review 1

Question 1

A tax imposed on a packet of cigarettes in the diagram above is an example of

Answer 1

A specific tax

Question 2

Explain one barrier to entry that is likely to exist in the table computer market?

Answer 2

High sunk cots, costs a lot to invest in manufacturing units which small firms will not have the resources to do

Question 3

Explain one conidition under which losss making firms might continue to operate in the short run ?

Answer 3

Short run shut down point where AR+AVC in short run so continue to operate. But each additional unit sold contributes to reducing the size of losses

Alternative answer
If the firm has sigbnifcant reserves from previous years that it can cover any losses which at blackberry were 4.4 billion this means the business continues to operate if it believes it can make future profits

Question 4

Negative externality diagram are MSC greater than MSB

Answer 4

Yes

Question 5

Explain what is liekly to happen to the price elasticity of supply for coffee in the long run?

Answer 5

The price elastic of supply will become more elastic as coffee growers will be able to respond by planting more coffee which will increase supply in the long run

Question 6

Explain how the introduction of a traceable pollution permit scheme is likely to reduce the production of electrify using coal?

Answer 6

A traceable permit scheme is where firms are given permits which give them a limit to the amount of pollution they emit
If they emit moire than permitted then they can trade with firms who have excess permits this creates a profit incentive fort firms to reduce pollution as firms may have excess permits they can sell to add to the fries revenue

Question 7

Explain the difference between fixed costs and variable cots

Answer 7

Fixed costs remain the same as output increases or decreases

variable cost Varys as output increases of decreases

Question 8

Explain one charactyersrtic of the economy at position W inside the ppf

Answer 8

Inefficient allocation of resources, as the country is operating inside the ppf

Question 9

Explain one likely reason for the difference in average house prices between London and the north east of England

Answer 9

Differences in average incomes, higher average income in London mean people are able to obtain larger mortgages and so pay higher prices

Question 10

Emily now decides to change her objective from revenue maximisation to sales maximisation. This change will lead to

Answer 10

A decrease in the price of treatments

Question 11

Research conducted for HMRC estimated the cross elasticity of demand for using gemming machines to be 1.28 in response to changes in the price of national lottery tickets. In October 2013 Camelot increased the price of national latterly tickets from 1 pound too 2 pound explain the likely impact of the price increase pf national lottery tickets on the dead for using gaming machines?

Answer 11

The demand for use of gaming machines is likely to increase
Susbistues have a postive cross elastic if demand, the fact that 1.28 cross elastic of demand indicates they are close substitutes

Question 12

Explain one factor that is likely to determine the price elasticity of supply of new house builds?

Answer 12

Limited availability of land so supply will be inelastic

Question 13

Free market economics is beu=ing challenged. The arguments for and against are being increasingly disscussed within many countries? Explain how free market allocates resources

Answer 13

Resources are allocated via price mechomos,s forces of supply and demand, price changes act as a sign

Question 14

Explain one advantage of a firm of using division of labour when organising its production process?

Answer 14

A benefit that the firm only needs to train workers in one specific role this means that they can lower costs

Question 15

The indirect tax on fuel is increased in a market in which the price elasticity of demand is -0.1. which one of the following is the most likely effect on consumer and producer surplus?

Answer 15

Consumer and producers surplus both decrease

Question 16

Explain one likely effect of reducing the number of tradable pollution permits?

Answer 16

Shorts the supply of permits inwards which will push up the price per permit, reducing population
Negative externality is reduced

Question 17

Regulation of firms that pollute is likely to be a problem because it?

Answer 17

Creates unintended consequences

Question 18

Explain what happens to total cost as output labels greater than MES?

Answer 18

Total costs rises at an increasing rate

Question 19

At output levels greater than Z which one of the following correctly identifies what will happen to the cost?

Answer 19

Average fixed cost -falls
Average variable cost - rises
Marginal cost - rises

Question 20

Explain one likely reason why this business has remained small ?

Answer 20

Lack of finance for explanation because of the cost of opening an additional cafe

Question 21

Explain why the previous expansion of this business could be described as organic growth?

Answer 21

Growth is internal opening new tea rooms
Reinvesting profits from 2 million customers to open new cafe

Question 22

What is excess supply known as in the labour market?

Answer 22

Unemployment.

Question 23

Explain how an increase in productivity will affect demand for labour.

Answer 23

An increase in labour productivity may increase the demand for labour. This is because each worker is producing more goods and services and so firms will want to hire more workers in order to make more profit.
However, an increase in labour productivity may decrease the demand for labour. This is because firms may only require a set amount of output and so an increase in productivity means they demand fewer workers.

Question 24

Explain how an 83% income tax rate would affect the labour market for high income, highly skilled workers. (6 marks)

Answer 24

Supply of highly skilled workers may decrease because a higher tax reduces the income they keep for working. This reduces the incentive to work, decreasing the supply of labour and shifting the labour supply curve to the left.

Evaluation (2 marks)
However, some workers need to earn a certain amount of income (e.g. to pay off their mortgage each month). The higher tax means they will now have to work more hours to earn the same income (after the tax), so labour supply could actually increase.

Question 25

Write down three types of non-pecuniary benefits?

Answer 25

Holidays, health, promotion.

Question 26

Define the term ‘non-pecuniary benefits’. Use an example in your answer.

Answer 26

Non-pecuniary benefits are benefits of a job other than the wage received. For example - company holidays, job satisfaction, making a change in the world, private healthcare, dental care, free gym memberships, company cars, promotion opportunities, brand image.

Question 27

Given that wages make up a small % of Ford’s total cost, will demand for factory workers be elastic or inelastic? (2 marks)

Answer 27

Wages paid to factory workers are a small % of Ford’s total cost. So even if workers wages increase by a lot, firm’s won’t care much because wages are such a small % of their costs. So demand will be unresponsive to changes in wage, suggesting inelastic demand!

Question 28

Explain how a monopsony can reduce the wages it pays its workers.

Answer 28

A monopsony is when there’s only one buyer in the market (e.g. the NHS is the only buyer of doctors in the UK)
A monopsony can reduce the wages it pays its workers and the workers will have no choice but to accept, because they have nowhere else to work.