eco-sum-Alevel-AS

ARevisionGuideofEconomicsPaper2DataresponseandEssay2002-2009AsummaryofeconomicspastpaperswithquestionanalysisByEvanAndHenry-1-CONTENTChapterNo.TopicsPageChapter1BasicEconomicIdeasChapter2PriceMechanismChapter3GovernmentInterventionChapter4InternationalTradeChapter5MeasurementinMacroeconomyChapter6MacroeconomicProblemsChapter7PoliciestoCorrectBalanceofPayment2010June-2-Chapter1BASICECONOMICIDEASBASICECONOMICPROBLEMSExplainthethreeeconomicquestionsthatalleconomiesfacebecauseofthebasiceconomicproblem.[8]Define3economicquestions:Thebasiceconomicquestionsarewhattoproduce(theselection),howtoproduce(themethods)andhowtodistribute(theconsumers).Causesofthesequestions:Thesearetheresultofscarceresourcesandunlimitedwants.Scarcityexistsandmakeschoicesnecessaryandthisisfoundinalltypesofeconomy.[08M/J]SUPPLYANDDEMANDDiscussthecostsandbenefitsofanincreaseddemandforairtravel.[6]Benefits:business(expansion,profit,newmarkets),individuals(mobility,leisure,employment),economies(growth,balanceofpayments)Costs:externalities(pollution,noise,visualintrusion),resourcedepletion,effectsonrivalsbalanceofpaymentseffectsMeaningfulconclusiononoveralleffect.Onesidemax.(4),identificationmax.(2),explanation(4)[09O/N]-3-Explain,withthehelpofadiagram,howthepriceofaproductmovestoanewequilibriumfollowingadecreaseinitssupply.[8]Causesofadecreasesupply:Adecreaseinsupplyresultsfromrisingcosts,unfavourablenaturalinfluences,highertaxesetc.andcausessupplytoshifttotheleft.Resultofdecreasedsupply:Thiswillresultinariseinthepriceoftheproduct.Defineequilibrium:Equilibrium,thetendencynottochangewhenD=S,Howtheequilibriumchange:(Continued)isrestoredasthehigherpricediscouragesthequantitydemandedasconsumersadjusttheirspendinglevels.Pricewillcontinuetoriseuntilthebalanceisrestored.[09O/N]Discussthebenefitsanddrawbacksofrisingworldfoodprices.[6]Benefits:Risingfoodpriceswillhelpproducers,farmersandruralareas;Itwillstimulatefoodproductionandhelpthosecountrieswhichexportfood.Drawbacks:Theywillhurtlowincomeearners,foodimportersandfoodprocessorsandcontributetoinflationarypressure.Thepoorestsubsistencefarmerswhobuyadditionalfoodwillbehurt.Conclusion:Theeffectsdifferaccordingtotheproductionpatternandlevelofincomeofcountriesandindividuals.Oneside4marksmax.Meaningfulconclusion(1)[09O/N]Discusshowreducedairfaresonlow-cost,budgetairlinesmightaffecttheairtravelmarketandthemarketsforrelatedgoodsandservices.[12]Withintheairtravelmarketasub-marketmayemergewithincreasedsupplyofservices,lowerpricesandarestrictedservice.Effectsoncompetitors:Formerrivalsmaybeabletomaintaintheirpositionwithdifferentcustomersormayrespondbycuttingtheirownprice.Effectsonconsumers:Thesizeofthemarketshouldexpandwithmorepeopleabletoaffordflying.Effectsonsubstitutes:Rivalssuchasferryservicesorrailwaysmayfacefallingdemand,dependingupontheelasticityinvolved.Effectsoncomplementary:Providersofcomplementaryservicese.g.airportparking,travelinsurancemayfaceincreaseddemandwithupwardpressureontheirprices.Aircraftmanufacturersorleasersmaybenefitastheirsisaderiveddemandarisingfrommoreflying.-4-[09O/N]3(a)Increasingrawmaterialcostscausethepriceofagoodtorise.Explaintheeffectofthispriceriseforthegoodonthemarketsforitssubstituteandcomplementarygoods.[8]SubstitutesandcomplementsmaybedescribedoranalysedviaXED.Apricerisereducesthequantitydemandedofthegooditself.Thedemandforcomplementarygoodswillalsodecline,reducingtheirprice.Thehigherpricewillmakesubstitutesmoredemanded,causingtheirpriceandoutputtorise.Examplescanillustratethisanddemandandsupplydiagramscanshowtheprocess.Understandingofcomplementaryandsubstitutegoodsupto3marksDescriptionoftheresultsofapriceriseupto3marksAnalysisofthemarketeffectsupto2marks(b)Discusstheusefulnesstobusinessesofaknowledgeofpriceelasticityofdemandandincomeelasticityofdemand.[12]Priceandincomeelasticityaffecttheresponseofquantitydemandedtochangesintherespectivevariables.Forafirmthiswillaffectitsrevenueandthemarketsitserves.ItwillusePEDtohelpwithpricingpolicyandYEDtoaffectthelevelandnatureofproduction.Howeverestimatesmaybeinaccurate,circumstancesmaychangeandtheremaybelittleuseofortrustinthemeasures.Understandingoftheelasticityconceptsupto4marksExplanationoftheusesoftheconceptsupto6marksDiscussionofthelimitationsinuseupto6marks,subjecttomaximumof8intotalforthisandthepreviouslineConsiderationofPEDorYEDalonegets8maximum[2004summer]Explainhowanequilibriumpriceforaproductisestablishedinthemarketandhowitmaychange.[8]Defineequilibrium:EquilibriumiswhenD=Sandthereisnotendencytochange.Definedisequilibrium:Disequilibriumpositions(QDmoreorlessthanQS)arecorrectedbyresponsesofconsumerandproducer,whichalterprice.Howthenewequilibriumbeset:NewequilibriumsarecreatedwhenchangesinconditionscauseshiftsinDandS.Thismaybeshownwithdiagrams.[07O/N]Explainthemeaningoftheequilibriumpriceofagoodandhowitissetinafreemarket.[8]Defineequilibriumprice:EquilibriumpricemeansnotendencytochangeandiswhenD=S.Definefreemarket:-5-Afreemarketimpliesnogovernmentintervention.Demandandsupplyoperatetosetprice.Howequilibriummoves:Changesind