A2 Micro Unit 3 Revision Advice

A2 MicroStrong Exam Techniques

Stepping stones to great A2 grades

Geoff Riley, FRSATutor2u

I love answers that.......Use the data

well

Evaluate the point made

Have great analysis

diagrams

Put things in context

Use A2 concepts!

Current knowledge

Critical evaluation!

This is A2 not AS!

Everything in economics is contextual

Please!

http://www.scoop.it/t/unit-3-micro-business-economics

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Quick Advice on EdExcel Unit 3

Quick Advice on EdExcel Unit 3

1. Define term2. Explain answer3. Draw or annotate diagram4. One knock-out (rejection)

Another structured MC example

P38

Another structured MC example1. Define term2. Explain answer3. Draw or annotate diagram4. One knock-out (rejection)

1. Revenue maximised when MR = zero2. Unsold flowers can be offered at a price

discount to run down stocks. This is a form of second-degree price discrimination

3. Likely to be elastic demand, flowers have to be disposed of anyway

4. Draw a diagram to illustrate. P1 is profit maximising price, P2 is a revenue maximising price – Q1-Q2 sold at the lower price adding to revenue

5. One knock-out, predatory pricing is illegal in UK

Price

Qty

MC

AR

MR

P1

Q1 Q2

P2

P38

Explain how both a firm and its consumers may be affected by economies of scale

P40

Explain how both a firm and its consumers may be affected by economies of scale

P40

Explain how both a firm and its consumers may be affected by economies of scale

Define your

terms

• Internal EoS• External EoS

Internal Economie

s

External Economie

s P40

Explain how both a firm and its consumers may be affected by economies of scale

Define your

terms

• Internal EoS• External EoS

Internal Economie

s

• Falling long run unit cost

• Increasing returns to scale

External Economie

s P40

Explain how both a firm and its consumers may be affected by economies of scale

Define your

terms

• Internal EoS• External EoS

Internal Economie

s

• Falling long run unit cost

• Increasing returns to scale

External Economie

s

• Growth of an industry

• Lowers unit costs for most businesses P40

Explain how both a firm and its consumers may be affected by economies of scale

Analyse

Impact on firms

• Lower average costs• Higher profits (producer surplus)

Impact on consumer

s

• Real price levels

• Consumer surplus

No evaluation needed in this question!

P40

Explain how both a firm and its consumers may be affected by economies of scale

Price

Output (Q)

Economies of Scale – Benefits for Businesses and Consumers

LRAC

AR = demand

P40

Explain how both a firm and its consumers may be affected by economies of scale

Price

Output (Q)

Economies of Scale – Benefits for Businesses and Consumers

LRAC

AR = demand

P1

C1

Profit at output Q1

Q1 P40

Explain how both a firm and its consumers may be affected by economies of scale

Price Economies of Scale – Benefits for Businesses and Consumers

LRAC

AR = demand

P1

C1

P2

C2

Q1 Q2

Profit at output Q1

Profit at output Q2

P40

Explain how both a firm and its consumers may be affected by economies of scale

Price Economies of Scale – Benefits for Businesses and Consumers

LRAC

AR = demand

P1

C1

P2

C2

Q1 Q2

Profit at output Q1

Profit at output Q2

Gain in consumer surplus

P40

Explain how both a firm and its consumers may be affected by economies of scale

Price Economies of Scale – Benefits for Businesses and Consumers

LRAC

AR = demand

P1

C1

P2

C2

Q1 Q2

Profit at output Q1

Profit at output Q2

Gain in consumer surplus

Economies of scale have the potential to benefit both producers and consumers – higher profits and lower prices

P40

Explain how both a firm and its consumers may be affected by economies of scale

Price Economies of Scale – Benefits for Businesses and Consumers

LRAC

AR = demand

P1

C1

P2

C2

Q1 Q2

Profit at output Q1

Profit at output Q2

Gain in consumer surplus

LRAC2

External economies of scale here

P40

Explain how both a firm and its consumers may be affected by economies of scale

Price Economies of Scale – Benefits for Businesses and Consumers

LRAC

AR = demand

P1

C1

P2

C2

Q1 Q2

Profit at output Q1

Profit at output Q2

Gain in consumer surplus

LRAC2

External economies of scale here

P40

C2

Discuss whether utilities such as train operating companies, water, and telecoms businesses are better left in the private sector or whether all, or

some, should be taken back into public ownership

Deeper evaluation (4+1 approach)Outline (explain/analyse) and then evaluate 4 separate points with a brief final reasoned evaluative paragraph

1/ Case for private sector

• Profit motive• Dynamic

efficiency

2/ State ownership

option

• Objectives?• Outcomes?

3/ Impact on stakeholders

• Consumers• Employees• Taxpayers

4/ Alternatives to public

sector

• Competition policy

• Business taxation

Evaluate the case for stronger action by governments to protect consumers from the monopoly power of firms involved in supplying gas and electricity to UK homes and businesses

Please note the error in the workbook

Significant rise in average energy bills in the UK – this is a major policy issue – directly affects millions of consumers and businesses.

Case for Action

High prices /allegations of collusion

Tougher price caps?

Create competition in the wholesale market?

Supernormal profits

Windfall Tax on profits

State Ownership

Rising fuel poverty / complex prices

Cheapest tariff as default

Using windfall tax to fund insulation

Evaluate the case for stronger action by governments to protect consumers from the monopoly power of firms involved in supplying gas and electricity to UK homes and businesses

One main point per paragraphBuild an argument, support, then evaluateEvaluation must relate to the point that has already been made

Evaluation1. Large barriers to entry2. Huge economies of scale3. Limited contestability is a

feature of the market

Evaluation1. Abnormal profits used to

fund capital investment2. Long term energy security3. Nationalisation &

inefficiency

Evaluation1. Fewer tariffs but higher

average prices2. Windfall tax discourages

investment & research3. Government failure when

using revenues

Build the economic case for action

High prices / allegations of collusion

Tougher price caps?

Create competition in the wholesale market?

Supernormal profits

Windfall Tax on profits

State Ownership

Rising fuel poverty / complex prices

Cheapest tariff as default

Using windfall tax to fund insulation