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dont
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A2 ECONOMICS: Guess Paper-4
- Thread starter Qamar Baloch
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I hope you have revised the syllabus. Yes?
Further don't worry. Do your best and I will also send you all the answers Inshaallah.
- Messages
- 1,260
- Reaction score
- 676
- Points
- 123
Note: Solve these questions by yourself and if there is any problem then
I will send you the solution tonight. Essay questions will be given to you 1 by 1 so that you must practice them to get good results.
1. The North Sea oil industry
The UK drills for oil in the North Sea. In 1999, production was at 4.5 million barrels a day. However, as the oil in the easily accessible oil fields was used up, production fell steadily from 1999 until it reached 3.3 million barrels a day in 2005.
Nevertheless, in 2006, many in the oil industry did not consider it to be in decline. Indeed, some of the industry’s problems were associated with an expanding industry, not a declining one. The managers complained, for example, about the shortage of skilled labour and the high rents of the oil rigs. Investment increased by 30% in 2006 and it was hoped that production would rise in 2007.
The UK government was keen to keep production high as the industry supported 250 000 jobs and had a large impact on the trade balance of the UK. One way to keep production high is to explore for new oil fields. Another way is to use every drop of oil from the existing oil fields. Sometimes a large company leaves an oil field which still has substantial amounts of oil because although it is technically possible to extract the oil, it is not profitable to do so. However, a smaller company is often able to drill profitably for the oil when it is unprofitable for a large company.
In view of this, the UK government encouraged smaller and more enterprising firms. In 2005, 152 licences to drill were given to 99 companies. These new licences gave companies exclusive rights to develop the more inaccessible oil fields for six years rather than four years as before.
Furthermore, the government also changed the rules on access to pipelines – which are often owned by large companies – so that smaller companies could get their oil to the market more easily.
The Chancellor of the Exchequer (Minister of Finance) also made changes. In 2002, he raised the tax on oil company profits to 40% from the usual company rate of 30%, and raised it again in 2005 to 50%. The justification given was that the oil companies made huge profits.
The industry is more dependent than ever on large expensive technological advances and innovation. Most of the government’s reforms recognised this.
(a) How might the North Sea oil industry have an impact on the national income of the UK? [4]
(b) From the information given, consider whether the North Sea oil industry appears to be declining or expanding. [6]
(c) What evidence is there that might explain why the North Sea oil industry is still prepared to increase investment? [4]
(d) Discuss whether the increase in the number of small firms drilling for oil contradicts the usual economic explanation of the existence of small firms. [6]
I will send you the solution tonight. Essay questions will be given to you 1 by 1 so that you must practice them to get good results.
Join me: on facebook as further guidance will be available there. Thank you. [email protected]
Data Responses:
1. The North Sea oil industry
The UK drills for oil in the North Sea. In 1999, production was at 4.5 million barrels a day. However, as the oil in the easily accessible oil fields was used up, production fell steadily from 1999 until it reached 3.3 million barrels a day in 2005.
Nevertheless, in 2006, many in the oil industry did not consider it to be in decline. Indeed, some of the industry’s problems were associated with an expanding industry, not a declining one. The managers complained, for example, about the shortage of skilled labour and the high rents of the oil rigs. Investment increased by 30% in 2006 and it was hoped that production would rise in 2007.
The UK government was keen to keep production high as the industry supported 250 000 jobs and had a large impact on the trade balance of the UK. One way to keep production high is to explore for new oil fields. Another way is to use every drop of oil from the existing oil fields. Sometimes a large company leaves an oil field which still has substantial amounts of oil because although it is technically possible to extract the oil, it is not profitable to do so. However, a smaller company is often able to drill profitably for the oil when it is unprofitable for a large company.
In view of this, the UK government encouraged smaller and more enterprising firms. In 2005, 152 licences to drill were given to 99 companies. These new licences gave companies exclusive rights to develop the more inaccessible oil fields for six years rather than four years as before.
Furthermore, the government also changed the rules on access to pipelines – which are often owned by large companies – so that smaller companies could get their oil to the market more easily.
The Chancellor of the Exchequer (Minister of Finance) also made changes. In 2002, he raised the tax on oil company profits to 40% from the usual company rate of 30%, and raised it again in 2005 to 50%. The justification given was that the oil companies made huge profits.
The industry is more dependent than ever on large expensive technological advances and innovation. Most of the government’s reforms recognised this.
(b) From the information given, consider whether the North Sea oil industry appears to be declining or expanding. [6]
(c) What evidence is there that might explain why the North Sea oil industry is still prepared to increase investment? [4]
(d) Discuss whether the increase in the number of small firms drilling for oil contradicts the usual economic explanation of the existence of small firms. [6]
- Messages
- 1,260
- Reaction score
- 676
- Points
- 123
Note: Solve these questions by yourself and if there is any problem then
I will send you the solution tonight. Essay questions will be given to you 1 by 1 so that you must practice them to get good results.
1. The North Sea oil industry
The UK drills for oil in the North Sea. In 1999, production was at 4.5 million barrels a day. However, as the oil in the easily accessible oil fields was used up, production fell steadily from 1999 until it reached 3.3 million barrels a day in 2005.
Nevertheless, in 2006, many in the oil industry did not consider it to be in decline. Indeed, some of the industry’s problems were associated with an expanding industry, not a declining one. The managers complained, for example, about the shortage of skilled labour and the high rents of the oil rigs. Investment increased by 30% in 2006 and it was hoped that production would rise in 2007.
The UK government was keen to keep production high as the industry supported 250 000 jobs and had a large impact on the trade balance of the UK. One way to keep production high is to explore for new oil fields. Another way is to use every drop of oil from the existing oil fields. Sometimes a large company leaves an oil field which still has substantial amounts of oil because although it is technically possible to extract the oil, it is not profitable to do so. However, a smaller company is often able to drill profitably for the oil when it is unprofitable for a large company.
In view of this, the UK government encouraged smaller and more enterprising firms. In 2005, 152 licences to drill were given to 99 companies. These new licences gave companies exclusive rights to develop the more inaccessible oil fields for six years rather than four years as before.
Furthermore, the government also changed the rules on access to pipelines – which are often owned by large companies – so that smaller companies could get their oil to the market more easily.
The Chancellor of the Exchequer (Minister of Finance) also made changes. In 2002, he raised the tax on oil company profits to 40% from the usual company rate of 30%, and raised it again in 2005 to 50%. The justification given was that the oil companies made huge profits.
The industry is more dependent than ever on large expensive technological advances and innovation. Most of the government’s reforms recognised this.
(a) How might the North Sea oil industry have an impact on the national income of the UK? [4]
(b) From the information given, consider whether the North Sea oil industry appears to be declining or expanding. [6]
(c) What evidence is there that might explain why the North Sea oil industry is still prepared to increase investment? [4]
(d) Discuss whether the increase in the number of small firms drilling for oil contradicts the usual economic explanation of the existence of small firms. [6]
I will send you the solution tonight. Essay questions will be given to you 1 by 1 so that you must practice them to get good results.
Join me: on facebook as further guidance will be available there. Thank you. [email protected]
Data Responses:
1. The North Sea oil industry
The UK drills for oil in the North Sea. In 1999, production was at 4.5 million barrels a day. However, as the oil in the easily accessible oil fields was used up, production fell steadily from 1999 until it reached 3.3 million barrels a day in 2005.
Nevertheless, in 2006, many in the oil industry did not consider it to be in decline. Indeed, some of the industry’s problems were associated with an expanding industry, not a declining one. The managers complained, for example, about the shortage of skilled labour and the high rents of the oil rigs. Investment increased by 30% in 2006 and it was hoped that production would rise in 2007.
The UK government was keen to keep production high as the industry supported 250 000 jobs and had a large impact on the trade balance of the UK. One way to keep production high is to explore for new oil fields. Another way is to use every drop of oil from the existing oil fields. Sometimes a large company leaves an oil field which still has substantial amounts of oil because although it is technically possible to extract the oil, it is not profitable to do so. However, a smaller company is often able to drill profitably for the oil when it is unprofitable for a large company.
In view of this, the UK government encouraged smaller and more enterprising firms. In 2005, 152 licences to drill were given to 99 companies. These new licences gave companies exclusive rights to develop the more inaccessible oil fields for six years rather than four years as before.
Furthermore, the government also changed the rules on access to pipelines – which are often owned by large companies – so that smaller companies could get their oil to the market more easily.
The Chancellor of the Exchequer (Minister of Finance) also made changes. In 2002, he raised the tax on oil company profits to 40% from the usual company rate of 30%, and raised it again in 2005 to 50%. The justification given was that the oil companies made huge profits.
The industry is more dependent than ever on large expensive technological advances and innovation. Most of the government’s reforms recognised this.
(b) From the information given, consider whether the North Sea oil industry appears to be declining or expanding. [6]
(c) What evidence is there that might explain why the North Sea oil industry is still prepared to increase investment? [4]
(d) Discuss whether the increase in the number of small firms drilling for oil contradicts the usual economic explanation of the existence of small firms. [6]
- Messages
- 1,260
- Reaction score
- 676
- Points
- 123
And answer to data response 1 is;
- Messages
- 1,260
- Reaction score
- 676
- Points
- 123
1.(a) North sea oil industry is providing 250,000 jobs in the country. So, it will have a positive impact on national income. People will raise more income. They will increase spending, and investments will rise having a multiplier effect on national income. Balance of trade will also become favourable because income from exports may rise or payment on imports may fall due to the expansion of oil industry. Use of domestic oil will also result in increase in national income ofUK.
(b) It seems to be expanding on the grounds that the number of jobs is increasing. It may be the result of exploration of oil from new oil fields. Level of investment is also increasing. Technological progress and advancement is also taking place. Government is also encouraging new entry to the industry, and oil companies are earning huge profits. But we can also see some point showing decline in the industry as well like production level is falling as shown in figure (1). Price level is increasing, so demand may fall. However, we cannot certainly conclude whether it is expanding or declining because absolute figures (numerical data) are not provided. So, overall impact is uncertain. If expansion is higher than decline then it will finally show an expansion but if decline is greater than expansion then overall impact will be showing downward trend. If expansion and decline are in the same proportion then industry will remain at the same stage.
(c) Evidence to show thatNorth Sea oil industry is still prepared to increase investment is available in following statements;
* Prices are rising which is incentive for increasing investment (see graph).
* Profits are increasing because chancellor is increasing taxes for high profitability.
* Small firms have also advantage.
* Government is changing rules regarding oil industry.
* There is possibility to discover new oil fields.
(d) Usually small firms are the firms in which small amount of capital is invested and owner of the business has personal touch with their customers. So, he can advise his customer to buy certain goods as he is a good source of information for the customers as well as manufacturers. These firms satisfy the demands of some specific local area. These type of firms employ a few number of workers. They have reasonable profits with a few transactions.
But this concept contradicts with that of oil firms. These firms have large investment, a large number of workers are working in these industries and they are not meant to satisfy the demand of some specific area. They do not have personal touch with the customers.
(b) It seems to be expanding on the grounds that the number of jobs is increasing. It may be the result of exploration of oil from new oil fields. Level of investment is also increasing. Technological progress and advancement is also taking place. Government is also encouraging new entry to the industry, and oil companies are earning huge profits. But we can also see some point showing decline in the industry as well like production level is falling as shown in figure (1). Price level is increasing, so demand may fall. However, we cannot certainly conclude whether it is expanding or declining because absolute figures (numerical data) are not provided. So, overall impact is uncertain. If expansion is higher than decline then it will finally show an expansion but if decline is greater than expansion then overall impact will be showing downward trend. If expansion and decline are in the same proportion then industry will remain at the same stage.
(c) Evidence to show thatNorth Sea oil industry is still prepared to increase investment is available in following statements;
* Prices are rising which is incentive for increasing investment (see graph).
* Profits are increasing because chancellor is increasing taxes for high profitability.
* Small firms have also advantage.
* Government is changing rules regarding oil industry.
* There is possibility to discover new oil fields.
(d) Usually small firms are the firms in which small amount of capital is invested and owner of the business has personal touch with their customers. So, he can advise his customer to buy certain goods as he is a good source of information for the customers as well as manufacturers. These firms satisfy the demands of some specific local area. These type of firms employ a few number of workers. They have reasonable profits with a few transactions.
But this concept contradicts with that of oil firms. These firms have large investment, a large number of workers are working in these industries and they are not meant to satisfy the demand of some specific area. They do not have personal touch with the customers.
- Messages
- 1,260
- Reaction score
- 676
- Points
- 123
Data response.2 is;
- Messages
- 1,260
- Reaction score
- 676
- Points
- 123
2. Income, Spending and Prices in the US
Consumer spending in the US fell by 0.8% in November 2008 and by a further 1% in December. December 2008 was the sixth consecutive month in which consumers cut back on their spending. Between October and December 2008 spending fell by a record 8.9%. Consumers were in a mood to increase their savings but not to go out and spend. Generally, that’s a good thing, but not when everyone does it at the same time.
By January 2009, the savings rate in the US had reached the highest it had been for 14 years. This increase in savings was caused by low consumer confidence and the fear of higher unemployment.
Declining consumer spending is a particularly troubling sign for the US economy, because spending accounts for more than two-thirds of GDP. GDP fell by 3.9% between October and December 2008, the sharpest decline in 26 years.
This decline in spending resulted in
– a proposed $888 billion stimulus plan from the government, including about
$278 billion in tax cuts,
– companies reducing their workforce to cut costs because of falling revenue,
– the expectation that business investment, which accounts for about one-tenth
of US GDP, would decline during 2009.
(a) What evidence is there in the data that the economic situation in the US improved after December 2008? [3]
(b) How far is there any consistent link in the data between
(i) changes in personal income and consumer spending and
(ii) changes in overall prices and consumer spending? [5]
(c) Explain why a fall in spending might be expected to lead to a fall in business investment. [4]
(d) Do you agree that a rise in savings is generally ‘a good thing, but not when everyone does it at the same time’ (line 5)? [8]
Table 1 Some economic indicators for the US economy
By January 2009, the savings rate in the US had reached the highest it had been for 14 years. This increase in savings was caused by low consumer confidence and the fear of higher unemployment.
Declining consumer spending is a particularly troubling sign for the US economy, because spending accounts for more than two-thirds of GDP. GDP fell by 3.9% between October and December 2008, the sharpest decline in 26 years.
This decline in spending resulted in
– a proposed $888 billion stimulus plan from the government, including about
$278 billion in tax cuts,
– companies reducing their workforce to cut costs because of falling revenue,
– the expectation that business investment, which accounts for about one-tenth
of US GDP, would decline during 2009.
(a) What evidence is there in the data that the economic situation in the US improved after December 2008? [3]
(b) How far is there any consistent link in the data between
(i) changes in personal income and consumer spending and
(ii) changes in overall prices and consumer spending? [5]
(c) Explain why a fall in spending might be expected to lead to a fall in business investment. [4]
(d) Do you agree that a rise in savings is generally ‘a good thing, but not when everyone does it at the same time’ (line 5)? [8]
- Messages
- 1,260
- Reaction score
- 676
- Points
- 123
Answer to data response.2 is;
- Messages
- 1,260
- Reaction score
- 676
- Points
- 123
1.(a) The data shows a little bit improvement in the economy as we can see that in January and February spending has increased. It means people are comparatively well off. Price changes were also positive which indicate that level of economic activity is moving aggregate demand upwards. Level of income was also up in January. But it fell in February. However, the overall impact shows improved economic situation.
(b) (i) Apparently, there is no consistency of link between personal income and consumer spending. The direction of movement between personal income and consumer spending is same from November 2008 to December 2008. Both are decreasing but percentage fall is not same. Afterwards their direction as well as amount both are different.
(ii) The link between overall prices and consumer spending is consistent. Both the variables are moving in the same direction but %age increase is different.
(c) Fall in spending leads to fall in aggregate demand in the economy. It means products and services produced by the businesses are not completely sold. So, to match the demand of consumers producers have to decrease their supply. So, they will invest less in the business. Decreased spending also results in fall in revenue and profitability of the firm as well. When the businessmen think that it is not profitable for them then they decrease their investment.
(d) Saving is that part of income which is not spent. It is calculated as;
Saving = Income – Spending
Saving is good thing but upto a certain limit. More saving means more funds available to lend to the businesses. It will stimulate the economy. More job opportunities will be created and wide range of qualitative goods and services will be available to the people to enjoy a better standard of living. But if everyone starts saving then it will create a Paradox of thrift. Now, economy would not be able to enjoy the benefit of multiplier. If the people tend to spend and invest then they can earn more income to save and spend. Rise in saving also leads to higher level of unemployment in the economy. In this way, government would not be able to raise its tax revenue. Conversely, government may have to crowd out to produce goods and services to satisfy the needs of society.
Government will have to pay unemployment benefits to the unemployed people. So, government budget may also deteriorate. The data says thatUS government is proposing to reduce taxes but this will come at a cost later either in the form switch of expenditures or subsequently increased taxes will not be welcome. Government may have to stop funding of some government project to meet the other expenditures like unemployment benefits.
(b) (i) Apparently, there is no consistency of link between personal income and consumer spending. The direction of movement between personal income and consumer spending is same from November 2008 to December 2008. Both are decreasing but percentage fall is not same. Afterwards their direction as well as amount both are different.
(ii) The link between overall prices and consumer spending is consistent. Both the variables are moving in the same direction but %age increase is different.
(c) Fall in spending leads to fall in aggregate demand in the economy. It means products and services produced by the businesses are not completely sold. So, to match the demand of consumers producers have to decrease their supply. So, they will invest less in the business. Decreased spending also results in fall in revenue and profitability of the firm as well. When the businessmen think that it is not profitable for them then they decrease their investment.
(d) Saving is that part of income which is not spent. It is calculated as;
Saving = Income – Spending
Saving is good thing but upto a certain limit. More saving means more funds available to lend to the businesses. It will stimulate the economy. More job opportunities will be created and wide range of qualitative goods and services will be available to the people to enjoy a better standard of living. But if everyone starts saving then it will create a Paradox of thrift. Now, economy would not be able to enjoy the benefit of multiplier. If the people tend to spend and invest then they can earn more income to save and spend. Rise in saving also leads to higher level of unemployment in the economy. In this way, government would not be able to raise its tax revenue. Conversely, government may have to crowd out to produce goods and services to satisfy the needs of society.
Government will have to pay unemployment benefits to the unemployed people. So, government budget may also deteriorate. The data says thatUS government is proposing to reduce taxes but this will come at a cost later either in the form switch of expenditures or subsequently increased taxes will not be welcome. Government may have to stop funding of some government project to meet the other expenditures like unemployment benefits.
- Messages
- 1,260
- Reaction score
- 676
- Points
- 123
data response .3 is;
- Messages
- 1,260
- Reaction score
- 676
- Points
- 123
3. The Success of Supermarkets
In some countries supermarkets dominate food shopping. In the UK 75% of the food bought forhome use comes from supermarkets. A third of that comes from one supermarket, Tesco. Tesco makes billions of pounds profit, one third of which goes to the government in taxes. It employs 110 000 people in the UK and many more in developing countries.
In the past, UK shoppers queued to buy expensive food from many small shops with limited choice and restricted opening times. Now, in supermarkets, they have the benefit of a wide choice, reasonable prices, international dishes, organic produce, fair trade items, clear labels of the contents of the products and, because of intense competition between the supermarkets, some open 24 hours.
However, the media complain that supermarkets are not competitive but monopolies. They say their profits are too high, they have caused small shops to close and forced suppliers in developing countries to accept low prices and to pay low wages.
It must be remembered that supermarkets grew because they gave the customer what they wanted and aimed at certain types of shoppers. One supermarket, which started as a small shop, insisted on selling only high quality products while another offered customers low prices.
Supermarkets also adapted to changing market trends. One began to supply products with its own brand name which were sold more cheaply because there were no advertising costs. A further brilliant idea in expanding their business was the introduction of a store loyalty card. Shoppers with a loyalty card are given discounts which encourages them to continue to shop in the same supermarket.
The most successful supermarkets expanded their businesses by buying large sites to build hugestores. (They are criticised for such building, especially if it destroys parts of the countryside or environment.) They expanded into non-food products to fill these stores, making it possible for consumers to buy many household items from clothes to kitchen utensils to electrical goods in the same shop. Supermarkets have also recently introduced on-line shopping and home deliveries.
Many small shops have closed. There are bound to be casualties in retailing. How can the blame for that be the fault of the supermarket? Their size should not be a concern. It is, after all, the consumer who decides where to shop and what to buy.
(a) How has the type of market structure in food retailing in the UK changed? [3]
(b) To what extent does the article support the view that the consumer is sovereign in food retailing? [4]
(c) Explain what the various objectives of a firm might be. [5]
(d) Do you agree with the conclusion of the article that the size of a firm should not be a source of concern? [8]
In some countries supermarkets dominate food shopping. In the UK 75% of the food bought forhome use comes from supermarkets. A third of that comes from one supermarket, Tesco. Tesco makes billions of pounds profit, one third of which goes to the government in taxes. It employs 110 000 people in the UK and many more in developing countries.
In the past, UK shoppers queued to buy expensive food from many small shops with limited choice and restricted opening times. Now, in supermarkets, they have the benefit of a wide choice, reasonable prices, international dishes, organic produce, fair trade items, clear labels of the contents of the products and, because of intense competition between the supermarkets, some open 24 hours.
However, the media complain that supermarkets are not competitive but monopolies. They say their profits are too high, they have caused small shops to close and forced suppliers in developing countries to accept low prices and to pay low wages.
It must be remembered that supermarkets grew because they gave the customer what they wanted and aimed at certain types of shoppers. One supermarket, which started as a small shop, insisted on selling only high quality products while another offered customers low prices.
Supermarkets also adapted to changing market trends. One began to supply products with its own brand name which were sold more cheaply because there were no advertising costs. A further brilliant idea in expanding their business was the introduction of a store loyalty card. Shoppers with a loyalty card are given discounts which encourages them to continue to shop in the same supermarket.
The most successful supermarkets expanded their businesses by buying large sites to build hugestores. (They are criticised for such building, especially if it destroys parts of the countryside or environment.) They expanded into non-food products to fill these stores, making it possible for consumers to buy many household items from clothes to kitchen utensils to electrical goods in the same shop. Supermarkets have also recently introduced on-line shopping and home deliveries.
Many small shops have closed. There are bound to be casualties in retailing. How can the blame for that be the fault of the supermarket? Their size should not be a concern. It is, after all, the consumer who decides where to shop and what to buy.
(a) How has the type of market structure in food retailing in the UK changed? [3]
(b) To what extent does the article support the view that the consumer is sovereign in food retailing? [4]
(c) Explain what the various objectives of a firm might be. [5]
(d) Do you agree with the conclusion of the article that the size of a firm should not be a source of concern? [8]
- Messages
- 1,260
- Reaction score
- 676
- Points
- 123
answers to data response 3 is;
- Messages
- 1,260
- Reaction score
- 676
- Points
- 123
1.(a) It is mentioned in the context there are many small shops. It shows that it is imperfect competition. But at the same time there are large super markets indicating oligopoly market structure. As market is dominated by one super market Tesco, with billions of pounds profits. It shows monopoly market structure in real terms.
(b) The article does not completely support the idea of consumer sovereignty, because it says that super markets gave consumers what they wanted. For example organic and fair trade goods. It indicates the idea of consumer sovereignty. It is also mentioned that, it is the super market which decides to expand the business, introduce store cards, control suppliers to get lower prices, introduce new products of its own brand etc. This information shows producers sovereignty instead of consumers.
(c) The various objectives of a firm can be;
* Profit maximization
* Sales revenue maximization
* Creating barriers for rivals
* To sell high–quality products
* To expand the business etc.
During profit maximization aim, firm determines its equilibrium at a point where Marginal Cost (MC) is equal to Marginal Revenue (MR) and MC cuts MR from below.
Sales revenue is maximized when MR becomes zero. Firm also aims to create barrier to restrict entry of new firms into the market. Firm might aim to produce and sell qualitative goods and services. It may also aim to expand the business for the purpose of getting higher profits and economies of scale.
(d) The size of the firm should be a source of concern because big firms create oligopoly and monopoly position. After getting this position they exploit the consumers by charging high prices, with a view to earn high profits, they may restrain the competitors to enter the market, may control the suppliers, supply their own brand etc. In this may, consumers will have lesser variety available in the market. Sometimes, consumers may have to compromise on quality as well. Every consumer is not rational to take right decisions at the right time. So, government should control the actions of such firms.
Conversely,
We can also see that wider choice in the market is available for the consumers, they can buy goods in more convenient hours, home delivery service is also available. Products are pre–packed, properly labeled with prices and ingredients used in it. So, consumers can benefit from these facilities. Most of the customers are rational and they can take decisions like where to shop and what to buy. So, this information shows that the size of a firm should not be a source of concern. We concluded that information given is mixture of both showing a source of concern in some grounds but at the same time, it seems not much necessary.
(b) The article does not completely support the idea of consumer sovereignty, because it says that super markets gave consumers what they wanted. For example organic and fair trade goods. It indicates the idea of consumer sovereignty. It is also mentioned that, it is the super market which decides to expand the business, introduce store cards, control suppliers to get lower prices, introduce new products of its own brand etc. This information shows producers sovereignty instead of consumers.
(c) The various objectives of a firm can be;
* Profit maximization
* Sales revenue maximization
* Creating barriers for rivals
* To sell high–quality products
* To expand the business etc.
During profit maximization aim, firm determines its equilibrium at a point where Marginal Cost (MC) is equal to Marginal Revenue (MR) and MC cuts MR from below.
Sales revenue is maximized when MR becomes zero. Firm also aims to create barrier to restrict entry of new firms into the market. Firm might aim to produce and sell qualitative goods and services. It may also aim to expand the business for the purpose of getting higher profits and economies of scale.
(d) The size of the firm should be a source of concern because big firms create oligopoly and monopoly position. After getting this position they exploit the consumers by charging high prices, with a view to earn high profits, they may restrain the competitors to enter the market, may control the suppliers, supply their own brand etc. In this may, consumers will have lesser variety available in the market. Sometimes, consumers may have to compromise on quality as well. Every consumer is not rational to take right decisions at the right time. So, government should control the actions of such firms.
Conversely,
We can also see that wider choice in the market is available for the consumers, they can buy goods in more convenient hours, home delivery service is also available. Products are pre–packed, properly labeled with prices and ingredients used in it. So, consumers can benefit from these facilities. Most of the customers are rational and they can take decisions like where to shop and what to buy. So, this information shows that the size of a firm should not be a source of concern. We concluded that information given is mixture of both showing a source of concern in some grounds but at the same time, it seems not much necessary.
- Messages
- 1,260
- Reaction score
- 676
- Points
- 123
Section B
Q.1 is;
Q.1 is;
- Messages
- 1,260
- Reaction score
- 676
- Points
- 123
1. In 2006 it was reported that a country’s unemployment rate had remained steady
and that its central bank, through its interest rate policy, had prevented an
increase in inflation despite a sharp rise in oil prices.
(a) Explain what might cause unemployment. [12]
(b) Discuss how interest rate policy might prevent a rise in inflation. [13]
and that its central bank, through its interest rate policy, had prevented an
increase in inflation despite a sharp rise in oil prices.
(a) Explain what might cause unemployment. [12]
(b) Discuss how interest rate policy might prevent a rise in inflation. [13]
- Messages
- 1,260
- Reaction score
- 676
- Points
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Answer to Q.1 is;
Tell that gdp can be adjusted for inflation using the deflator which will then give us the real gdp. To further make the real gdp accurate for comparisons for standard of living, it should be adjusted for the population. Hence, Real GDP per capita is calculated.
Then you say talk about the problems that there are issues other than the inflationary effect and the population that can cause issues in using gdp as a measure for standard of living
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yes dear of course there are many factors affecting SOL. Inflation was one of them and we have also take into account many other factors as well. You may understand it more clearly when I will give the essay answer for the same question.
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Done !! the answers which I received !!
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