As Summer 2018 Flashcards
Ceteris Paribus, calculate the price elasticity of demand for the Daily mail newspaper over this period. You are advised to show your working. (2 marks)
- PED = % change Qd / % change P
- Price rise = 5/60 = 8.3%
- PED = -5.4% / 8.3% = -0.65
Which one of the following is most likely to be a determinant of price elasticity of demand for the Daily Mail newspaper? (1 mark)
A - Availability of rival newspapers
Using the data above, which one of the following is a function of the price mechanism in the market for private dental care? (1 mark)
A - Acting as a signal to dentists when deciding whether to provide private dental treatment
Explain one possible reason why the state provides NHS dental treatment. (2 marks)
- Imperfect info
- Which may lead to a misallocation of resources
Define the term ‘asymmetric information’. (1 mark)
Where one party in a transaction has more/supeior info compared to another
Using the data provided, explain whether bus travel is a normal good or an inferior good. (3 marks)
K/U:
* Inferior good - as incomes rise demand falls / YED = % change Qd / % change Y
App:
* % change income = 1.5/24.2 = 6.2%
* YED = -3% / 6.2% = -0.48
Ana:
* Bus travel is an inferior good as YED is negative
The diagram shows the production possibility frontier for the BBC. Assuming the BBC is at point W, annotate the diagram to show the opportunity cost of providing more educational programmes. (2 marks)
With reference to Figure 1 and Extract A, explain why the price of uranium has ‘fallen to a 13-year low’ (Extract A, lines 2 and 3) in 2016. Include a supply and demand diagram in your answer. (5 marks)
K:
* Increase in supply/decrease in demand
App:
* Confidence in nuclear industry declined/Japan closed some of its nuclear plants
Ana:
* Diagram - price fall and correct shift
With reference to Extract A and your own knowledge, assess whether the supply of uranium is likely to be price elastic or price inelastic. (10 marks)
KAA para
- PES / PES diagram
- Uranium is price inelastic
- Time (e.g. Two years to build uranium mine in Spain, ten years in ‘development’, difficult to find
- Immobility (e.g. uranium mine cannot be switched)
- Regulation - gov concerns about negative externalities
With reference to Extract A and your own knowledge, assess whether the supply of uranium is likely to be price elastic or price inelastic. (10 marks)
Ev para
Uranium is price elastic:
* Time - Store stockpiles of uranium (Figure 1 surplus suggests and ‘stockpile until 2020’)
* ‘Uranium is a relatively common metal’. (Extract A, line 2)
With reference to Extract B, explain two likely reasons why many consumers of energy have not switched to suppliers offering lower prices. (6 marks)
K:
* Inertia
* Providers increasing prices over time
App:
* Energy prices have risen by 158% in the last 15 years.
* Four million households are still on the most expensive energy rates
Ana:
* Inertia
* Despite a decade of rising energy bills as consumers do not have the time/motivation to switch
Discuss the likely microeconomic effect of this decision on energy production and consumers. Include a supply and demand diagram in your answer. (15 marks)
KAA para
Effect on consumers:
* Energy prices more affordable for consumers, end of ‘decade of rising energy bills’, extension in demand for energy/increase in Qd
Effect on producers:
* Contraction in supply/decrease in Qs, power stations turned off ‘undermine energy market’, decline in producer surplus/profit
Discuss the likely microeconomic effect of this decision on energy production and consumers. Include a supply and demand diagram in your answer. (15 marks)
Ev para
- Depend on PES/PED of energy
- Costs to consumers - loss of consumer surplus, energy shortage, ‘higher prices in the future’.
- Impact on producers - move up to price cap (e.g. reduce investment)
- Government failure
Evaluate ways in which government intervention could be used to reduce carbon emissions. Use at least one appropriate diagram in your answer. (20 marks)
KAA para
Government intervention:
* Indirect tax on carbon emissions providers (e.g. coal/gas power stations) to remove cars
* Subsidies to public transport
* Max price on low/zero carbon emissions providers and min price on carbon emitters
* Tradable pollution permits
* Regulation (e.g. shut down all coal power stations by 2025)
Evaluate ways in which government intervention could be used to reduce carbon emissions. Use at least one appropriate diagram in your answer. (20 marks)
Ev para
Not successful:
* Unintended consequences, energy shortage
* Pollution permits
* External costs of non-carbon based energy sources (i.e. climate change)
