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1 Which of the following methods of government intervention could help to [ 1 ]...
Jun 6, 2024
Solution
a
Market Failure: Market failure occurs when the allocation of goods and services by a free market is not efficient. This can be due to various reasons such as externalities, public goods, and information asymmetries
b
Government Intervention: To correct market failure, the government can intervene in several ways, including taxation, subsidies, regulation, and direct provision of goods and services
c
Analysis of Options: - Option A: A financial charge on doctors' appointments could potentially reduce overuse of medical services but does not directly address market failure. - Option B: State provision of education can correct market failure by ensuring that everyone has access to education, which has positive externalities. - Option C: Taxation of goods that generate external benefits is incorrect because it would reduce the consumption of goods that are beneficial to society. - Option D: Subsidies to producers of goods that generate external costs would exacerbate the market failure by encouraging the production of harmful goods
Answer
B State provision of education
Key Concept
Government intervention to correct market failure
Explanation
The state provision of education helps to correct market failure by ensuring that education, which has positive externalities, is accessible to all. This intervention helps to improve social welfare and economic efficiency.
Sure, let's analyze the question provided: Question: Which of the following is the best definition of the division of labour? A. The appointment of specialist managers to oversee production B. A situation where average unit costs rise as more workers are employed C. When a firm generates its profits from the production and sale of multiple products. D. Dividing the production process into different stages to enable workers to focus on specific tasks
Solution
a
Definition of Division of Labour: Division of labour refers to the process of dividing the production process into different stages, allowing workers to specialize in specific tasks
b
Efficiency: This specialization increases efficiency and productivity as workers become more skilled at their specific tasks
c
Incorrect Options: - A: This refers to management specialization, not division of labour. - B: This describes diseconomies of scale, not division of labour. - C: This refers to product diversification, not division of labour
Answer
D. Dividing the production process into different stages to enable workers to focus on specific tasks
Key Concept
Division of Labour
Explanation
Division of labour involves breaking down the production process into distinct tasks, allowing workers to specialize and become more efficient in their specific roles. This leads to increased productivity and efficiency.
Solution
a
The basic economic problem: The basic economic problem assumes that resources are scarce in relation to unlimited wants
Answer
C resources are scarce in relation to unlimited wants.
Key Concept
Scarcity
Explanation
The basic economic problem arises because resources are limited while human wants are unlimited, leading to the need for choices and prioritization.
Solution
a
Price Elasticity of Supply: If the price elasticity of supply for a good is +0.3, it may be inferred that the firm has limited spare capacity in its production process
Answer
A the firm has limited spare capacity in its production process.
Key Concept
Price Elasticity of Supply
Explanation
A price elasticity of supply of +0.3 indicates that the quantity supplied is relatively inelastic, suggesting that the firm cannot easily increase production, likely due to limited spare capacity.
Solution
a
Signalling Function of Prices: One purpose of the signalling function of prices is to provide information to producers on where to allocate their resources
Answer
D provide information to producers on where to allocate their resources.
Key Concept
Signalling Function of Prices
Explanation
Prices act as signals in the market, guiding producers on where to allocate resources based on changes in demand and supply conditions.
Sure, let's go through each question one by one. Question 1 Question: Ceteris paribus (all other things being equal), if the rate of unemployment in an economy falls to 4.2%4.2\% from 5.8%5.8\%, it is most likely that: - A. there will be a rise in imported goods. - B. standards of living are falling. - C. there will be weaker inflationary pressure. - D. interest rates will fall in response.
Solution
a
Unemployment and Inflation: A fall in the unemployment rate typically indicates that more people are employed, leading to higher disposable income and increased demand for goods and services. This can create inflationary pressure
b
Interest Rates: To counteract inflationary pressure, central banks may increase interest rates, not decrease them
c
Imported Goods: With higher employment and income, people may spend more on both domestic and imported goods
d
Standards of Living: Higher employment generally improves standards of living, not the opposite
Answer
A. there will be a rise in imported goods.
Key Concept
Relationship between unemployment and inflation
Explanation
A decrease in unemployment typically leads to higher disposable income, which can increase demand for both domestic and imported goods.
Question 2 Question: The table below shows the private and external costs for two products. Looking at the table of data, the government should: - A. ban the production of YY. - B. tax both XX and YY. - C. subsidise YY and place a tax on XX. - D. subsidise XX and place a tax on YY.
Solution
a
External Costs: Product XX has a lower external cost per unit (£105) compared to product YY (£135)
b
Private and External Benefits: Product XX has higher private and external benefits compared to product YY
c
Government Intervention: To correct market failures, the government should tax products with higher external costs and subsidize those with higher benefits
Answer
C. subsidise YY and place a tax on XX.
Key Concept
External costs and government intervention
Explanation
The government should tax products with higher external costs and subsidize those with higher benefits to correct market failures.
Question 3 Question: The table below shows the index value of an economy's rate of inflation over a 4-year period, where 2021 is the base year. It can be concluded from the data that: - A. prices fell in 2020. - B. living standards rose by the largest margin in 2022. - C. the rate of inflation was lowest in 2023. - D. the average prices level did not change in 2021.
Solution
a
Base Year: 2021 is the base year with an index value of 100
b
Price Levels: The index value for 2020 is 94, indicating prices were lower than in 2021
c
Inflation Rate: The rate of inflation is the change in the index value from one year to the next
d
2023 Inflation: The smallest increase in the index value is from 2022 to 2023 (104 to 106), indicating the lowest rate of inflation
Answer
C. the rate of inflation was lowest in 2023.
Key Concept
Inflation rate calculation
Explanation
The rate of inflation is determined by the change in the index value, and the smallest change occurred between 2022 and 2023.
Question 4 Question: The diagram below shows the demand and supply curves for a good, where XX is the initial equilibrium. Following a fall in the rate of productivity growth and a fall in the price of a complementary good, what would be the new equilibrium point? - A. A - B. B - C. C - D. D
Solution
a
Productivity Growth: A fall in productivity growth shifts the supply curve to the left (from S2 to S1)
b
Complementary Goods: A fall in the price of a complementary good increases demand, shifting the demand curve to the right (from D2 to D3)
c
New Equilibrium: The new equilibrium is where the new supply and demand curves intersect (S1 and D3)
Answer
A. A
Key Concept
Shifts in supply and demand curves
Explanation
A fall in productivity growth shifts the supply curve left, and a fall in the price of a complementary good shifts the demand curve right, leading to a new equilibrium at point A.
Question 5 Question: Ceteris paribus (all other things being equal), a decrease in saving in an economy is most likely to lead to an increase in: - A. the budget deficit. - B. inflation. - C. unemployment. - D. government spending on healthcare.
Solution
a
Savings and Consumption: A decrease in savings typically leads to an increase in consumption
b
Demand-Pull Inflation: Increased consumption can lead to higher demand for goods and services, causing demand-pull inflation
c
Budget Deficit and Government Spending: These are not directly affected by changes in private savings
d
Unemployment: Increased consumption can reduce unemployment, not increase it
Answer
B. inflation.
Key Concept
Relationship between savings and inflation
Explanation
A decrease in savings increases consumption, which can lead to demand-pull inflation.
◊Based on the information provided, a related question in MicroEconomics could be: "What effect would a decrease in saving in an economy have on the budget deficit?"⍭ Generate me a similar question◊
Sure, let's go through each question one by one. Question 11 In the long run, a profit-maximising firm operating in a perfectly competitive market: - A will leave the industry when average revenue is lower than average cost. - B will always break-even. - C will be able to raise prices in order to raise revenue. - D will not be able to benefit from division of labour.
Solution
a
Long-Run Equilibrium: In a perfectly competitive market, firms will enter or exit the industry until economic profits are zero. This means that in the long run, firms will break-even, where average revenue (AR) equals average cost (AC)
Answer
B will always break-even.
Key Concept
Long-Run Equilibrium in Perfect Competition
Explanation
In the long run, firms in a perfectly competitive market will break-even because any economic profits or losses will lead to entry or exit of firms, driving profits to zero.
Question 12 The shift in aggregate demand from AD1 to AD2, would most likely be caused by an increase in: - A the money supply. - B the budget deficit. - C the levels of profit a firm can make before it is taxed on its profit. - D imports.
Solution
a
Aggregate Demand Shift: An increase in the money supply typically leads to higher aggregate demand because more money in the economy increases consumer spending and investment
Answer
A the money supply.
Key Concept
Aggregate Demand and Money Supply
Explanation
An increase in the money supply raises aggregate demand by boosting consumer spending and investment.
Question 13 Which one of the following statements about the distribution of income is a normative statement? - A Reduced spending on education and training will worsen inequality. - B The Gini coefficient can be used to measure income inequality. - C An increase in progressive taxation will reduce inequality. - D Rising income inequality is unfair.
Solution
a
Normative vs Positive Statements: Normative statements are value-based and subjective, while positive statements are fact-based and objective
Answer
D Rising income inequality is unfair.
Key Concept
Normative Statements
Explanation
Normative statements express opinions or value judgments, such as the fairness of income inequality.
Question 14 A positive output gap means that the economy is most likely: - A suffering from deflation. - B benefiting from rising levels of cyclical unemployment. - C benefiting from a falling budget deficit. - D suffering from a fall in the balance of payments deficit on current account.
Solution
a
Positive Output Gap: A positive output gap occurs when actual output exceeds potential output, often leading to inflationary pressures rather than deflation
Answer
A suffering from deflation.
Key Concept
Positive Output Gap
Explanation
A positive output gap indicates that the economy is producing above its potential, which typically leads to inflation rather than deflation.
Question 15 Lithium is said to be in derived demand from car batteries. When there is an increase in the demand for electric cars, then there will most likely be: - A a surplus of electric cars. - B a fall in demand for lithium. - C a rise in the price of non-electric cars. - D a rise in the price of lithium.
Solution
a
Derived Demand: Derived demand occurs when the demand for one good increases due to the demand for another related good. In this case, an increase in demand for electric cars will increase the demand for lithium, raising its price
Answer
D a rise in the price of lithium.
Key Concept
Derived Demand
Explanation
Derived demand means that the demand for lithium increases as the demand for electric cars increases, leading to a rise in its price.
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