microeconomics past papers

why did the price - received for - in the uk rose by -%

the prices - rose from P1 to P2 because of increased demand

demand is the ability to buy a good at a specific price at a specific moment in time

this means consumers are willing to buy - from uk rather than -

this meant the same increase in % in shops

also increased demand due to higher incomes in other countries- different quality

assess likely impact of % increase in the price of uk on market for alternative

increase in demand for alternative because it becomes substitutes and more people will buy as its cheaper

rise in price of alternative from p1 to p2 as demand grows

depends on price elasticity of -

as there are many substitutes it is likely to be elastic and so XED will be close

may be decrease in supply of alternative as its in competitive supply- produce higher profits depends on price elasticity there is opportunity costs

impacts of producers in the uk of growth in emerging markets

make higher profit demand has increased from p1 to p2

price and quantity has both increased

higher producer surplus so getting more than they would

reasons for subsidies being paid

a subsidy is a gov grant given to increase production

increases production of goods form q1 to q2 and decreases prices from p1 to p2

if unable to produce their goods unemployment negative impact on the economy

large economic decline high gov. spending

it also lowers price of goods for uk consumers
despite rising prices lower income families can afford-

this is increased consumer surplus

prevent consumers buying from overseas-making profit -lowers carbon footprint

-provide positive externality

however this is an opportunity cost gov. cant spend in other ways (merit goods)

too reliant on gov.-left to make living from free market

use concept of external costs and evaluate economic effects of increased production

currently produced at p1q1 where MPC=MSB but should be produced at social optimum level of p2q2 where MSC=MSB

the external costs are the difference between private costs to the individual and society so costs to 3rd party not involved in economic activity

the effect of this is a social welfare loss

one economic effect taking up- negative effect

cant be used for other things- large opportunity cost

negative environmental impacts- lead to loss of

one positive effect is decreased price lead to increase in consumer surplus

more consumers can afford

may affect producers revenue if elastic decrease if inelastic increase revenue

depend on size of externality which is difficult to measure

overall short term effects mainly positive as lower price

long term effects have bad impact on environment and welfare loss which is negative

what function does money have in improving specialisation in production

money is a medium of exchange in economical transactions.

can be used as an incentive to workers to improve output and quality to boost productivity

what is external benefit

when social benefits>private benefits

external benefit affect those who are not involved in the economic decision

how to reduce impact of water extraction from lake

the gov could impose indirect tax on flower industry

this would raise price decrease supply and production of flowers

producers make less profit

if production decreases they will use less water and reduce impact

diminishing marginal utility

the law of diminishing marginal utility states as consumers increase consumption

marginal utility decreases

marginal utility= addition benefit gained from consuming an additional unit of a good/service, consequently consumers are willing to pay less the more they consume a good or service

explain one possible reason for the differences in price elasticity of supply of new housing between countries

price elasticity of supply is the responsiveness of a supply to a change in price

major firms may dominate the market

gov regulations make providing housing difficult

UK- supply may be inelastic as there is lots of land around major cities but cannot be built in

likely impact of help to buy scheme on market for rented properties

help to buy scheme- unlikely to affect demand in short run as consumers wait for contract to expire- depends on who qualifies

causes a decrease in demand for rented properties

the scheme subsidizes the mortgage needed

rented properties is a substitute for buying houses- so likely to have positive cross elasticity of demand

consumers will switch demand from rented to buying as its cheaper

will depend on how the close the difference from rented to buying is

if cross elasticity of demand is relatively elastic much bigger fall in demand for rented accommodation

explain likely impact on producer surplus of an increase in demand for housing

an increase in demand for housing will shift from D1 to D2 and price from P1 to P2

and output from Q1 to Q2

a producer surplus is the difference between the price a producer is willing to sell it for and what they actually sell it for

this will mean producers will be selling more goods at a higher price so will mean that they get a higher profit

external benefit

where third parties are not involved in a transaction, benefit from it

education is an example as someone getting an education and becoming a doctor will save the lives of third parties

production possibility frontier

a curve showing the maximum potential output

assuming all available resources are used fully

price elasticity of supply for energy generated by nuclear power plants

elasticity of supply is the responsiveness of supply to changes in price

it takes 10 years to be operational

likely to be inelastic as it takes time to build the stations but likely to be elastic in the long run

defence is a public good

it is non excludable and non rival as you cannot exclude people from consuming it and one person consuming it will not stop the military from protecting others/

has free rider problem as people would benefit but not pay and would be under providing by the private sector

why would some consumers not consider changing insurance policies even if being offered lower prices by others

importance of habitual behaviour

people are in the habit of using the same providers so wont spend/ waste time searching for the best deal

equilibrium price

price at which supply equals demand

one factor that may influence the price elasticity of supply of gas

supply of gas is price inelastic/ lack of storage

gas prices have risen

less availability means suppliers are unable to respond to changes in market price

specialisation

concentrates on one good/ service

one likely advantage of specialising in production of goods to trade

specialisation can mean increased quality

increased productivity within a particular product

to increase profits

why is it rational for a firm to raise prices when there is excess demand

firms will aim to maximise profits

shortage

consumers will bid up prices

mixed economy

public and private sectors existing within the economy

advantage of command economy

low levels of unemployment

what is meant by both substitutes and complementary goods

a substitute is a good that can be replaced by another to satisfy a want

a complementary good is a good where the demand increase of one good causes an increase in demand of a related good

evaluate possible methods of gov intervention to reduce environmental damage caused by consumption of television content

gov intervention- regulatory action taken by gov that seek to change decisions made by individuals, groups and organisations about social and economic matters

policies to target issues

-use of tax to increase costs for subscribers and reduce over consumption/production

-impose carbon tax to internalise externalities, final price of good should include external costs and not just private cost

-those who cause environmental costs should pay full social cost of their actions

evaluation

-tax shifts supply curve from s to s2, consumers now face full social cost

quantity falls from q1 to q2 socially efficient,social marginal cost=social marginal benefit

-provision of info to subscribers of issues

-focus on any gov intervention to encourage other forms of entertainment and recreation or limit viewing hours for individuals

-production may shift to countries with no taxes giving developing countries an incentive to encourage

-cost of administrating tax expensive, reduces its efficiency

-impact on low income

-demand price inelastic tax is very high

-difficult to evaluate level of external cost and how much tax should be

private good

rivalrous and excludable

why flood defences in calder valley provided by public sector

flood defences- public goods

non excludable and non rival

minimum price

price floor

lowest price can legally set

one likely problem for EU of maintaining prices at P2

opportunity cost of intervention buying

underground markets can be created due to higher prices for consumers

fulfils one function of money, apart from as a medium of exchange

-measure of value

prices can be measured in - so people can compare prices of goods and services

-store of value

when individual saves - they are confident they will receive equivalent value

-standard of deferred payment

when person loans - they are confident they will receive equivalent value back

vaccinated and not still benefitting each other

explain difference between positive and normative statements

positive statement based on facts

normative statements not based on facts/cannot be supported with evidence

should- suggests normative statements-values judgement

those who benefit-positive statement evidence exists

which statements might occur

net welfare loss results from intervention by gov- gov failure

firms enter market in response to higher prices-incentive for the price mechanism

goods with positive externalities underprovided-market failure effect on free market

prices rise when excess demand-rationing function for price mechanism

why flour producers might find it difficult to increase quantity supplied in short run

supply price inelastic

it takes time for firms to respond

it takes time for wheat to grow