Pearson Edexcel International GCSE in Economics (4EC1), specification Issue 3,
February 2026. This topic covers spec sections 1.1.5–1.1.6 in full: the
mixed economy (11 lettered rows) and externalities (5 rows). The externality
diagram reuses the shared model (demand $Q_d = 140 - 2P$, supply $Q_s = 20 +
4P$) with an external cost of 6 per unit.
Must-know for this topic:
Family
Content
sectors
public (state-owned) vs private; ownership, control, aims
three questions
what, how, for whom — answered by market AND state in a mixed economy
public goods
non-excludable + non-rival → free-rider problem → private non-provision
social cost
social cost = private cost + external cost; social benefit = private benefit + external benefit
3.1
The mixed economy
A mixed economy 混合经济 contains both a private sector and a public sector
(1.1.5a–b). The private sector 私营部门 is owned and controlled by
individuals and firms aiming (mostly) for profit; the public sector 公共部门 is
owned and controlled by the state, aiming at welfare and service provision —
the difference is ownership, control and aims (1.1.5c). The three questions
(WHAT to produce, HOW to produce and FOR WHOM) are answered by BOTH
mechanisms in a mixed economy: prices and profit signal the market part;
government directs resources to health, education and public goods
(1.1.5d).
Market failure 市场失灵 is the inefficient allocation of resources — the
market produces too much or too little of a good compared with the social
optimum (1.1.5e); because of it governments intervene — to correct
externalities, provide public goods, and protect consumers (1.1.5f).
Public goods 公共物品 are non-excludable (no one can be stopped from using
them) and non-rival (one person's use does not reduce another's) — street
lighting, flood defence. Non-excludability creates the FREE-RIDER problem:
no one pays, so no private firm supplies them, so the public sector must
(1.1.5g). Both sectors produce goods and services (1.1.5h); their relative
importance differs across economies — Cuba against the USA against Sweden
(1.1.5i). Privatisation 私有化 is the transfer of ownership from the public
to the private sector (1.1.5j); its effects on consumers (lower prices if
efficiency is passed on, but higher if a monopoly results), workers (job
losses from efficiency drives), businesses (new profit opportunities) and
government (a one-off sale receipt, then lost dividends and possible
subsidy savings) (1.1.5k).
External costs 外部成本 of production are costs falling on THIRD PARTIES,
not on the producer or consumer — pollution, congestion, environmental
damage (1.1.6a–b). External benefits 外部收益 of consumption are benefits
falling on third parties — education, healthcare, vaccinations (1.1.6c–d).
The formulae (1.1.6e): SOCIAL COST = PRIVATE COST + EXTERNAL COST; SOCIAL
BENEFIT = PRIVATE BENEFIT + EXTERNAL BENEFIT. Worked model: with demand
$Q_d = 140 - 2P$ (marginal private benefit) and supply $Q_s = 20 + 4P$
(marginal private cost), the market trades at $(100, 20)$; if production
carries an external cost of 6 per unit, the social optimum sits at
$(92, 24)$ — the market OVER-PRODUCES by 8 units because buyers and sellers
never see the externality.
Original model: MSC = MPC + 6 crosses MSB at (92, 24); the market equilibrium (100, 20) over-produces.
Mixed economy definition; public and private sectors; ownership, control and aims (1.1.5a–c).
The three questions answered by both mechanisms (1.1.5d).
Market failure as inefficient allocation; why it forces intervention (1.1.5e–f).
Public goods: non-excludability, non-rivalry, the free-rider problem and non-provision (1.1.5g).
Both sectors produce; relative importance differs by economy (1.1.5h–i).
Privatisation definition and its effects on consumers, workers, businesses, government (1.1.5j–k).
External costs with three examples; external benefits with three examples (1.1.6a–d).
The two social-cost/benefit formulae with the (100, 20) → (92, 24) worked model (1.1.6e).
Boundary notes: definitions carry one mark each — non-excludable,
non-rival, free-rider and privatisation are the most examined. Diagram marks
want MSC/MSB curves labelled and the over-production gap identified. All
worked numbers are original on the shared model.
Supported transfer: Elasticity, welfare and policy
Scope and prerequisite teaching
Issue 3, February 2026. Supported mapped specification objectives; qualification rubric reviewed June 2025.
This focused rehearsal adopts the linked native explanations; it does not replace them or certify a whole qualification. Supported objective IDs: 1.1.5a, 1.1.5b, 1.1.5c, 1.1.5d, 1.1.5e, 1.1.5f, 1.1.5g, 1.1.5h, 1.1.5i, 1.1.5j, 1.1.5k, 1.1.6a, 1.1.6b, 1.1.6c, 1.1.6d, 1.1.6e, 1.2.6a, 1.2.6b.
Percentage changes need a stated convention. PED uses quantity demanded and own price on the same demand relation; PES uses quantity supplied. YED and cross-price elasticity compare different determinants. A unit tax creates a price wedge; relative responsiveness shapes burden. An externality concerns third-party costs/benefits, not merely an expensive transaction. Public goods and information failure have different mechanisms.
Worked case
An original market's pre-tax price is 10. After a unit tax, consumers pay 12 and producers receive 9. Calculate the wedge and burden, then qualify a welfare claim.
Tax per item=consumer price−producer receipt=12−9=3 currency units/item. Consumer burden=12−10=2 units/item; producer burden=10−9=1 unit/item. The stated burden split concerns this equilibrium, not a universal tax rule. Tax revenue=tax per item×post-tax quantity; that quantity must be known. Revenue is a transfer, while welfare effects require changes in surplus, resource use and any external harm. A corrective tax can reduce inefficient overproduction, but only with the relevant external-cost model and evidence. Collection cost, evasion and access matter.
Independent transfer
A subsidy expands a product with an unpriced external cost. Is greater output necessarily a welfare gain? Compare a better-targeted policy.
Checked original model
Greater output can increase external harm even if consumers and producers gain privately. Identify marginal social/private costs and the efficient versus market quantity before judging. A targeted charge or standard may address the harm more directly, subject to measurement, enforcement and distribution. A subsidy for a cleaner alternative might help through a different mechanism; its fiscal and behavioural effects still need evaluation. IGCSE pupils use the supported private/external/social distinction; detailed marginal welfare geometry belongs only where the course's mapped outcomes authorize it.
Extended-response rehearsal
Lesson 0305 uses original Harbour Lane figures: night journeys 420 to 310, noise complaints 36 to 22, fee 4.20 GBP to 5.40 GBP, and a firm surcharge of 1.50 GBP per night journey. Customers pay 1.20 GBP more, so the firm absorbs 0.30 GBP on each journey that remains. 64 of 120 surveyed late workers missed a delivery. That fraction is not a share of all residents.
Analyse links those effects and stops before a verdict. Assess weighs the surcharge against a ban after 22:00. Evaluate ends with a judgement and the finding that would reverse it. Sheet questions 3.2 to 3.4 are the printable form. This one data set does not fill the same tariff for every other topic.
Evidence and assessment limits
Scope is traced to specification_objectives.yaml, with source page and every native lesson recorded per row. Tasks and formative marking points are original, not official questions or schemes. The qualification rubric is certified from the Issue 3 specification and the June 2025 4EC1/01 and 4EC1/02 papers and mark schemes: two 90-minute 80-mark papers, each four compulsory 20-mark questions mixing 1-mark multiple choice, 1–2-mark define/state/calculate, 6-mark analyse, 9-mark assess and 12-mark evaluate items that require reference to the supplied data; extended answers are level-marked (6-mark: 1–2/3–4/5–6; 12-mark: 1–4/5–8/9–12 with an AO4 judgement at the top). Assessment objectives weigh AO2 application at about half of the qualification. Authentic past-paper set curation remains partial; no official question is reproduced here.
Interactive lessons on this topic
Work through it step by step, with instant-check exercises.
