Introduction
(Rationing Systems etc.)
(Rationing Systems etc.)
Demand & Supply
Elasticities
Indirect taxes, Subsidies & Elasticity
Market Failure
100
Land, Labor, Capital and Production
Define and state the “Four Factors of Production”.
200
An improvement in the quantity and / or quality of the factors of production.
What is an outward shift in the "Production Possibility Curve".
200
What is the supply curve?
200
What is a perfectly inelastic curve?
200
What is the imposition of a specific tax?
200
What is a negative externality?
300
2 reasons: First, resources are not fully used (idle workers, land). Second, resources are used inefficiently.
Identify two reasons for an economy to be inside its PPC.
300
Costs of factors of production, Availability & scarcity of factors of production, Improved technology & productivity and Increase in the number of suppliers.
Identify at least four non-price determinants of supply.
300
A perfectly elastic demand curve is a horizontal line at a fixed price - consumers can & will purchase all the quantity the want of the good at one price.
Explain the concept of the perfectly elastic demand curve/ what is a perfectly elastic demand curve?
300
Specific/Flat Rate Taxes and Ad Valorem Taxes
Identify two types of Indirect Taxes.
300
A benefit arising for third parties (non-users/producers) for a good or service which neither a firm or consumer has paid for. The effect of a positive externality is that the net social benefit is greater than the net private benefit.
Define and explain the concept of a Positive Externality.
400
Adam Smith suggested this approach to be followed in a free market – it is the view that the government should interfere as little as possible in a nation’s economic activity. The government should only be limited to maintenance of law and order, national defense and provision of public services, leaving consumers and producers to make their own decisions and gaining maximum benefit from their decisions.
What is the effect of Laissez-Faire in a free market.
400
Through the price band, the government allows the price to fluctuate by imposing a price range: a floor and ceiling price that would serve as the maximum and minimum value for the price fluctuations. Upon implementing the price band, if the price of a certain commodity is too low, the government buys to keep the price from falling below the minimum price and vice versa (government sells to keep the price from going above the maximum price).
How will the implementation of price bands in a market help stabilize prices.
400
In elastic demand, the value of PED is greater than one and less than infinity. If a product has elastic demand, raising the price of the product will lead to a fall in the quantity demanded, so the total revenue gained by the firm will fall as well. Otherwise, to increase total revenue, the price of the product should not be raised.
What is the effect of a product that has elastic demand on the firm’s total revenue?
400
To lower the price of essential goods, to guarantee the supply of products that the government thinks are necessary for the economy and the enable the producers to compete with overseas trade, thus protecting the home industry.
What are the main reasons why a government subsidizes a product?
400
With negative advertising employed, it will shift the demand curve to the left, where the socially optimal level of output is provided, moving to a new supply curve, which is the Private Marginal Cost (lessening the Social Marginal Cost).
With the help of a diagram, explain the effect of negative advertising in reducing the supply of demerit goods.
500
In a planned economy, all decisions are made by the government and that resources are collectively owned. While in a free market economy, producers/ individual firms make the decisions (demand and supply are left free to set wages and prices in the economy.
Outline the main difference between the two main rationing systems: Planned Economy and Free Market Economy
500
Excess demand creates shortages; hence, illegal market emerges to address the created shortage by selling that particular product at a higher price, between the maximum price and the equilibrium price. Queues might also develop in shops as the producers may decide those people allowed to buy.
Explain how excess demand creates problems in terms of the formation of illegal markets.
500
When the value of PED = PES, tax burden is shared equally between the consumers and producers. If the PED > PES, tax burden is greater on producers than consumers and if PED < PES, tax burden is greater on the consumers.
How does the elasticity of demand and supply affect the extent of benefit of a subsidy to a consumer and a producer.
500
By placing indirect taxes on products that have relatively inelastic demand, for instance alcohol products, the demand changes by a ‘proportionately’ smaller amount than the change in price. Therefore, the government gains higher revenue without causing a large fall in employment.
Explain why the government tends to place indirect taxes on products that have relatively inelastic demand.
500
First, it is often difficult to measure accurately the pollution created and to put a value on it, which can be regained by the tax. Second, it is also difficult to identify which firms are polluting and to what extent each firm is responsible for the pollution. Third, it is often argued that taxes do not actually stop the pollution from taking place.
Describe problems with the assumption that taxes are seen as a way of making the polluter pay.