paper 1 25 markers Flashcards
(14 cards)
Evaluate the likely microeconomic impact of an increase in the UK national minimum wage.
specimen
Define NMW: wage set by govt that is above market equilibrium wage
draw NMW diagram
KAA
1. decrease demand for labour
2. increase supply of labour
3. unemployment increase, government failure
4. increase quality of life (more incentives to be productive)
5. lower inequality
Eval:
1. depend on elasticity of demand for labour
2. not all workers on NMW, don’t affect them
3. depends on magnitude of increase in NMW
4. to lower CoP, firms cut benefits to workers
‘Tradable permits are less effective than taxation in reducing carbon emissions’ To what extent do you agree with this statement.
specimen
define external costs
external costs diagram
KAA (less effective than taxation)
1. reduces supply and quantity, permits encourage polluting, just paying for it
2. funds can be used to compensate 3rd party, permits there is the market there just for it
3. incentive to move to production with lower external costs
4. permits won’t work if the wrong quantity is sold- govt failure
5.
Eval: (more effective)
1. tax- could just move cost to consumer (if demand is inelastic)
2. asymmetric information- may not know how much tax to set
3. incentive to reduce pollution to sell permits
4. tax can be evaded
https://expert-tuition.co.uk/wp-content/uploads/2018/12/Specimen-2015_A2_Paper-1_MS_Edexcel.pdf
Evaluate the likely microeconomic effects of a 20% tax on the sale of soft drinks that contain high levels of sugar.
2017
Define tax: payments firms have to make to the givt for production
Define AD Valorem tax: taxed to the proportion of output
draw tax diagram
KAA
1. increase price, decrease demand (reduction in consumer/ producer surplus)
2. increase CoP, decrease supply
3. increase tax revenue for government to invest in healthcare
4. increase health of population, increase poductivity
Eval:
1. depends on elasticity
2. depends on magnitude of tax
3. government failure as sugar might not be cause of health problems
4. black market
5. find other sugary substitutes
6. difficulties in imposing tax (different sugar contents)
“revenue maximisation is a more realistic business objective than profit maximisation for many businesses.”
To what extent do you agree with this statement? Refer to an industry of your choice in your answer.
2017
define rev max and profit max on diagram
Revenue max is more realistic:
1. more appropriate in large firms because of the principal agent problem
2. directors have salaries linked to revenue growth
3. directors may seek security through larger market share
4. draw less attention from competition authorities
5. short term need for cash
Profit max more realistic:
1. more appropriate in smaller firms where there isn’t separation in ownership from control
2. appropriate in monopoly where there is high B2E and no comp
3. maximise profits for shareholders (rational)
other eval:
1. depends on type of industry
2. contestable markets may change objectives
3. difficulty of calculating MR=0 point
4. require frequent price changes and reduce demand
Evaluate the likely private costs and external costs involved in such major power station construction projects. Use an appropriate externalities diagram in your answer.
2018
negative externalities diagram
define external and private benefits
KAA (costs)
1. major nuclear plant failure
2. foreign ownership and control
3. private costs- purchase of land, construction, machinery, raw materials
4. external costs- pollution
5. high price consumer will pay
Eval:
1. difficulty in attaching monetary value to external costs
2. governement intervention reduce size of external costs
3. create employment (benefits)
4. create energy security (benefits)
5. less damage to environment compared to other sources (benefits)
Evaluate whether such high market share for one company is in the consumer interest. Use appropriate diagrammatic analysis in your answer.
2018
draw monopoly diagram
Define monopoly
KAA (operate against consumer interest)
1. high prices (profit max), reduce consumer surplus
2. no innovation, improvement in quality
3. possiblity of collusion (high prices)
4. use market power in to increase barriers to entry (apple by locking their phones), reduce consumer choice
5. not allocatively efficient (not allocatively efficient)
Eval (operate in consumer interest)
1. limit pricing/ rev/ sales max
2. supernormal profit-> dynamically efficient
3. economies of scale-> lower costs
4. effectiveness of regulation of CMA
5. depend on contestability (Huawei)
With reference to an industry of your choice, evaluate why wage differences exist within the UK labour market
2019
definition of wage differential
a diagram
KAA:
1. skills and qualification
2. private vs public sector
3. discrimination
4. trade union membership
5. differing demand for labour
6. differing supply for labour
Eval:
1. significance of reasons
2. combination of reasons
3. LR vs SR
4. NMW
5. wage differential ignore benefits
With reference to an industry of your choice, evaluate why some firms engage in collusive behaviour.
2019
Definition of collusion, concept of interdependence
KAA
1. reduce level and cost of competition
2. increase revenue and joint profit max (game theory pay off matrix)
3. protect market share from new entrants and rivals
4. restrict choice and increase price setting power
Eval:
1. illegal
2. effectiveness will depend on if they cheat
3. depend on PED of product
4. relative size of firms
Evaluate the likely microeconomic consequences of consumers shifting from vehicles powered by fuel obtained from oil to electric- powered vehicles.
2020
KAA
1. increase demand for electricity (explain effects to stakeholders)
2. positive external benefits (environment)
3. cost and revenue diagram to show effect on profit of falling cost of electric powered vehicles/ rising revenue
4. welfare effects on consumer and producer surplus of consumers switching to electric powered vehicles
Negative KAA
1. loss of government revenue as large propportion of petrol or diesel price is tax
2. negative external costs associated with e car manufacturing
Eval:
1. different geographic markets
2. impact on oil market will depend on how electricty is generated
3. negative external costs partly offset by increased demand for elecricity
4. predictions may be wrong, they are not substitutes
check again
Evaluate the likely costs of a monopsony operating in a market such as book retailing.
2020
Define monopsony- single dominant buyer in their market
KAA
1. cost to supplier- lower prices, less revenue, likely to shit down
2. costs to consumer- less choice, monopsony power may result in monopoly power
3. higher prices for consumers, do not have the benefit of low costs
4. costs to employees at supplier firm- wage cuts, job loss
Eval
1. lower prices to consumer as monopsony get at lower price
2. suppliers have major buyer improving revenue and long term profit
3. government intervention to promote competition and contestability
4. difficult to assess strength of monopsony power (they may be working together)
Evaluate the disadvantages of a significant increase in the national living wage on a specific labour market, such as social care workers.
2021
Define NMW- legally enforced wage floor set above market equilibrium wage (use application)
draw min wage diagram
KAA:
1. unemployment in labour market
2. firms close in specific market (rise in variable/ fixed costs)
3. increase supply
4. decrease demand
Eval:
1. raise quality of life
2. increase productivity (more incentivised)
3. does not apply to some workers in specific markets
4. relative price elasticity for demand and supply of labour
Evaluate the possible consequences for business decision making of increased market concentration. Refer to industrues of your choice in your answer.
2021
High conc ratio- oligopoly market structure, monopoly, monopsony power
KAA
1. monopoly power- limiting choice, profit maximising, price discrimination
2. monopsony power- reducing producer surplus of suppliers
3. collusions (interdependence of firms)
4. maintain high barriers to entry and exit
5. product differentiation
6. price and non price comp
7. mergers
Eval:
1. fines and regulation for their decision making
2. regulatory capture
3. asymmetric ingormation
4. non price comp acts in consumer interest
5. CMA preventing mergers
Evaluate whether a monopoly is likely to operate efficiently. Refer to at least one monopoly of your choice.
2022
Define different types of efficiency (productive, allocatic, dynamic, x- inefficiency, social efficiency)
draw monopoly diagram
KAA (not efficient)
1. allocative inefficiency- monopoly power that makes them price makers-> charge higher prices than welfare max
2. productive inefficiency- profit maximising
3. dynamic inefficiency- not reinvest, give profits to shareholders, principle agent problem
4. government intervention- price cap, make them inefficient
5. x- inefficiency- organisational slack due to managerial complacency as a result fo lower competition
Eval:
1. productive efficiency- larger EoS, types of economies of scale- reduce costs
2. allocative efficiency- lower prices (limit pricing)
3. dynamic efficiency- profit re- invested into cost- lowering investment, product innovation may increase AR
Evaluate the factors that might influence the supply of labour in an occupation of your choice.
2022
KAA
1. Job satisfaction/ safety (bonuses)
2. skills required
3. net migration flows into uk (from EU)
4. infrastructure (ability to commute to work)
5. trade union power
6. net wage , financial advantages (in comparison to other countries, occupation)
7. workforce demographics
Eval:
1. prioritisation of factos
2. ease and cost of acquiring skills/ langugae barriers
3. barriers to work
4. state of economy - recession
5. significant of factors change over time short run vs long run
6. government measures to improve supply
7. combination of facots
