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Three points to be covered: Explanation could include:
Definition must include the following: the (next) best alternative foregone/not taken as a result of taking a decision/making a choice. Because it is a 3 marks question – appropriate example of choice must be given. Factors of production:
Examples for each factor must be given to fetch full marks. Build a two sided discussion and consider the pros and cons of using natural resources. You answer could include: if Conservation of natural resources is done:
On the other hand use of natural resources:
A one-sided answer, which focuses on the conservation or use of resources only, can gain no more than 5 marks. Explanation should include the definition of LAND and examples It refers to all those natural resources used in production. Examples could include: Coal, oil, gold, fish, forests and the land itself The answer must include the following concept explanation
The answer must include the following: Definition of opportunity cost: the (next) best alternative foregone as a result of making a decision Diagram of production possibility curve – axes correctly labelled and curve correct shape (bowed out or straight downward sloping) Explanation – idea of moving along one axis has the effect of a reverse movement along the other axis This is a 4 marks questions. Therefore, the answer should go beyond just the definition and should include atleast two comparisons.
This answer should inclulde : a PPC (production possibility curve) diagram (properly labeled) showing a shift of PPC to the left. An explanation of the diagram and its movement will fetch full marks.
The explanation should state that fewer resources reduces the ability of an economy to produce both products/reduces productive potential/reduces GDP which results in the shift of PPC to the level
You are expected to: Define an oligopoly and characteristics of an oligopoly market structure Distinction between a collusive and non-collusive oligopoly Explanation of prices may not change due to interdependence among firms. Support your explanation with the help of an kinked demand curve Explain the diagram Explain that there might be non-price competition in this kind of market structure such as advertising. However, despite their relative stability, prices may change in a non-collusive oligopoly: – price change operated by market leaders – long-run changes leading to economies of scale and lower LRACs. |
Advantages of a market system
Causes of market failure:
Discuss whether government intervention is always successful in correcting market failure. [8 marks]
This requires a balanced response in which both the advantages and disadvantages of government interventions must be discussed. One sided answer will lead to maximum half the marks. Advantages of government intervention:
Limitations of government intervention:
Possible explanation could include:
Broadly speaking, an explanation of how market system works on its own through the dynamics of demand and supply in the market. A subsidy is: a payment made to a producer, e.g. by a government to help reduce the costs of production as a result producers will want to increase supply at every given price. Consumption is therefore encouraged although this could mean supporting an inefficient producer and so distort competition. Note: Marks are usually allocated on the following criteria: That axes are correctly labelled P and Q and curves are correctly labelled D and S or S and S-subsidy (1) Show the supply curve shifts to the right (1) Equilibrium price falls and equilibrium quantity increases (1). Explanation of the effect of a subsidy on equilibrium price and quantity {will get upto 3 marks}
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Please note: A brief description is required for each point in order to gain full marks. You might lose marks if only points are listed without explanation. Definition and explanation PED is the percentage change in the quantity demanded of a product divided by the percentage change in its price Or PED is the responsiveness of demand to a change in price.
Its value can range from perfectly inelastic to perfectly elastic. inelastic demand has a value of less than 1 while elastic demand has a value of more than 1 and it is usually a minus figure varies along the demand curve. A brief explanation is required to get full marks.
Diagram showing a shift on the supply curve to the left and rise in price and fall in quantity. Explain the diagram a decrease in supply will lead to a rise in the equilibrium price and a fall in equilibrium quantity.
The case for government intervention:
The case against intervention:
Any Two reasons must be identified along with a brief explanation for each.
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The answer should include 4 points with brief explanation. Avoid writing in a list style. Role of commercial banks:
Functions of money:
In order to get full marks, the answer should include 4 functions with description. The usual trend of income change is as follows: There is low earnings at the start in a job, earnings gradually rise with more experience and reach a high point before retirement. However, retirement income is likely to be lower. The income might also be affected by the change in demand for occupation over a lifetime. The discussion will include a two sided discussion on the importance of wages. The response might include that: certainly wages are a very important factor to be taken into account. However, other factors also influence the choice of occupation for individuals. These might include:
A one-sided answer can gain only half the marks. It is true in most of the cases however, wages also depend on:
Factors that can affect an individual’s choice of occupation:
A brief description for each point is required to achieve full marks. Benefits of a trade union to an individual:
Key word "Discuss' Two sided discussion. Potential disadvantages:
Potential advantages:
Explanation: Involves comparing the importance of function of money as a medium of exchange as compared to barter (the direct exchange of goods and services for other goods and services without using money ) The problem with barter was that it relied on a double coincidence of wants, this wasn’t always possible and the use of money as a means of exchange avoids this. Money is also significantly better as a measure of value, a store of value and a standard for deferred payments. Possible reasons:
Demand and supply diagram based on restricting supply Answer must include: axes correctly labelled (wage/price and employment/quantity) (1) demand and supply curves correctly labelled (1) shift of supply curve to the left (1) rise in wage/price and fall in employment/quantity (1)
Candidates could mention:
Explanation of each point will get full marks.
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An explanation of the economic problem of unlimited wants, limited resources, scarcity, choice and opportunity cost Relate to a two good model of the economy, using a PPC. Draw a PPC diagram to expalin the concept Explain free market economy and a centrally-planned economy Differentiate between these two systems keeping in view the three questions. While explaining -what to produce? Free market economy, decided by consumer sovereignty/demand – in a centrally-planned economy, decided by the central planners, based upon their view of what is appropriate How to produce? Free market economy, decided by cost of production and attempts to minimize unit costs of production/maximizing profit – in a centrally-planned economy, decided by the central planners based upon desired production targets Whom to produce? Free market economy, decided by income/ability to pay – in a centrally-planned economy, determined by perceived needs in the view of the central planners. You would be expected to Explain a production possibility curve: the boundary between attainable and unattainable levels of production given current resources and technology Draw a Production possibility curve diagram Related scarcity and the production possibility curve: scarcity of resources determines the position of the production possibility curve and identifies the maximum that can be produced with available resources of land, labour and capital (quantity and quality) Relate choice and the production possibility curve: better to choose a point on the production possibility curve than a point inside the curve, but points outside the curve cannot be chosen Relate opportunity cost and the production possibility curve: making a choice of where to produce on the production possibility curve involves an opportunity cost; definition of opportunity cost and explanation. Making a choice to move from a point inside the production possibility curve to the production possibility curve involves no opportunity cost. You will be expected to Draw a diagram of a production possibility curve (PPC) indicating two alternative types of output (most likely "capital goods/consumer goods") Define PPC – distinction between potential and actual output Explain economic growth in terms of a shift outwards in the PPC and that a movement along the PPC represents reallocation of resources and opportunity cost Also explain that substitution of capital goods for consumption goods (opportunity cost) along the PPC in the short-term leads to a shift outwards in the PPC i.e. economic growth. |
You are expected to: Explaint that profit maximizing output is where MC = MR and if , at this output, AC is greater than AR, the firm will make a loss in the short run. Illustrate this point using the standard perfect competition diagram. Label the diagram and explain it properly You are expected to Define
Explain the concept of diminishing returns Draw diagram showing marginal cost (MC) and average total cost (ATC). Label it properly and explain it Explain MC cuts ATC at lowest point Explain the impact of marginal cost (MC) changes on average total cost (ATC) Expalin that MP cuts AP at highest point. You are expected to Start with definitions of allocative and productive efficiency Explain perfect competition Explain that a firm in perfect competition in long-run is allocatively and productively efficient Support your answer with correctly drawn and labelled diagram Explain monopoly The firm in monopoly in long-run is neither allocatively nor productively efficient Support your answer with correctly drawn and labelled diagram However there is higher output and lower prices in monopoly than in perfect competition due to economies of scale You are expected to Define allocative and productive efficiency. Draw the standard perfect competition equilibrium diagram showing and explaining that in perfect competition output will occur on the lowest point of the ATC curve (productive efficiency), and that price will be equal to MC (allocative efficiency). Label your diagram properly and explain it. You are expected to Define monopoly Explain that a monpolist strives to proudce at the revenue maximizing level of output (MR = 0) and the profit maximizing level of output (MC = MR) Support your answer with an accurately labelled diagram showing the levels of price and output when profit is maximized and when revenue is maximized. Explain the fact that when the change from revenue maximization to profit maximization is made, output will fall and price will rise. You are expected to Define short run and long run Explain the concepts of
Draw a properly labelled diagram of product curves and/or short run cost curve showing law of diminishing returns Support your answer with a diagram illustrating economies of scale using long run cost curves Explain the linkage between the two concepts You are expect to Explain the concept of profit maximization (MC=MR) with the help of properly labelled diagram Explain that many firms may have profit maximization as a goal. Explain the concept of Sales revenue maximization (MR=0), or where TR is at its maximum Explain that sales revenue maximization may be a goal of the firm. You are expected to Define monopoly Distinguish between revenue and profit Draw a diagram should show profit maximizing level of output (MC = MR) Draw a diagram should show revenue maximizing level of output (MR = 0) These diagrams should include AR(D), MR and MC curve Support your diagram with an explanation that when there is a move from profit maximization to revenue maximization, output will increase and the price of the good will fall. You are expected to Explain the characteristics of monopolistic competition Support with an example of monopolistic competition, e.g. food, clothing, restaurants Draw a diagram illustrating a short-run profit maximizing position, e.g. abnormal profits or losses Explain your diagram. Draw a diagram illustrating the long-run profit maximizing position, i.e. normal profits Explain long-run profit maximizing position and how it differs from the short-run profit maximizing position. Define price discrimination Explain that an airline would want to practice price discrimination in order to earn higher revenues and earn greater economic (supernormal) profits through the capture of consumer surplus to drive higher cost competitors out of the market by lowering prices for some consumer groups, and therefore it can increase its monopoly power You answer should also include an explanation about how an airline can practice price discrimination: It may do so by spliting the market and discriminate between different buyers: they can charge the elderly lower prices on certain days, give discounts for students' weekend travel, offer lower fares to travellers who make advance bookings and charge higher fares to those making their travel plans closer to the day of travel In the question the first part of the statement refers to a movement along the supply curve resulting from a shift of the demand curve to the left and a fall in price. The second part of the statement refers to a shift of the supply curve to the right, a movement along the demand curve and fall in price. You are expected to show The difference between a shift and a movement along a supply curve. Draw diagrams (a) movement along the supply curve (b) shift of supply curve. Label it properly, or else you will lose marks. You are expected to Define the concept of income elasticity of demand. Explain that.... for most agricultural products, demand expands less than proportionately as real incomes grow, so demand tends to be income inelastic and the value of the YED tends to be low. Thus YED determines the extent to which the agricultural producers' demand curve will shift to the right in response to an increase in income. Illustrate with the help of a properly labelled diagram that income is a determinant of demand and therefore can shift the demand. Draw diagrams:
You are expected to Explain the concept of scarcity Explain that resources are allocated in a free market through the interaction of demand and supply because there is no government intervention. Emphasise that this is a dynamic process and that the market forces i.e. demand and supply are constantly changing to arrive at an equlibrium or market price. Draw the following diagrams
Label the diagrams properly. Always explain your diagrams. You are expected to Define cross elasticity of demand as the % change in quantity demanded of good X in response to a % change in the price of good Y. Explain that XED with respect to the price of a complement is negative for substitute is positive Give some examples of negative and positive cross elasticity Explain closeness of substitute or complement determines the degree to which the quantity of a product demanded changes when the price of substitutes or complements change. Draw properly labelled diagrams showing
Always explain your diagrams. You are expected to Explain that as per the law of demand ,all other things being equal, a rise in price causes a fall in the quantity demanded similarly a fall in price causes a rise in the quantity demanded. Explain that a normal demand curve is downward sloping demand Draw properly labelled demand curve diagram. Now talk about exceptions to the law of demand i.e. demand curves can sometimes slope upwards Giffen goods or Veblen goods or speculative goods Draw Giffen Goods diagram and Veblen goods diagram. Label them Always explain your diagrams.
With the aid of a diagram, explain why the price elasticity of supply is likely to change over time.
You are expected to start with a definition of price elasticity of supply. State the formula for calculating the PES Explain why the PES can change over time (factors affecting PES) How quickly the costs of using resources rise as output increases; if the cost of resource use increases quickly as production increases, producers are less likely to increase supply, resulting in an inelastic supply Time period: the longer the time period considered, the more elastic supply will be (for example, difficulty in expanding capital e.g. constructing another factory) Spare Capacity: the greater the excess capacity, the more elastic supply will be Availability of substitutes in production: the more the substitutes, the easier it is to switch production, and the more elastic supply will be. Give examples, such as primary products (agriculture, minerals) which have a lower PES than manufactured products. Draw a diagram showing supply curves with different values of PES. Label it properly. Always explain your diagrams. |
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