Application

Question 1

Basic economic problem

Answer 1

Water scarcity issues in India

Food scarcity worldwide

Question 2

demand shifting right

Answer 2

• Spanish holidays in the UK has seen a significant increase in demand
• key commodities such as oil - a key determinant being rising incomes in China
• Low/no alcoholic drinks

Question 3

Demand shifting left

Answer 3

• Student housing UK - costs of uni education rising rapidly, students want to save money by not living in student housing
• paper newspapers, due to online newspaper demand rising
• dining in - cheaper alternatives, deliveroo, just eat

Question 4

supply shifting right

Answer 4

• india subsidies for gas, fuel, rice - subsidy makes them more affordable
• air travel - more firms entering the market increasing supply, driving down prices

Question 5

supply shifting left

Answer 5

• fizzy drinks - sugar tax increases cost of production
• vanilla ice cream - prices going up, cost of production rises
• gas/electricity - weather issues increases prices

Question 6

Price elasticity of demand - inelastic

Answer 6

• cigarettes, alcohol, sugar drinks, fast food - addictive goods
• public transport (necessity), iphone (rising demand), basic commodities (very few subsitutes available)

Question 7

price elasticity of supply - inelastic

Answer 7

basic commodities (hard to store them, large production land), gas/electricity, housing, Heathrow/
Gatwick airport (very low spare capacity in these airports)

Question 8

cross elasticity of demand - complements

Answer 8

Printers/ink

games consoles/games

Question 9

cross elasticity of demand - subtitutes

Answer 9

fast food burgers, smartphones

Question 10

income elasticity of demand - normal goods (income rises so demand increases)

Answer 10

restaurant dining, foreign holidays, designer clothing, theatre, home renovation

Question 11

YED inferior goods (incomes rises so demand decreases)

Answer 11

fast food, public transport, staycations, own brand food

Question 12

Negative externalities in production -

Answer 12

• Manufacturing of things like metals, chemicals which produces waste
• Driving cars - congestion, air pollution, noise pollution
• resource depletion/degradation
• deforestation
• loss of biodiversity

Question 13

negative externalities in consumption

Answer 13

• cigarettes, alcoholic drinks, sugar, fat, chewing gum (litter), sun beds, red meat

Question 14

Positive externalities in consumption

Answer 14

• Vaccinations, health care, education, public transport, exercise, school lunches

Question 15

positive externalities in production

Answer 15

• in work training, childcare, R&D

Question 16

Public Goods

Answer 16

• flood defences, roads, bridges, street lights, national parks, road signs, traffic lights, defence

Question 17

common access resources

Answer 17

• seas, air, forests - provide resources for us (sea - minerals, air - oxygen, forests - timber)

Question 18

indirect taxes - solve market failure

Answer 18

cigarette duty, alcohol duty, sugar tax, carbon tax, fuel duty

Question 19

subsidies - solve market failure

Answer 19

electric cars, solar panels, public transport (bus and rail subsidies), in work training, adult training

Question 20

regulations to solve market failure

Answer 20

• bans - smoking bans, bans on refilling soft drinks
• limits - age limits e.g. for alcohol, time limits
• compulsory regulations - forces negative advertising - cigarette packaging, calorie content on menus, traffic light systems, forced nutrition information on food packaging
• Quotas - caps on CO2 emissions, fishing quotas
• innovative regulations - deposit recycling scheme

Question 21

state provision

Answer 21

NHS, state schools, various public goods

Question 22

tradable pollution permits

Answer 22

Kyoto protocol - pollution permit scheme to reduce carbon emissions, in the EU there is the emissions trading scheme

Question 23

Minimum prices to solve market failure

Answer 23

alcohol minimum pricing in Scotland recently implemented - 50p per unit of alcohol

Question 24

Maximum prices to solve market failure

Answer 24

Rent control - New York, Berlin,
Energy price cap - launched by tories
maximum prices on basic foods in Venezuela