Mohammad Ziaul Alam, MSS, MBA, B.ed; Teacher: Economics, Business Studies, Bangladesh Studies Cell: 01712524004, 01972524004; Mail: [email protected], [email protected], zia-academy.com 1 For 16-18, Economics, Paper-4 1. Basic economic ideas and resource allocation - Efficient resource allocation • Externalities and market failure • Social costs and benefits; cost-benefit analysis W2002 1. 3 (a) Explain what is meant by productive and allocative efficiency. [10] (b) ‘A firm should be encouraged to maximise profits because this makes it efficient.’ Discuss whether this argument is true for a firm operating in an imperfect market. [15] 2. 4 (a) Explain, with examples, the meaning of the terms public good and merit good. [8] (b) Discuss how a government might increase the provision of public and merit goods. [12] s2003 3. 2 It was reported in June 2001 that Vietnam was ‘on the verge of liberalising state control of the arts by allowing privately run museums’. (a) Explain the sources of market failure. [12] (b) In the light of the existence of market failure, discuss whether the operation of museums can be left to the private sector. [13] W2003 4. 2 In 2001 in the UK a widespread disease among cattle and sheep closed off large parts of the countryside. The government decided to give aid to agriculture but not to tourism, both of which were badly affected. Comment on the government’s actions in terms of allocative efficiency and equity. [25] S2004 5. 5 In many cities the level of traffic congestion is causing increased concern. (a) Discuss whether the existence of traffic congestion in cities might be considered as evidence of market failure. [12] (b) Analyse what might be done when market failure does exist. [13] W2004 6. 2 Discuss whether economic efficiency as described in text books is likely to be able to be achieved in practice. [25] 7. 4 (a) Explain the meaning of ‘public good’ and ‘private good’. [8] (b) Discuss whether economic actions by individuals always result in a net benefit to society. [12] w2005 8. 2 The French government stated that it was keen to achieve economic efficiency through policies that encouraged a free market. Despite this, in 2003, it bought 30% of a private French industrial group, which was facing bankruptcy. The company is one of France’s major engineering groups and employs over 110 000 people. (a) Explain what is meant by efficient resource allocation in a free market. [10] (b) Would you agree that in some circumstances it is best to accept decisions such as that of the French government and abandon the search for economic efficiency through the free market? [15] 9. 2 (a) Explain the effects of externalities on the allocation of resources. [8] (b) Discuss the use of indirect taxes and subsidies by governments to deal with externalities. [12] s2005 10. 6 Discuss the assertion that the market system is not able to allocate resources efficiently. [25] S2006 11. 3 (a) Explain, with examples, the difference between a demerit good and a merit good. [8] (b) Discuss two methods that a government might use to influence the consumption of demerit goods. [12] 12. 2.‘Governments, unlike the private sector, can create some of the necessary conditions for the efficient allocation of resources. It is, therefore, best if there is as much government involvement in the economy as possible.’ Discuss whether you agree with this opinion. [25] W2006 13.2 (a) Explain what is meant by the term ‘economic efficiency’. [10] (b) Does the price mechanism allocate scarce resources efficiently? [15] S2008 14. 2 The government in Namibia stated that electricity prices should cover cost and should also be based on the principle of allocative efficiency. Discuss whether this approach to pricing can be supported in theory. [25] W2008 15. 2 Economic analysis of resource allocation assumes consumers are rational. Where advertising exists, this analysis is of little value. Do you agree with this argument? [25] 16. 3 (a) Explain the market failure which arises from the characteristics of public goods. [8]
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(b) Discuss whether the use of cost-benefit analysis helps to improve economic decision making. [12]
S2009
17. 7 A World Bank report in 2007 commented on the continuing need for major spending worldwide on
infrastructure on everything from roads and railways to water and electricity generation.
a. Explain the effect on national income when there is an increase in spending on infrastructure. [10]
b. Discuss whether an efficient allocation of resources can be obtained only if large-scale investment is
undertaken by the public sector rather than the private sector. [15]
18. 3 (a) Explain, with the aid of a diagram, how consumer surplus will be affected by the introduction of an
indirect tax. [8]
(b) Discuss the advantages and disadvantages of using indirect taxes to deal with the negative externalities
associated with some products. [12]
W2009
19. 3 (a) Explain why a lighthouse is often given as an example of a public good while a light bulb is not. [8]
(b) Discuss whether it is likely that the private costs and the social costs of production would be identical. [12]
W2010
20. 2 In 2009 there were huge fires in Australia which destroyed much property and countryside.The government
promised to allocate a large amount of money and resources to help with the restoration of the area.
a. With the help of diagrams explain what is meant by efficiency in the use of resources. [12]
b. Discuss the economic implications of the government’s approach to the situation. [13]
S2011
21. 2 The use of cars causes market failure. To achieve an efficient use of resources it would be better if
governments intervened to affect both the production and the use of cars. Explain the meaning of the terms
‘market failure’ and ‘the efficient use of resources’ and analyse whether economic theory can be used to
support this argument. [25]
22. 2 (a) Explain the role that a government should fulfil in a mixed economy. [8]
(b) Discuss the accuracy of the definition of public and merit goods as ‘goods that must be provided by the
government’. [12]
W2011
23. 2 (a) Explain the link between a consumer’s expenditure and the equi-marginal principle of utility.[12]
(b) Analyse what is meant by economic efficiency and assess whether efficiency is always achieved in a
market. [13]
S2012
24. 7 It is important to achieve economic efficiency in the use of resources. This can only be done if the private
sector is increased in size. Government intervention in the economy should, therefore, be minimised. To what
extent do you support this argument? [25]
S2013
25. 7 The market system is not able to allocate resources efficiently. Discuss this opinion. [25]
W2013
26. 3 (a) Use diagrams to explain the difference between merit goods and demerit goods. [8]
(b) Discuss whether it would be better if smoking were banned completely or whether it should be subject to
an indirect tax. [12]
S2014
27. 3 ‘The profitability of firms is a measure of their efficiency. The higher the profit, the greater the efficiency.
High profits should, therefore, be encouraged.’ Do you support this argument? [25]
S2015
28. 3 (a) Using examples, explain the difference between merit goods and public goods and show why it is
possible for profit to be made in the supply of one of these types of good but not the other. [8]
(b) Discuss why merit goods are undersupplied in a free market economy and consider the effectiveness of
one policy to deal with this problem. [12]
S2016
29. 2 ‘Government economic policy is based on the idea that people cannot be trusted to choose what is good for them but instead sometimes choose things that are harmful to themselves or detrimental to the environment (or both). Therefore a free market cannot allocate resources efficiently.’ Do you support this argument? [25] W2016
30. 2 It has been said that the aim in the allocation of resources should be to achieve the greatest happiness for the greatest number of people. Discuss whether economics has anything to say about the best way to maximise welfare from the use of resources. [25] M2017
38. 2 (a) Use the theory of marginal utility to analyse how a consumer will normally buy more of a product at a
lower price than at a higher price and explain how this theory can be used to derive a market demand curve.
[12]
(b) Economic texts examine market equilibrium. Discuss whether it is the consumer or the producer who
determines the equilibrium market price and whether consumers have the same power in all types of market
structure. [13]
39. 3 (a) Analyse whether in a perfectly competitive labour market it is true that a profit maximising firm will
employ labour only up to the point where the marginal revenue product of labour is at its maximum. [12]
(b) Discuss whether the marginal revenue productivity theory of wages is useful in explaining wage determination in
an imperfect market where there is a trade union. [13]
s2014
40. 2 ‘The analysis of marginal utility as an explanation of consumer equilibrium can only be related to the
purchase of one good, cannot be used if incomes increase, and is not applicable if advertising causes a
change in tastes. It is, in practice, not a useful guide to consumer behaviour’. Assess this opinion. [25]
41. 3 ‘The profitability of firms is a measure of their efficiency. The higher the profit, the greater the efficiency.
High profits should, therefore, be encouraged.’ Do you support this argument? [25]
S2015
42. 2 (a) Describe how consumer theory suggests a rise in income will cause a consumer’s demand to change for
a normal good and for an inferior good. [12]
(b) Explain the difference between structural, cyclical and seasonal unemployment and discuss whether a general
rise in income in a country would have the same effect on each of these types of unemployment. [13]
43. 3 (a) A firm in a perfectly competitive market and a firm with a monopoly both seek to maximise their profit.
Explain, with the help of a diagram, why the levels of price and output might be different in the two markets.
[12]
(b) Discuss whether it is always true that a firm, rather than maximising its profits while remaining small, will seek
to grow in size. [13]
M2016
44. 2 ‘The best way to increase economic welfare is to encourage competition in a market system.’ Consider whether you agree with this view. [25] 45. 3 (a) ‘If a firm is experiencing diminishing returns and diseconomies of scale, it means that its output must be decreasing.’ Explain whether this statement is true. [12] (b) ‘It is certain that firms maximise profits where marginal cost equals marginal revenue, and that this is what all firms seek to do.’ Discuss this assertion. [13] S2016
46. 3 With the help of diagrams, use indifference analysis to: (a) explain what is meant in economic theory by consumer equilibrium and how it is related to a consumer’s demand curve. [12] (b) discuss how this equilibrium might be affected by a government fiscal policy that raises taxes on goods. [13]
47. 5 The traditional theory of the firm assumes a single objective for the firm, namely the maximisation of profit. (a) Explain whether a firm with this objective necessarily always makes a profit. [12] (b) Discuss how the objective in the traditional theory may be varied in different market structures. [13]
W2016
48. 3 (a) A number of consumers are deciding whether to buy a product. How far does economic theory explain the determination of the market demand curve for that product? [12] (b) Discuss whether that theory is still valid if the producer decides to advertise the product, and consider the effects of the advertising on the demand curve for the product. [13]
49. 4 Explain what is meant by the ‘equilibrium of a perfectly competitive firm’ and consider the view that equilibrium is always achieved in perfect competition but never in a monopoly market. [25] M2017
12. 4 Wage rates in some non-essential occupations, such as entertainment, are very high while wage rates in
essential occupations, such as public sector hospital nurses, are much lower. This is unfair. Analyse how
economic theory can explain these differences in wage rates and consider whether you agree with the
conclusion of this statement. [25]
w2012
13. 4 Some workers producing non-essential luxury goods or services are paid very highly. The wage rate is not
related to the economic value of a good or service but more to social factors or fashion. The economic
theory of wages is, therefore, of little use in explaining wage differentials. Assess this argument. [25]
W2013
14. 4 In the economic recession of 2011 many private sector firms were still able to announce that they were
successful and had made substantial profits. Large bonuses were paid to directors and shareholders
received large dividends. Discuss whether it is better for an economy if the allocation of resources is left
entirely to the private sector operating through the market system. [25]
s2014
15. 4 (a) Some top executives and some sports people are paid very high salaries. It is argued that this is
inevitable as people are paid the market rate for the job. Use economic analysis to support this opinion.
[12]
(b) It is argued that the wage determination in imperfect markets leads to exploitation. It is therefore
necessary and beneficial if the government intervenes in the determination of wage rates. Discuss whether
there is any truth in this argument. [13]
s2015
16. 4 ‘Wage determination in the factor market is just like price determination in the product market. It is
entirely dependent on the forces of supply and demand.’ Do you agree with this statement? [25]
S2016
17. 4 (a) ‘In perfect competition in the short run, wage rates in some occupations will be higher than in others.’ Explain the economic analysis underlying this. [12] (b) Do you agree that in an imperfect labour market any activity by trades unions designed to increase wage rates would inevitably lead to unemployment in that market? [13] W2016
18. 6 (a) Some occupations that do not have pleasant working conditions, such as rubbish collection, receive low pay, while those with pleasant conditions, such as senior managers, receive high pay. How far does economic analysis explain this situation? [12] (b) Discuss what influence a trades union and a government can have in determining wage rates. [13]
28. 7 Some economies are said to be developing while others are developed. Explain the difference between
the two and discuss whether the problems of a developing economy would be solved if it achieves
developed status. [25]
s2012
29. 5 As part of the measurement of GDP governments calculate the level of investment expenditure.
(a) What determines the level of investment and how do changes in investment expenditure affect
GDP? [12]
(b) Assess the difficulties of using GDP as an economic indicator. [13]
30. 6 It is sometimes stated that the economic growth rates of developed countries are higher than those of
developing countries.
(a) Explain why developing countries often aim to increase economic growth. [12]
(b) Assess the likely effectiveness of the types of policy the government of a developing country might
use if it wished to increase economic growth. [13]
w2012
31. 5 It is said that the lack of investment funds for private companies from banks leads to temporary closures
of factories which then become permanent and cause long-term unemployment. This loss of output will
lead to a possible recession. Analyse each part of this argument and discuss whether you agree with it.
[25]
32. 6 (a) Explain how the age and employment structures of the population of a developing country are likely to
differ from those of a developed country. [12]
(b) You are told that a country has problems relating to overcrowding, unemployment and pollution.
Discuss whether the existence of such problems necessarily means that the country must be a developing
country. [13]
33. 7 (a) For what purposes do people demand money? [10]
(b) Too much money causes inflation. Discuss the main macroeconomic aims of the government and
consider whether it should give priority to the limitation of inflation in achieving economic well-being. [15]
w2013
34. 7 A country has a high level of unemployment and a low level of GDP. Discuss whether this situation is a
good indication that the country is a developing country. [25]
S2014
35. 5 It was reported in 2012 that consumers should not be encouraged to save more and reduce their debts.
Increased saving would result in a Keynesian ‘paradox of thrift’ which would not help economic growth.
Instead consumers should spend money on new purchases. (Source: The Times. 2011)
(a) Explain and comment on what is meant by ‘the paradox of thrift’. [12]
(b) Discuss what is meant by economic growth and consider whether spending money on new
purchases would necessarily help economic growth. [13]
s2015
36. 5 ‘Lack of consumer spending causes recessions. Recessions do not improve a country’s standard of
living. It is always better, therefore, to encourage consumer spending for this improves a country’s
standard of living.’
(a) What is a recession and is it always caused by a lack of consumer spending? [12]
(b) Discuss what policies a government may use to try and end a recession. [13]
M2016
37. 4 (a) Discuss how wage rates are determined in a perfect market. [12] (b) If the labour market is imperfect, is the determination of wage rates still better left to that market? [13]
38. 5 (a) Consider whether the main cause of economic growth is an increase in population, and hence in labour supply. [12] (b) Do you agree that a country should try to increase its rate of economic growth? [13] S2016
39. 5 (a) Explain the causes of unemployment and consider what type of unemployment is the most serious for the country in which you live. [12] (b) Discuss whether government macroeconomic aims of full employment, economic growth and price stability are likely to conflict with each other. [13] W2016
25. 6 The table shows figures for annual GDP growth rates at market prices for three developing countries,
Bangladesh, Ethiopia and Malawi, and three developed countries, Greece, UK and USA.
Bangladesh Ethiopia Greece Malawi UK USA
GDP
growth
rate (%)
2009 5.7 8.8 -3.1 9.0 -4.0 -3.5
2010 6.1 9.9 -4.9 6.5 1.8 3.0
2011 6.7 7.3 -7.1 4.3 0.8 1.7
Source: the world Bank
(a) Describe what is meant by economic growth and consider if it is always advantageous. [12]
(b) Explain what is meant by a developing country and a developed country and consider whether the table
supports the idea that GDP growth rates are a good indicator of development. [13]
26. 7 ‘The free market is not the way to achieve a sustainable, efficient use of economic resources. Even the
famous economist Adam Smith recognised that there was a need for some government involvement.’ Discuss
whether government involvement in the economy might overcome the weaknesses of the free market system.
[25]
M2016
27. 6 (a) Assess how changes in interest rates might influence investment. [12] (b) Some argue that increases in investment cause national income to increase. Others argue that the reverse is true: an increase in national income brings about investment. Discuss whether both these seemingly contradictory statements can be true. [13]
28. 7 Governments want to increase the standard of living in their country. Discuss whether the indicators used to measure the standard of living are reliable and consider what policies a government might use to try to increase the standard of living in its country. [25] S2016
29. 6 Imagine you have been asked to produce a report about the quality of life in your country. Discuss what would be important to include in your report and what economic indicators you would use in order to reach a conclusion. [25]
30. 7 (a) Explain how the age and employment structure of a population in a developing country may differ from those of a developed country. [12] (b) Consider whether a developing country is likely to experience different types of unemployment compared with a developed country. [13] W2016
31. 7 (a) Conventional estimates of national income indicated that average income per head between 2009 and 2013 was US$98 780 in Norway and US$36 900 in New Zealand. Consider whether this means that the standard of living in Norway is nearly three times as high as in New Zealand. [12] (b) Norway and New Zealand are classified as developed countries. Make a judgement on what are the important distinguishing differences between a developed country and a developing country. [13]