Economics 2008 Overview Higher Level

Transcription

1 Economics 2008 Overview Higher Level The 2007 economics paper- threw up a few surprises - esp Q4 on government and command vs laissez faire economy. This had not been asked for a long number of years. Seems to be a change is the focus of the paper with differing parts of the syllabus being asked randomly-certain aspects involve applying your knowledge rather than just rewarding the learning off of large chunks of material from a text. Topics are being mixed e.g. in 2007 Q6 had an economic growth and development part as part of a question on national income. Heavy emphasis on MACRO economics in recent years, so please do not just focus on micro economics or just macro. BANKING 2005 last up- Credit creation not asked since 2002 UTILITY and INCOME /SUBSTITUTION EFFECTS- Came up in 2003, slightly more difficult Q in

2 SAMPLE ANSWER (c) The Law of Demand states: A greater quantity of the good will be bought when the price of the good is reduced. (ii) Exceptions to the Law of Demand (a) Giffen Goods 2

3 Necessities which constitute a large proportion of the expenditure of low- income families - white bread, potatoes, rice. If the price of bread is increased then people would probably continue to buy the quantity they require, even after the price increase. They would get the extra money by cutting out something else which is less of a necessity, (e.g. rolls) and therefore have to buy more bread instead. (b) Status Symbols / Snob items / Ostentatious Goods /Conspicuous Consumption Some commodities, by their exclusiveness or expensiveness, are attractive to some buyers. If the price of these items were reduced by a small amount, it is unlikely that many additional people would be able to afford them. On the other hand they would become less expensive, perhaps less exclusive, and therefore less desirable to those wealthy people considering buying them. (c) Goods the purchase of which is influenced by expectations as to future prices. If prospective buyers think that prices are likely to rise even higher in the future, the current level of demand may not fall even if prices increase slightly, e.g. if a person is considering buying a house the possibility that prices are likely to be even higher in the future will probably stimulate demand at current prices. (d) Goods of Addiction In the case of those goods to which a person becomes addicted e.g. drugs, they no longer act rationally. They become so addicted to the drug that even when the price of the commodity increases their demand for the commodity may also increase. Price DEMAND P2 P1 Q1 Q2 Quantity COSTS OF PRODUCTION came up as a full question. Students should know economies/diseconomies of scale, short run/long run, profit maximizing conditions, etc. MONOPOLY Price discrimination has not featured as part of a question since

4 2000 Higher Level Part D in particular is worth noting- see textbook for remaining parts. 4

5 Extract from 2000 Q 2 Marking Scheme 5

6 A mixture of structures possible, e.g. state and explain how perfect competition and imperfect competition are similar in the long run, and how they are different in the long run. Which market structure is better for the consumer and why? FACTORS OF PRODUCTION- This is generally a question and can be straightforward-key definitions help here including MRP, MPP transfer payments-go to the marking schemes here for key definitions. Labour 2007 Investment-capital 2006 Land rent- property prices 2005 Why have property prices fallen in recent months: Enterprise/Capital 2004 Definitions-labour 2003 Capital 2002 Labour 2001 There could be a mixture of parts from a number of the factors of production, such as-. Why has the unemployment rate increased in Ireland recently Smaller GNP growth, US economy slowed down- falling exports Less spending in the economy as consumer confidence weakens Increased inflation has reduced real incomes, hence less demand for goods and services Level of investment has fallen also- Higher interest rates-reduces the MEC of capital Fall in US demand- hence reduced inward investment Business peoples expectations have fallen- less likely to invest. House prices have fallen due to Banks- restricting lending Increased interest rates- increases cost of repayments Inflation- reduces spending power hence less demand for second and subsequent homes. Uncertainty re inflation, national pay deals interest rates people waiting for the market to settle. Unsold stocks of houses by the building trade- supply of new houses still high. 6

7 THE NUMBERS signing on the Live Register reached 201,756 in May, the first time the Live Register total has exceeded 200,000 since July 1999, according to data released recently by the Central Statistics Office. Inflation running in excess of 5%- bad for our competitiveness- will cause a fall in the demand for Irish exports. Government revenue not so good due to economic slowdown-likely to be a budget deficit in December- could see increased tax rates in a effort to raise revenue. Increase borrowing by government increases Ireland s national debt ( 34 billion approx) NATIONAL INCOME growth has fallen-positive and negative consequences as a result:- Please note. Economic consequences of increasing unemployment include the following:- Gov rev falls Immigration falls Reduced wage demands Emigration Less investment 7

8 CIRCULAR FLOW OF INCOME Income for households Payment by firms for fop 1000 HOUSEHOLDS FIRMS 1000 Expenditure of households Value of firms output SAVINGS Banks/Financial Institutions INVESTMENT IMPORTS Foreign Markets EXPORTS TAXATION Government GOV. SPENDING Firms hire households to supply fop, e.g. labour, in turn, households buy the output of firms. Not all the income earned by households is spent on the output of firms. Some is;- Saved, depending on the MPS (1-MPC). Spent on Imports: - the purchase of goods and services from abroad. The amount spent on imports depends on the MPM. Taken in tax: - The amount taken depends on the MPT. These three are leakages as they reduce the amount of money in the CFOI and therefore reduce the level of economic activity. 8

9 On the other hand, there are three injections in to the CFOI Investment-Anything man made that assists in the production of wealth. Capital goods are used to increase the wealth creating capacity of the economy Exports; Export revenue is earned when Irish forms sell goods and services to other countries. Government spending-government spends money on the economy, e.g. improving infrastructure, civil service salaries, etc. Injections increase the amount of money in the CFOI and therefore increase the level of domestic national income Note- A one unit injection multiplied by the multiplier shows the corresponding increase in the level of national income Higher Level Question 5-International Trade 9

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12 Students should know their short questions very well as it accounts for 25% of the paper. Elasticity is a key topic in micro. The old reliables in macro include money and banking, inflation, international trade, national income and government. Review these areas thoroughly! Please note that the points put forward here are my own and are offered in good faith to help students understand key topics. They are not tips or hints or predictions! Wishing you all the very best of luck in all remaining exams and have a great Summer 2008! John Morris Institute of Education 12