2022 Flashcards
What are characteristics of a private good?
Rivalrous and excludable
Why are flood defences provided by the public sector
They are non excludable + explain
They are non rival + explain
consumers will under value the benefit therefore pay less producers vice versa
this is why gov / public sector funded by tax provides - because value hard to estimate so they decide value and how much output
minimum price definition
minimum price sets the lowest level that a good or service can legally be sold for
2b answer
B
2c - explain one likely problem of maintaining prices at p2
opportunity cost of the intervention - could have been spent on education instead
Which one of the following would be most likely to cause a country’s currency to no longer be acceptable as a medium of exchange?
B - It becomes unlimited in supply
Explain how Bitcoin fulfils one function of money, apart from as a medium of exchange.
bitcoin is a store of value - when a consumer saves bitcoin they are confident they will receive equivalent market value back
With reference to the statement above, explain the difference between positive and normative statements.
Positive statements are objective and contains facts and/or statistics that can be tested whereas normative statements are based on opinion and are subjective. The example above has the word ‘should’ this implies that the statement is normative however there is evidence that would prove that vaccinations will benefit people from viruses.
Which one of the following explains how market failure might occur in a free
market economy?
Goods with positive externalities are underprovided
Explain one reason why flour producers might find it difficult to increase quantity supplied in the short run.
the supply for flour is price …….. + explanation of sr and lr
A manufacturer has estimated that the price elasticity of supply of ice cream is +1.5. If the demand for ice cream rises and the price increases by 10%, which one of the
following is the resulting percentage change in supply?
D - 15%
6a - Explain the likely impact of the new 2020 TACs on the price of cod. Include a supply and demand diagram in your answer.
- explain TACs
- ‘the limits were cut by 50% in the north sea while reduced limits were also agreed for cod in the Celtic sea, Irish Sea and west of scotland’
- supply shift left
- diagram
- Sweden has the highest excess TACs, they have 52.4%.
6b - Assess whether it is rational for fishing companies to behave in this way.
- This is completely rational from the perspective of a fishing company, which has revenues clearly linked to size of catch.
- in economics we assume that firms are profit maximising agents
-Figure 1 shows Sweden fishing at an excess of 52.4% in excess of TAC. - Using techniques to increase the size of the catch will help to minimise costs - this encourages new technology to be created - safer and better nets
- Common access resources provide an opportunity for individuals to create profit, while spreading negative externalities to everyone else.’
HOWEVER
-exploitation is unsustainable and will lead to the depletion of resources; this is known as the tragedy of the commons.’
-Short run profits means that stocks are rapidly
depleted so in the long run there are no resources for them to fish e.g. individual firms find that dwindling fish stocks mean their own revenue base is contracting. ‘90% of fish stocks are depleted
-t may be rational for firms to behave this way but also it is harmful to society of which those firms are a part e.g. negative externalities impact society as a whole
Fish and chips are complementary goods with an estimated cross elasticity of demand
of –8. Currently 950 000 bags of chips are sold in UK fish and chip shops each day.
- With reference to the information provided, calculate the new quantity demanded of bags of chips from fish and chip shops, following a 2% increase in the price of fish. You are advised to show your working.
XED = %∆QD Good A %∆P Good B
-8 = x/2%
-8 x 2% = -16% (decrease in quantity demanded of bags of chips)
950 000 x 16% = 152 000
950 000 – 152 000 = 798 000
ESSAY LAST QUESTION
Some economists suggest that the market price of cod does not result in the socially optimum level of output. Evaluate the likely external costs from the over-fishing of cod. Use an appropriate diagram in your answer.
INTRO - BREAK DOWN QUESTION
EXTERNALITY DEFENITION + APPLICATION BY EXPLAINING NEGATIVE
PRIVATE COST + PRIVATE BENEFIT + APPLICATION FOR BOTH
APPLICATION -
OVER FISHING MAY CAUSE THE FOLLOWING NEGATIVE EXTERNALITIES
• Fishing nets can damage wildlife, costing wildlife charities to rescue and rehabilitate animals
• Fishing boats spill oil which has a negative impacton those swimming in the sea or wildlife, clear up
for Environment Agency etc
• Fishing industry throws any over catch back in to
the sea, this can pollute the water
• Smell from fishing industry can have a negative
impact on those that live near the ports
Overfishing increases supply - lowers price and this has negative impact on manufacturers of other food items.
+ quotes and diagram + evaluation ?
These externalities results in market failure. MARKET FAILURE DEFINITION + because there is an over provision of fish
the extent to which the market fails involves a value judgement, so it is hard to determine the monetary vale of an externality. For example: how do you value harm to wildlife ? this makes determining government policies difficult too.
MSC AND MPC DIAGRAM
-the diagram shows there will be an over provision at Qms and there will be a net welfare loss at shaded triangle. define welfare loss
EVALUATE WHY THERE HAS BEEN A WELFARE LOSS
-why do external costs occur
-market equilibrium ignores negative externalities
- this leads to over provision and under pricing
-therefore there is excess of social costs over benefit.
To compensate for the excess supply - the cod TAC should be reduced in order to reduce the extent of the overfishing. This would reduce the quantity caught from QE to Q*.
