Year 13

Question 1

Diminishing marginal utility
(Check book for Utility diagram*****)

Answer 1

An individual’s satisfaction from consuming goods and services declines as they get more.

Question 2

Law of diminishing returns
(Check book for MP / AP diagram**)

Answer 2

When more workers are added, productivity and output falls in the SR.

Question 3

Difference between marginal product and average product

Answer 3

Change in products / Change in inputs = MP
Products / inputs = AP

Question 4

Increasing returns to scale

Answer 4

A % increase in inputs leads to a more than proportional increase in output. LR

Question 5

Constant returns to scale

Answer 5

A % increase in inputs leads to the same % increase in output. LR

Question 6

Decreasing returns to scale

Answer 6

A % increase in inputs leads to a less than proportional increase in output. LR

Question 7

Minimum efficient scale

Answer 7

The lowest point on the LRAC curve.
A low MES is a competitive market with low barriers.
A high MES is a monopoly with high barriers.

Question 8

Average cost & marginal cost formula

Answer 8

cost / output = AC
change in cost / change in output = MC
MC is the cost of producing one extra product.
Increases due to DMR.

Question 9

Economic profit formula

Answer 9

Total Revenue - Economic costs (explicit + implicit)

Above $0 is supernormal
$0 = normal profit
Below $0 is loss making

Question 10

Actual Revenue
Marginal revenue

Answer 10

Revenue / Output
Change in revenue / change in output

Question 11

Shut-down price

Answer 11

when a firm’s average revenue is operating below average variable costs. The firm should exit the market as they don’t have the revenue to cover AVC.

Question 12

Marginal Physical Product (MPP)

Marginal Revenue Product (MRP)

Answer 12

MPP measures extra output as one unit of labour is added.

MRP measures revenue made from extra output.

Question 13

Marginal Productivity theory

Answer 13

The idea that firms only employ workers up to the profit maximising point. MRP = MC (wage rate)

Question 14

Benefits of trade unions

Answer 14

*Increases MRP due to better work environment and capital inputs.
*Efficiency wage theory

Question 15

3 Policies to tackle discrimination in labour markets

Answer 15

• Anti-discrimination laws and regulations eg. Equality Act 2010
• Affirmative Action - ethnic minority hiring targets
• Access to quality education and training

Question 16

Difference between Equality and Equity

Answer 16

Equality is income & wealth being distributed evenly.
Equity is income and wealth being distributed fairly.

Question 17

Policies to reduce inequality

Answer 17

Minimum Wage
Reduce income tax for lower income bands and increase personal allowance.
Increase trade union power
Universal credit

Question 18

Arguments for nationalisation…

Answer 18

*Social equality - government control prices can create allocative efficiency. Introduce social tariffs, making g&s affordable for low income groups. Leads to more equitable distribution of income.

*Funding of infrastructure as a public good. Accessible to all residents, and government can borrow more cheaply to fund capital investment.

Question 19

Cons of nationalisation…

Answer 19

Reduced profits from private firms lead to less investment (MRMC to ARAC). Lost dynamic efficiency.

Lack of real competition leads to X inefficiency.

Question 20

Examples of UK nationalisation

Answer 20

Channel 4
Network Rail
Labour Party plan to renationalise railways within 5 years of coming to power