1. (a) “The price elasticity of demand and the price elasticity of supply for many primary commodities tend to be low.” Explain what is meant by this statement, and how this contributes to the problem of price instability for primary commodity producers. [10 marks]
(b) Evaluate the view that it is best to allow primary commodity prices to be determined purely through the free interaction of market forces. [15 marks]
2. Explain what is meant by a production possibility curve and use a production possibility curve diagram to explain the concepts of scarcity, choice and opportunity cost.
3. A concert is to be held in a stadium with limited seating capacity. The organizers set the ticket prices at a level below the equilibrium price. Using a diagram, explain the possible consequences of their decision.
4. (a) Using an appropriate diagram, explain how negative externalities are a type of market failure. [10 marks]
(b) Evaluate the measures that a government might adopt to correct market failure arising from negative externalities. [15 marks]
5.With reference to the concept of economic growth, explain the difference between a movement along an existing production possibility curve (PPC) and an outward shift in a production possibility curve (PPC).
6. Explain why prices tend to be relatively stable in a non-collusive oligopoly.
7. Using a production possibility curve (PPC) diagram, explain the relationship between the economic concepts of economic goods, factors of production and opportunity cost.
8. Explain why the marginal revenue curve is identical to the average revenue curve for a firm in perfect competition but not identical for a monopoly.
9.(a) With the aid of at least one diagram, explain the difference between a movement along an existing demand curve for a good and a shift of the demand curve for a good. [10 marks]
(b) Evaluate the view that the market forces of demand and supply will always lead to the best allocation of resources. [15 marks]
10. With the aid of a diagram, explain the impact on producers and consumers of a subsidy on a good.
11. With the aid of at least one diagram, explain one way a consumer might gain from the behavior of a monopolist and one way a consumer might lose from the behavior of a monopolist. 12. (a) Explain the importance of price elasticity of demand and cross-elasticity of demand for business decision-making. [10 marks]
(b) Studies have shown that the demand for tobacco tends to be highly price inelastic. Evaluate the view that governments can best reduce smoking by substantially increasing taxes on cigarettes. [15 marks]
13. Explain how the burning of fossil fuels (e.g. coal) by industries could create a market failure and a threat to sustainable development.
14. Explain how the three basic economic questions would be answered in a free market economy and in a centrally-planned economy.
15. (a) Explain the concepts of allocative and productive (technical) efficiency. [10 marks]
16. Using appropriate diagrams, explain why the relative burden (incidence) of an indirect tax on the producer and on the consumer varies, depending on the price elasticity of demand for the good (product).
17. (a) Using at least one production possibility curve diagram, explain the concepts of scarcity, choice, opportunity cost and resource allocation. [10 marks]
(b) “The process of resource allocation is most efficiently carried out through the free interaction of demand and supply. This means the provision of merit goods, such as health care and education, should always be left to market forces.” Evaluate this statement. [15 marks]
18. (a) Explain how buffer stock schemes/commodity price agreements may be used to reduce wide fluctuations in primary commodity prices. [10 marks] Case studies
1. Study the extract below and answer the questions that follow.(HL)
Grape growing and wine...