Basic Concepts Why is the concept of `scarcity` important in rich

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Basic Concepts
1. Why is the concept of 'scarcity' important in rich countries as well as poor ones?
(Paper 2, 1997)
2. Explain why countries with different economic systems face the same
fundamental economic problems (Paper 2, 1999)
3. Define Opportunity Cost and explain the importance of the concept.
4. Explain what is meant by a PPC and discuss the circumstances in which such a
curve would change its position.
5. Use production possibility curve diagrams to explain the differences between
actual output and potential output and between economic growth and economic
development.
6. With reference to the concept of economic growth, explain the difference
between a movement along an existing production possibility curve (PPC) and an
outward shift in a production possibility curve (PPC). (May 2009)
7. Explain how the three basic economic questions would be answered in a free
market economy and in a centrally-planned economy.
8. Using a production possibility curve (PPC) diagram, explain the relationship
between the economic concepts of economic goods, factors of production and
opportunity cost. (May 09)
Supply & Demand
1. Using demand and supply analysis, explain how resources are allocated through
changes in price in a market economy.
2. Explain how scarce factors of production are allocated by the free market. (Paper
2, 2007).
3. “Normally, it would be expected that more would be demanded at lower prices as
opposed to higher prices, all other things being equal, but this may not always be
the case.” Explain this statement.
4. Paper 3 sub-question c: Using a demand and supply diagram for haircuts,
explain how a shortage of staff in the hairdressing industry could affect the price
of haircuts. (May 2009)
5. Using an appropriate diagram, explain the likely consequences of an increase in
the minimum wage.
6. Evaluate the impact of government intervention in the market in setting maximum
prices.
Elasticity
1. Use a diagram to explain how the burden of a tax is shared among producers
and consumers when an ad valorem tax is placed on a good which has a
relatively inelastic demand.
2. Using appropriate diagrams, explain why the relative burden (incidence) of an
indirect tax on the producers and on the consumer varies, depending on the price
elasticity of demand. (Nov 09)
3. Define cross elasticity of demand and using diagrams, explain what determines
whether cross elasticity of demand is positive or negative.
4. Paper 3 sub-question b: Using an appropriate diagram, explain why the demand
for rail travel increases when petrol (gasoline) prices rise. (May 2009)
5. A. Explain the importance of price elasticity of demand and cross-elasticity of
demand for business decision-making.
B. Studies have shown that the demand for tobacco tends to be highly price
inelastic. Evaluate the view that governments can best reduce smoking by
substantially increasing taxes on cigarettes. (May 10)
6. Why might a firm be interested in knowing the various elasticities of demand for
the products it sells?
7. A business person believes that halving her prices will double her revenue.
Explain why this might not happen.
8. Define income elasticity of demand and using diagrams, explain what determines
whether income elasticity of demand is positive or negative.
Theory of the Firm
General
1. Using appropriate diagrams, explain the difference between the law of
diminishing returns and economies of scale. (nov 05)
2. Explain the relationship in the short-run between the marginal costs of a firm and
its average total costs. (06?)
3. a) In the theory of the firm, a distinction is made between short-run cost curves
and long-run cost curves. Using appropriate cost curve diagrams, explain this
distinction.
b) Evaluate the view that greater economic efficiency will always be
achieved in perfect competition as compared to monopoly.
Comparisons
1. a) Explain the differences between monopolistic competition and oligopoly as
market structures.
b) Discuss the differences between a collusive and a non-collusive
oligopoly.(Nov 05)
2. Using appropriate diagrams, explain whether a monopoly is likely to be more
efficient or less efficient than a firm in perfect competition. (Paper 2, May 2006)
Perfect Competition
1. a) Explain how profit is determined in perfect competition.
b) “Whatever the type of market structure, profit maximization will always be the
only goal of firms.” Discuss. (06?)
2. With the help of a diagram, explain when a firm should shut down in the short
run.(Paper 2, Nov 2007)
3. Explain why the marginal revenue curve is identical to the average revenue curve
for a firm in perfect competition but not identical for a monopoly. (May 2009)
Monopolistic Competition
1. a) Explain the difference between short-run equilibrium and long-run equilibrium
in monopolistic competition.
b) Perfect competition is a more desirable market form than monopolistic
competition. Discuss (Nov 2007).
2. Paper 3, sub-question b: Using an appropriate diagram, explain how a firm in
monopolistic competition can earn abnormal/economic profit. (May 2009)
3. Paper 3, sub-question d: Using information from the text/data and your
knowledge of economics, evaluate the costs and benefits of monopolistic
competition for consumers and producers. (May 2009)
Monopolies
1. Explain the level of output at which a monopoly firm will produce
2. Using a diagram, explain the concept of a natural monopoly (Paper 2, Nov 2007)
3. a) Explain the barriers to entry that allow a firm to be a monopoly.
b) Evaluate the view that governments should always prevent firms from being
monopolies
4. A perfectly competitive industry is turned into a monopoly. Predict the effect on
price and output
5. A monopoly firm decides to maximize revenue rather than profit. Use a diagram
to explain what will happen to price and quantity. (Paper 2, Nov 2006)
6. a) Explain how barriers to entry may affect market structure.
b) Evaluate the view that monopoly is an undesirable type of market structure.
(May 2007)
7. a) “Monopoly price is higher and output smaller than is socially ideal. The public
is the victim”. Explain the economic reasoning behind this statement.
b) Do you agree that the public is always the ‘victim’ of monopoly? Justify your
answer. (Paper 1, 2000)
8. a) Outline the ways in which monopoly power might arise.
b) Should governments seek to control the growth of monopoly power?
Oligopolies
1. a) Explain how a firm operating in an oligopolistic market might attempt to
increase its market share.
b) Evaluate the view that producers, and not consumers, are the main
beneficiaries of oligopolistic market structures (Paper 1, May 2008)
2. Explain why prices tend to be relatively stable in a non-collusive oligopoly. (May
2009)
3. Explain the nature of competition in a non-collusive oligopoly. (Nov 09)
Contestable Markets & Price Discrimination
a)
b)
Explain the necessary conditions for price discrimination to take place.
Discuss the advantages and disadvantages of price discrimination for
consumers and producers.
Market Failure
1.
Use a diagram to explain how the burden of a tax is shared among producers
and consumers when an ad valorem tax is placed on a good which has a relatively
inelastic demand.
2. a) Carefully distinguish between merit goods, demerit goods and public goods.
b) Evaluate the view that governments should always intervene in markets for such
goods as cigarettes and alcohol.
3. a) Why are environmental problems considered to be an example of market failure?
b) To what extent can government intervention correct this failure? (Paper 2, 2000)
4. With the aid of a diagram, explain how the application of a flat rate tax (a
specific/fixed amount) could reduce the amount of pollution produced by a chemical
factory. (May 2009)
5. Explain how direct provision of a public good by the state (government) can correct
the problem of market failure. (May 2009)
6. Explain how the burning of fossil fuels (e.g. coal) by industries could create a market
failure and a threat to sustainable development. (Nov 2008)
7. Nov 06 Paper 3 about pollution and tradable permits
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