a) Using at least one production possibility curve diagram, explain the concepts of scarcity, choice, opportunity cost and resource allocation. (20 minutes)
b) Evaluate the view that the market forces of demand and supply willalways lead to the best allocation of resources. (25 minutes)
a) With the aid of at least one diagram, explain the difference between a movement along an existing demand curve for a good and a shift of the demand curve for a good. (20 minutes)
a) Explain how, in a market system, changes in demand and supply allocate scarce resources through the signaling and incentive functions of price. (2o minutes)
PED
a) Suggest reasons why the price elasticity of demand for cigarettes might have a different value from the price elasticity of demand for foreign holidays. (20 minutes)
b) Examine the usefulness of a knowledge of price elasticity of demand to firms and governments. (25 minutes)
XED_YED
a) Explain the factors which might influence the cross price elasticity of demand between different products. (20 minutes)
b) Examine the importance of income elasticity of demand for the producers of primary products, manufactured goods and services.
PED_XED
a) Explain the differences between price elasticity of demand (PED) and cross-elasticity of demand (XED). (20 minutes)
b) Discuss the usefulness of price elasticity of demand (PED) and cross-elasticity of demand (XED) to businesses trying to increase their sales revenue. (25 minutes)
Subsidies
(a) Explain why a government might introduce subsidies for food. [10 marks]
(b) Discuss possible negative consequences that may arise from a government decision to subsidize food. [15 marks]
Price Controls
(a) Explain why a government might impose a price ceiling on the market for rented accommodation and a price floor on the market for agricultural products. [10 marks]
(b) Evaluate the possible consequences of price controls on the stakeholders in a market. [15 marks]
(b) Evaluate the view that government intervention in agricultural markets will create more problems than it solves.
Externalities
(a) Analyze the consumption externalities which might arise from the provision of education and health care for the citizens of a country. [10 marks]
(b) Evaluate the use of government policies to increase the consumption of health care. [15 marks]
(a) Explain why negative externalities are an example of market failure.
(b) Evaluate three policies that governments might implement to reduce negative externalities associated with the environment.
(b) Discuss two possible government responses to threats to sustainability. [15 marks]
Public Goods_Market Failure
(a) Explain the distinction between public goods and merit goods and why these goods are examples of market failure.
(b) “The operation of the free market is always the best way to allocate scarce resources.” Evaluate this statement.
Microeconomics Vocabulary
Ad valorem tax Allocative efficiency Capital Ceteris paribus Common access resources Complementary good Consumer surplus Cross price elasticity of demand (XED) De-merit good Demand Excess demand (shortage) Excess supply (surplus) Factors of production Incentive function of price Income elasticity of demand (YED) Indirect taxes Inferior good Labor Land Law of demand Law of supply Manufactured goods Marginal private benefit (MPB) Marginal private cost (MPC) Marginal social benefit (MSB) Marginal social cost (MSC) Market Market equilibrium Market failure Merit good Normal good Negative externality of consumption Negative externality of production Positive externality of consumption Positive externality of production Price ceiling Price floor Price elasticity of demand (PED) Price elasticity of supply (PES) Price mechanism Primary commodity Producer surplus Public good Resource allocation Revenue Signaling function of price Specific tax Subsidy Supply Sustainability