A-LEVEL ECONOMICS 23/10/12

Topic 1
1. How PPC used to explain 2 economic ideas (2011 Oct ) 2. How Micro and Macro issues may represented using PPC (2010 Oct ) framework THESE HAVE BEEN DISCUSSED IN CLASSROOM. THERE ARE FOUR ECO IDEAS: 1. SHAPE OF PPF- OC 2. MOVEMENT ALONG PPF- REALLOCATION OF RESOURCES 3. 3 STATIC POINTS- SHOW LEVEL OF EMPLOYMENT 4. SHIFTS IN PPF- ECONOMIC PERFORMANCE FOR Q1, SELECT ANY TWO IDEAS (PREFERABLY IDEA 3 AND 4- WE HAVE MORE CONTENTS TO SHOW) FOR Q2, YOU HAVE TO SHOW ALL FOUR- MACRO= IDEA 3 AND 4; MICRO= IDEA 1 AND 2

Topic 2
1. Possible cause of increase in sale of electronic goods in recent years (2011 June) This question basically tests us regarding the knowledge of factors that affect demand and supply! INTRODUCTION BODY Increase in sales can be caused by high demand and supply. Define demand (one sentence) Define supply (one sentence)

Cause 1: Increase in demand for electronic goods (1 paragraph) Sales of electronic goods may increase due to high demand for the goods. Why high demand? (your answers will be related to factors that influence demand) rising consumer income rising standard of living (households buy new electronic

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goods more frequently) advertising change in consumer preference (households prefer using electronic goods; e.g. washing machines are used to wash clothes, microwaves are used for cooking, etc)

Cause 2: Increase in supply of electronic goods (1 paragraph) Sales of electronic goods may increase due to high supply of the goods Why high supply? (your answers will be related to factors that influence supply) CONCLUSION improvement in technology (factories can increase supply of electronic goods at low costs & good quality) lower costs of production (a lot of electronic goods are made in China due to low labour cost) low import duty/ indirect tax (supply of electronic goods imported from overseas rises) granting of subsidy by government (in some countries)

Summarize your answers: Sales of electronic goods increase recently because of the following reasons:

increase in demand for goods, firms receive high revenue increase in supply of goods at low price, it attracts people to buy more, firms receive high revenue eventually

2. Refer to relevant elasticity of demand, explain inferior & complementary good (2010 Oct) This question is very simple. Take note, RELEVANT ELASTICITY OF DEMAND does not only include PED, it also comprises XED or YED.

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We have to apply INCOME ELASTICITY OF DEMAND for inferior goods; CROSS ELASTICITY OF DEMAND FOR complementary goods. I have almost completed the body of essay for you.

INTRODUCTION

Define YED and show formula Define XED and show formula

BODY

PARAGRAPH 1: THE CASE OF INFERIOR GOODS Define inferior goods- Inferior goods are goods with negative relationship between income and demand. Examples of inferior goods may include second hand car, salted eggs, etc. YED for an inferior good is in negative value. Why? when income rises, consumers will demand for less inferior goods, such as salted eggs. when income falls, consumers will have lower purchasing power, and thus demand for inferior goods rises. Therefore, YED for inferior goods is always in negative value.

PARAGRPAH 2: THE CASE OF COMPLEMENTARY GOODS Define complementary goods- Two goods which are bought together to support the function of each other are known as complementary goods. E.g. petrol and cars XED for complementary goods is always in negative value Why? When price of cars rises, demand for petrol will fall when price of cars falls, demand for petrol will rise Therefore, XED for complementary goods such as petrol and cars is always in negative value.

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CONCLUSION

Summarize your answers:

3. With example and diagram, effect of decrease in income on market for normal & inferior good (2009 June) This question is simple. It tests us regarding the knowledge of YED and market (quantity, price, revenue). INTRODUCTION Define normal goods Define inferior goods BODY PARAGRPAH 1: HOW DOES DECREASE IN ICNOME AFFECT MARKET FOR NORMAL GOODS? Income decreases => demand for normal goods such as houses will fall Therefore, YED for normal goods is always in negative value Due to a fall in demand for houses, price of houses falls, firms receive lower revenue.

PARAGRPAH 2: HOW DOES DECREASE IN INCOME AFFECT DEMAND FOR INFERIOR GOODS? Income decreases => demand for inferior goods such as salted fish will rise Therefore, YED for inferior goods is always in positive value Due to a rise in demand for salted fish, price salted fish rises, salted fish sellers receive higher revenue.

4. Discuss whether firms revenue increase, in response to price and income changes ,if PED & YED for its product become highly elastic (2007 Oct) This question is tougher and slightly more complicated.

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INTRODUCTION Define PED and show its formula Define YED and show its formula BODY DISCUSSION 1: WILL REVENUE INCREASE BECAUSE OF PRICE CHANGE IF DEMAND IS HIGHLY PRICE ELASTIC? [1 paragraph] Define the meaning of elastic demand (maximum two sentences); you may show diagram (flatter demand curve) When demand is price elastic, revenue of firms will fall if selling price rises However, revenue of firms will increase when firm decreases selling price. Answer: firms revenue will increase when price falls if demand is highly price elastic!

DISCUSSION 2: WILL REVENUE INCREASES BECAUSE OF INCOME CHANGES IF DEMAND IS HIGHLY INCOME ELASTIC? [1 paragrpah] It depends. When income falls, firms who sell inferior goods (goods with negative YED) will receive more revenue When income rises, firms who sell normal goods such as necessities and luxuries (goods with positive YED) will receive more revenue

CONCLUSION

Summarize your answers

Topic 3
1. Discuss the accuracy of the definition of public & merit goods as good that must be provided by gov. (2011 June) The question asks us to discuss whether this is the right way for us to define public goods and merit goods (obviously, your answer should be NO) INTRODUCTION You may choose to briefly explain state direct provision

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Gov obtains money from tax revenue and spend it on providing some goods such as public and merit goods I choose not to define public goods and merit goods so that the definitions can be given in the body of essay.

BODY

DISCUSSION 1: IS IT ACCURATE TO DEFINE A PUBLIC GOOD AS GOOD THAT MUST BE PROVIDED BY GOV? PARAGRPAH 1: NO, WE DEFINE A PUBLIC GOOD IN ANOTHER WAY We define a public good as something that possesses two characteristics: non-rival ; and non-excludable Explain Non-rival (using one example such as road) Explain non excludable (using one example such as road)

PARAGRPAH 2: HOWEVER, PUBLIC GOODS ARE ALWAYS PRODUCED BY THE GOV why? It is because there is always no provision of public goods if they are left to private sector due to free-rider problem therefore, gov always chooses to produce public goods

DISCUSSION 2: IS IT ACCURATE TO DEFINE A MERIT GOODS AS GOOD THAT MUST BE PROVIDED BY GOV? Paragraph (1): NO We define merit goods as goods that generate more external benefits E.g. of external benefits

Paragraph 2: HOWEVER, MERIT GOODS ARE ALWAYS PRODUCED BY THE GOVERNMENT

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Why? because of under-provision of merit goods (why? Do not show diagram) because of under-consumption of merit goods (why?merit goods are sold at high price in private sector; Do not show diagram)

CONCLUSION

Summarize your answers

2. Discuss the desirability of the direct provision of goods & services by government. (2005 June) This question is simple. It tests us the knowledge of adv and disadv of state direct provision. INTRODUCTION Briefly explain state direct provision gov produce certain goods directly using tax revenue due to market failures such as no provision of public goods and under-provision of merit goods

BODY

DISCUSSION 1: ADVANTAGES/ THE DESIRABILITY OF GOV DIRECT PROVISION paragraph 1: overcome the problem of no provision of public goods in free market paragraph 2: increase the supply of merit goods paragraph 3: protect the poor paragraph 4: enhance social welfare/ improve standard of living paragraph 5: attract foreign investors if infrastructures are built up

DISCUSSION 2: DRAWBACKS/ UNDESIRABILITY OF GOV DIRECT PROVISION

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paragraph 1: slower decision making paragraph 2: reduce the level of competition- standardized product, fewer varieties of goods paragraph 3: shortage of goods could be resulted paragraph 4: gov financial burden increases

CONCLUSION

SUMMARISE YOUR ASNWERS

Topic 4
1. Outline the current a/c position of yourr country or another economy. Discuss its ability to improve its performance on the current a/c (2007 June ) DO NOT TRY THIS TYPE OF QUESTION UNLESS YOU REALLY HAVE THE INFORMATION REGARDING THE ACTUAL POSITION OF CURRENT A.C POSITION OF YOUR COUNTRY. 2. What may cause an improvement in a countrys terms of trade (2011 Oct ) This question is simple. What your need to do is to convert the following points into different paragraphs. The contents are almost there already. INTRODUCTION Define terms of trade Show formula of TOT Meaning of improvement in TOT- Our country exports fewer goods to exchange more goods from other countries

BODY

Improvement in TOT could be caused by two main reasons: Cause 1: A rise in price of export (1 paragraph) Why rise in export price?? The possible reasons may include: strong exchange rate of our currency (against another currency)

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high inflation in our country removal of local government subsidies export (so goods for exporting are more expensive)

Cause 2: A fall in price of import (1 paragraph) Why fall in import price?? The possible reasons may include: Strong exchange rate of our currency low inflation in other countries who sell us goods removal of import duty on imported goods

CONCLUSION

Summarize your answers

Topic 6
1. Discuss how a rapid rate of inflation may affect different groups within economy. (2007 June) INTRODUCTION Knowledge of inflation (refer to the framework that we prepared in class) BODY How rapid rate of inflations affects different groups? Paragraph 1: consumers Need to spend more to buy goods and services financial burden rises due to high cost of living it harms poor households

Paragraph 2: firms need to bear menu costs need to pay high wage to workers if they ask for increments to pay

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for high daily expenses cant adjust their selling price on time to adapt to change in inflation rate need to suffer from high cost of raw materials such as oil, sugar, etc

Paragraph 3: government they are forced to change policies to control inflation they may need to subsidy firms who encounter high costs they may encounter the problem of civil unrest

Paragraph 4: investors they lose confidence in local market as money loses value due to inflation they may withdraw their investments shoe leather cost may incur

Paragraph 5: lenders real income of lenders fall as they are unable to adjust interest rate on time the interest rate which they charged borrowers few years ago was too low to compensate high inflation rate today

Paragraph 6: workers suffer as their money income (wages) will have lower purchasing power now they gain fewer goods by spending their incomes (or every $1)

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Paragraph 7: local firms they suffer because the locals may seek to import cheaper goods from other countries and foreigners do not buy from us because of high price revenue to local firms falls Summarize your answers Suggest remedies for inflation

CONCLUSION -

2. Explain why it is important to have an accurate measure of inflation. (2010 Oct) INTRODUCTION Knowledge of inflation (refer to the framework that we prepared in class) BODY Why is it so important to have an accurate measure of inflation? Reason 1: inflation will decide how much or how little we can buy by spending our money income (or every $1) Reason 2: inflation reflects our cost of living Reason 3: accurate measure of inflation enables government to undertake suitable policies to solve the problem Reason 4: accurate measure of inflation provides accurate information to investors Reason 5: accurate measure of inflation enables firms to plan earlier/ control their costs earlier/ give increment according to the accurate inflation rate

[one paragraph for one reason] CONCLUSION Summarize your answers

3. Discuss is it better for a country with floating exchange rate to face appreciation & depreciation of currency. (2006 June) INTRODUCTION Define exchange rate Define floating exchange rate system no gov control on exchange rate, no fixed rate, exchange rate fluctuates, exchange rate is determined by demand and supply of the currnecy

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Meaning of appreciation of currency- a rise in the exchange rate due to high demand or low supply of local currency on foreign exchange market Meaning of depreciation of currency- a fall in the exchange rate due to a low demand or high supply of local currency on foreign exchange market

BODY

DISCUSSION 1: IS IT BETTER FOR A COUNTRY TO FACE APPRECIATION (SHOW ADV OF APPRECIATION OF CURRENCY TO SUPPORT YOUR ANSWERS) paragraph 1: low cost of imported raw materials- decrease cost-push inflation paragraph 2: high import and low export cause demand for local goods to fall- decreases demand-pull inflation paragraph 3: attract foreign investors

However, it has some problems: (if you have sufficient time, you may show this as well) paragraph 1: export price may rise- export revenue falls paragraph 2: it may result in BOP problem due to high imports and low exports paragraph 3: it harms local firms- lower revenue paragraph 4: increases unemployment

DISCUSSION 2: IS IT BETTER FOR A COUNTRY TO FACE DEPRECIATION (SHOW ADV OF DEPRECIATION OF CURRENCY TO SUPPORT YOUR ANSWERS) paragraph 1: reduce import; increase exports, BOP deficit can be corrected paragraph 2: local firms earn more revenue paragraph 3: unemployment falls

However, it has some problems: (if you have sufficient time, you may

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show this as well) paragraph 1: demand-pull inflation due to high demand for local goods paragraph 2: cost-push inflation due to high price of imported materials paragraph 3: it reduces inflow of investment

CONCLUSION

Summarize your answers

GOOD LUCK!