Example Curveballs Flashcards
(10 cards)
You may have memorised the formula for price elasticity of demand but what is the formula when elasticity is applied to the length of an elephant’s trunk with respect to the pull of an alligator?
This question is meant to test lateral thinking. While there is no literal formula for this, I would apply the concept of elasticity by considering the percentage change in trunk length relative to the percentage change in pulling force. So:
Elasticity = (% change in trunk length) / (% change in pull force by the alligator)
It’s a humorous way of checking if I understand the underlying principle of elasticity: it always compares relative changes in one variable with respect to another.
You can define opportunity cost, but can you apply this to an asset?
Yes. For an asset, the opportunity cost is the return foregone from the next best alternative use of that asset. For example, if a firm owns a building outright, the opportunity cost of using it for operations is the rental income it could have earned if it had leased it out instead. This concept is important in cost-benefit analysis and resource allocation decisions.
You may know MC=MR as a profit maximising condition but what if there are no costs?
If there are no costs, then marginal cost (MC) is zero. A profit-maximising firm would continue producing as long as marginal revenue (MR) is positive. So the firm should expand output until MR = 0, because that’s the point where producing an extra unit no longer brings in additional revenue, and with zero cost, all revenue is profit.
Can you draw on economics to shed light on the pros and cons of charging for entry to museums?
Charging for entry creates revenue and may improve resource allocation by reducing overuse, but it could also reduce access, especially for lower-income groups, creating a potential equity issue. Museums generate positive externalities by increasing education and cultural capital, so free entry may be justified to maximise public benefit. The decision depends on weighing efficiency against equity and considering whether public funding can offset the cost.
Should water be metered?
Economically, yes. Metering aligns consumption with marginal cost by internalising usage decisions, encouraging conservation and reducing waste. Without metering, water is treated as a free good, leading to overconsumption. However, care must be taken to protect vulnerable households through block pricing or subsidies to ensure basic needs are met affordably.
Why don’t lamp posts have slot meters?
This highlights the idea of public goods. Street lighting is non-excludable and non-rivalrous—once provided, everyone benefits and one person’s use doesn’t reduce availability for others. Slot meters would violate the non-excludability principle, making provision inefficient and potentially unsafe. So they’re funded collectively through taxation.
What economic concepts are relevant to a smoking ban or the provision of early childcare?
For smoking bans, key concepts include negative externalities (second-hand smoke), public health, and behavioural economics. Bans aim to internalise external costs and improve welfare.
For early childcare, positive externalities (child development, parental labour supply), market failure (undersupply), and equity considerations apply. Government intervention can increase efficiency and promote long-term social benefits through higher human capital.
What are the economic arguments for and against Winter Fuel Payments?
Winter Fuel Payments are universal transfers to older people to help with heating costs. Economically, they aim to address fuel poverty and protect vulnerable groups during winter. They may reduce excess winter deaths, improving public health and reducing pressure on the NHS.
However, as a universal benefit, they’re poorly targeted. Many recipients may not need support, making it a less efficient use of public funds compared to means-tested alternatives. There’s also a potential opportunity cost: funds spent here could be used for more growth-enhancing or redistributive policies. From a policy design view, there’s a trade-off between simplicity and targeting.
What are the economic implications of the Two-Child Benefit Cap?
The Two-Child Cap limits child-related benefits to the first two children in most families. Proponents argue it encourages financial responsibility and reduces welfare expenditure. It may also help improve work incentives by narrowing the gap between out-of-work and in-work incomes.
However, critics highlight equity and intergenerational concerns. The policy disproportionately affects low-income families and may increase child poverty, which can harm long-run growth by reducing investment in human capital. There’s also a potential gendered impact, as single mothers are more likely to be affected. Economically, any short-term savings may be offset by long-term social costs.
What are the economic implications of abolishing inheritance tax?
Abolishing inheritance tax could reduce distortions and disincentives around wealth transfer, encouraging savings and investment. Supporters argue it prevents double taxation and allows families to retain more of their accumulated wealth, potentially boosting intergenerational capital formation.
However, from an equity and efficiency perspective, the tax plays a role in reducing wealth concentration and promoting fairness. Its removal could exacerbate intergenerational inequality and reduce social mobility. Economically, it may also limit fiscal space, with lost revenue needing to be replaced through higher taxes elsewhere or reduced spending. While inheritance tax is often unpopular, from a growth and distributional standpoint, its reform may be preferable to outright abolition.
