the market structure of the pharmaceutical industry is damaging for consumers. (November 2021)

Using the extracts and your knowledge of economics, evaluate possible government policies to reduce the ethnic pay gap. (November 2021)

Evaluate the view that technological change tends to bring industries closer to the market structure of perfect competition. (November 2021)

Discuss the view that individual economic agents will always act as rational decision makers so as to maximise their utility. (November 2021)

Discuss how the divorce of ownership from control may affect both the conduct and performance of firms. (November 2021)

Assess the view that government intervention in the UK labour market is necessary to protect the interests of people who are working in the gig economy. (June 2022)

Evaluate the view that the supermarket sector is serving customers' interests well. (June 2022)

Assess the view that high-speed Internet connection is a necessity for modern life and should be provided by the government, free of charge, to all households. (June 2022)

Evaluate the view that government failure means that government intervention in markets will rarely lead to an improvement in economic welfare. (June 2022)

Evaluate whether the best way to reduce inequality in disposable income is to reduce differences in pre-tax incomes rather than through taxes and welfare benefits. (June 2022)

Evaluate policies that could be used to reduce the environmental impact of all types of cars. (June 2023)

Evaluate policies that could be used to reduce in-work poverty in the UK. (June 2023)

Assess the view that competition policy is likely to lead to markets becoming less efficient in the long run. (June 2023)

Evaluate the view that labour markets work best when strong monopsony power is balanced by trade union power. (June 2023)

Discuss the view that privatisation is always beneficial because it leads to improvements in efficiency. (June 2023)

Using the data in the extracts and your economic knowledge, assess whether you agree that fixing a maximum price for energy that is sold to households is the best way of dealing with market failure in the UK energy industry? (Specimen)

Using the data in the extracts and your economic knowledge, assess the view that inequality is ‘good for us all.’ (Specimen)

Discuss the view that price discrimination only benefits suppliers, such as Apple. (Specimen)

The Government would like to improve the well-being of the population by encouraging people to adopt a healthy diet. Using your knowledge of both traditional economic theory and behavioural economics, assess alternative policies that the Government might adopt to try to achieve its objective. (Specimen)

Assess the view that a system of road-pricing is the best way to tackle the problem of worsening traffic congestion in the UK. (Specimen)

Y13 Macroeconomics

Using the data in the extracts and your knowledge of economics, evaluate the view that greater use of market-based strategies is the best way to improve the economic development of India. (June 2017)

Using the data in the extracts and your knowledge of economics, evaluate the view that monetary policy is the most effective way of tackling deflation in developed economies such as the UK and Japan (June 2017)

Discuss the view that falling unemployment will inevitably lead to trade-offs with other macroeconomic policy objectives. (June 2017)

Evaluate the measures that might be taken to reduce a deficit on the current account of the UK’s balance of payments. (June 2017)

Evaluate the economic consequences for the UK economy of a significant shift in the burden of taxation from direct taxes to indirect taxes. (June 2017)

Using the data in the extracts and your knowledge of economics, assess the impact of a persistent current account deficit on the macroeconomic performance of the UK economy. (June 2018)

Using the data in the extracts and your knowledge of economics, evaluate the view that maintaining low interest rates for a sustained period of time may be damaging to the UK’s macroeconomic stability. (June 2018)

Evaluate the view that MNCs play a positive role in the development of LEDCs. (June 2018)

Evaluate whether achieving a budget surplus is a desirable objective of economic policy (June 2018)

Assess the view that falling unemployment will inevitably lead to an improvement in the standard of living for people in the UK. (June 2018)

Using the data in the extracts and your knowledge of economics, assess the view that to improve the living standards of their citizens, governments across the world should prioritise achieving economic growth. (June 2019)

Using the data in the extracts and your knowledge of economics, evaluate the view that there is a strong case for significant increases in UK income tax rates (June 2019)

Assess the view that a depreciation of the pound against other currencies is likely to improve the UK’s macroeconomic performance. (June 2019)

Evaluate the view that strict rules and regulations on financial markets are essential to help create a more stable economy. (June 2019)

Evaluate the view that inflation is always preferable to deflation. (June 2019)

Using the data in the extracts and your knowledge of economics, evaluate the view that free market supply-side reforms to labour markets are beneficial to the UK economy. (June 2020)

Using the data in the extracts and your knowledge of economics, assess the view that developing economies, such as Brazil and China, should pursue protectionist policies to achieve greater economic development. (June 2020)

To what extent do you agree that reducing the budget deficit is more important to the UK’s macroeconomic performance than reducing the current account deficit on its balance of payments? Justify your answer. (June 2020)

Evaluate the view that the main objectives of UK government macroeconomic policy can be achieved without conflicting with each other. (June 2020)

Evaluate the costs and benefits for a country of joining a currency union, such as the eurozone. (June 2020)

Using the data in the extracts and your knowledge of economics, evaluate the view that an increase in a country’s national debt is damaging for its economy (November 2021)

Using the data in the extracts and your knowledge of economics, evaluate policies which could be used to boost South Korea’s exports and increase its trade surplus. (November 2021)

Evaluate the possible impact on the cost of living and the standard of living in the UK of a sustained rise in the value of the pound sterling against other currencies, such as the euro and the US dollar. (November 2021)

To what extent do you agree that a fall in savings is beneficial for the UK economy? Justify your answer. (November 2021)

Assess policies which can be used to reduce cyclical instability in the UK. (November 2021)

Using the data in the extracts and your knowledge of economics, assess the view that to improve the living standards of their citizens, African nations should pursue policies to attract foreign direct investment (FDI). (June 2022)

Using the data in the extracts and your knowledge of economics, evaluate the view that achieving a low and stable rate of inflation should be the main economic objective of governments. (June 2022)

Assess the view that floating exchange rates are always better than fixed exchange rates. (June 2022)

Evaluate the view that supply-side improvements in the UK economy can best be achieved through the use of interventionist policies. (June 2022)

Evaluate the view that international trade always benefits nations. (June 2022)

Assess the view that a rise in Ireland's corporation tax rate is likely to have a damaging effect on its macroeconomic performance. (June 2023)

Assess the view that the continued use of Quantitative Easing (QE) is damaging for the UK economy. (June 2023)

Assess the view that increased globalisation has been beneficial for the UK economy. (June 2023)

Evaluate how, in the long-run, governments could try to reconcile conflicts between the various objectives of economic policy. (June 2023)

Evaluate the view that economic growth leads to an improvement in living standards. (June 2023)

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• Housing Market for AQA unit 3
• What determines House Prices
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Labour Market Essays

• Causes of Wage Inequality
• Why does a Minimum Wage not cause Unemployment?
• Why Women are Paid Less than Men
• Does a Minimum Wage Reduce Poverty?
• How Should Government Respond to a declining Birth Rate?
• Dealing with an ageing population
• Monopsony and Minimum Wages
• EU Labour Market and Wage Differentials
• Government policies to Increase Labour Market Flexibility
• Working Time Directive – evaluation
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Market Failure Essays

• When if Ever should the Government prevent a Merger or Takeover?
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• Advantages of Electronic Road Pricing
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• Policies for Motorway Congestion
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• Why We Should Tax Unhealthy Foods (obesity tax)
• Free Markets and Market Failure
• Common Mistakes in Economics
• Economics of Herding and Irrational Exuberance

Market Structure

• How firms in Oligopoly compete
• What is meant by Contestable Markets ?
• Effect of increased Market Concentration on Efficiency
• Why does capitalism cause Monopoly
• Behavioural economics
• Should 50% of students go to University?
• How Should Higher Education Be Funded?
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• Arguments for Free Education
• Is Chinese Education Better than UK education?
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Essay on Oligopoly and Collusion

Last updated 3 Feb 2019

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Here is what I feel is a superbly clear and well-structured essay answer to a question on the economic and social effects of collusion within an oligopoly.

Evaluate the view that collusion between firms in an oligopoly always works against consumer and society’s interests. Use game theory in your answer.

An oligopoly is where the industry or market is dominated by a few producers/firms with a high level of market concentration, where the component firms have a high level of interdependent decision making. Collusion can be tacit and/or explicit, and the aim of which is to achieve higher supernormal profits, with the firms as a whole achieving joint profit maximisation. Collusion between firms is harmful to consumers. This is because firms collude to raise prices, as mentioned earlier, resulting in the price level seen below. This reduces the consumer surplus available, reducing the welfare of individuals. This can often be highly regressive, if the impact of increased prices, such as with the Big Six Gas Suppliers, has a disproportionate impact on the less well off. Furthermore, because firms are working together, with internal quotas to divide up sales, there is less need to compete, resulting in less dynamic efficiency. This results in less innovation, and thus little improvement in the quality of products available to individuals. Indeed, the UK Competition and Markets Authority supports this claim, arguing that collusion can result in “reductions of output, efficiency, innovation and choice, all of which are harmful to consumers.” An example of this can be seen with Apple, who were sued by consumers for price-fixing with publishers to force consumers to over pay for e-books.

However, collusion between firms can often derive benefits for consumers. For instance, tacit collusion includes firms who monitor what other firms sell to ensure that they are matching the cheapest price in a geographical area, or who market that consumers are “never knowingly undersold” such as John Lewis. This is a case in which firms are technically engaging in tacit collusion, but which may also result in driving down of prices as firms seek to match improvements in cost efficiencies made by other firms. This is also true with products such as mobile phone contracts where it is easy to compare prices.

Collusion in an oligopoly can hugely benefit firms, which can have beneficial consequences for society. For instance, collusion between coffee growers allows small firms to push for fairer prices against more dominant monopsonistic corporations such as Starbucks. Furthermore, because these producer cooperatives like Fairtrade are often based overwhelmingly in less developed regions, this can also be useful in helping to alleviate extreme poverty. Furthermore, collusion allows for firms to lower the costs of competition, that can then be passed onto consumers. Because oligopolies exist in highly concentrated markets dominated by a few firms, there is often a huge degree of branding and differentiation that needs to take place in order for firms to stand out, e.g. with the UK retail banking industry with firms such as Barclays and HSBC. If all firms engage in marketing wars, there is no net societal benefit. However, if firms collude, they can reduce the need to fund these marketing wars, that can allow for cost savings to be passed onto consumers. Additionally, collusion allows for agreed upon industry standards, for instance with procedures in testing on humans in pharmaceutical research, which benefits both consumers and firms.

However, the extent to which this occurs depends on a few factors. Firstly, the vast majority of collusion that takes place isn’t that of poor farmers working together - oligopolies are more concentrated industries with very high barriers to entry, such as the Big Four Accountancy Firms, and pharmaceutical companies. Furthermore, the benefits that accrue from firms working together are dependent on those firms passing those cost savings onto consumers - however, if they are all explicitly colluding, they may decide to spend that money on share buy-back schemes and dividends, which may not benefit society at large. Indeed, in 2017, US firms spent more money on share buy-backs than they did on research and development. Lastly, the benefits from firms agreeing upon industry standards are likely to be very marginal given the government and regulatory bodies, such as the Financial Conduct Authority (FCA) tend to set industry standards centrally.

Conclusion:

In conclusion, the extent of the impact on consumers and firms depends fundamentally on how long the oligopoly is able to carry on collusion - we can analyse this through game theory. Assuming the following pay offs in a cartel such as OPEC, where states agree to collude to reduce production levels and benefit from a higher price:

If all firms cooperate, they will achieve £4bn revenue. However, if one firm decides to defect and to increase production while still gaining from higher prices, they will gain £5bn. The socially optimal equilibrium in this model (for firms) is to cooperate, because the total utility is greater than any other option. However, this is an unstable equilibrium: no matter what the other firm does, each agent is better off by defecting, resulting in a Nash equilibrium of Defect, Defect. Indeed, this model can be shown by how in October 2018, Iran accused Saudi Arabia and Russia of breaking OPEC’s agreement on cutting output. Thus, the effects of collusion are very much dependent on how long it is able to last.

Author: Cary Godsal (February 2019)

More resources available here on the topic of oligopoly

• Tacit Collusion
• Overt collusion
• Game Theory
• Nash Equilibrium

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