economics multiple choice!!

[~cornelia~]

can some one explain to me these questions?

AS level economics paper 1 may/june 2006
question 1,7,10,11,12

[lastgift]

Hi Cornelia!
The answer to Q1 is D because if interest rates rise, the the returns on saving in a bank is going to be higher which requires the consumer to now choose between saving or spending, thus the OC rises.

The answer to 7 is B because the elasticity of demand is unitary, the condition is that the total revenue of the firm should remain $ 48000 (qty*price= 12*4000). We have to know find out the price which when multiplied with 20000 would give us 48000. So, 48000/20000= $ 2.4

The answer to 10 is B because a rise in tax would shift the supply curve to the left---> form S1 to S2 and a fall in income would decrease demand, again a leftward shift---> D1 to D2.

The answer to 11 is C. The wine has a perfectly inelastic demand, no matter what, it is going to be bought and a rise in price would mean more expenditure. Demand and sales would never fall if the PED is 0. A is false because the price would rise by the amount of tariff as the wine producers can safely pass on the burden of the tariff to the consumers as the increase in price wouldnt affect the demand.

In Q12, the original consumer surplus is WPQ, after the shift it is WTV. The difference between these two rectangles is the triangle of PQVT.

[Omega]

The partnership act is only taken into account if the partners do not have a written Partnership Agreement.

The not signed agreement is usually called as the limited partnership too, because there is no agreement signed between the partners.

Here's an example:
If there are 2 companies and they're fighting over the profit sharing, without no partnership agreement signed then the profit would be divided equally as to the partnership agreement.

This is the rule followed everywhere now.

[lastgift]

Omega I thnk you got the wrong topic. 

[Omega]

I think I did a mistake. I'm really sorry for it. Sorry for the confusion though.

[~cornelia~]

@omega- its alright!
@lastgift- thank you soooooooo much!! u really helped!! especially the 7th question!!
but, could you plzz explain Q10 again?? i dont understand! if the tax on the good increased so the price of the good will increase thus the supply should increase because of its direct relationship with price??

[lastgift]

Cornelia, you should always remember that a tax affects the supply side. It increases the cost of production for the supplier because he cannot pass the entire tax burden on consumers. If he does so by increasing the prices, the demand would fall drastically. The amount of the tax which he passes on to the consumer depends upon the elasticity of demand and supply.
For reference you can see this website : http://tutor2u.net/economics/gcse/revision_notes/demand_supply_tax_subsidies_supply_curve.htm

Do you have the AS level book by Alain Anderton? This concept is explained thoroughly there. If no, then I can scan it for you. 

[~cornelia~]

i get it now!! thank you!

no, my textbook is by colin bamford and susan grant, its kinda complicated so i would really appreciate it if scanned me a better explianation!

i dont want to be a bother but could you please help me with these too?

oct/nov 2006 p1
Question 4, 5, 6, 7

[lastgift]

No worries. Will upload soon!

For the 4th question I am not too sure but by logic only if something is in limited supply, it will have a value. If money is found everywhere, everything and anything can be afforded. I hope someone else gives you a better explanation here.

For the 5 the answer is C because equilibrium price level is where the market gets cleared, supply= demand. The market supply is already given, we have to find out a corresponding value of market demand which is same. The market demand is the aggregate of all individual demand, so you add up the demand of X, Y and Z. In this case 2800+2500+2900 is equal to 8200.

For Q6, a movement along the curve is due to a price factor. A shift in demand curve is due to other factors like changes in fashion & taste: http://www.bized.co.uk/virtual/vla/theories/demand_curve_movements.htm. Because it is a movement, A & D are automatically eliminated as they cause a shift.C is eliminated because a 'decrease' in demand because the demand is actually increasing. A decrease in labour cost will result in lower price and hence the movement.

For Q7, you need to quickly calculate all the parts. the calculation for part D is , I am taking the a fall in price from 9 to8 :
change in qty demanded= (650-600)/600
change in price= 1/9
PED=( 50/600) /(1/9) give 0.75 which is between 0 and 1, therefore, inelastic.

[Monopoly]

Here's mine for Q4.... well there is problem with excess supply of money and that is inflation (from the quantity theory of money)... as far as I remember, over time inflation will erode away the value of money, reducing it's ability as a medium of exchange..this is what I think

on the other hand, if you consider the other options... money needs not to be durable (paper notes certainly are not), legal tender is just one form of money and money does not have a intrinsic value (forms of money like paper notes and coins have face value, i.e. its value is what is written on it).. this makes only the option regarding money supply valid

[~cornelia~]

@lastgift- merci and arigato!! (thank u)
 u have been a great help!
 i bet ur tired of my question but i have two more
may/june 2007 p1
ques 7 and 9?

@monoploy-
thank you for your help,
could u ,more clearly, plz explain what legal tender is?

[lastgift]

Cornelia, thanks for making me revise Economics 

• The interest elasticity of demand of loans is like any other elasticity.
  Formula= %age change in qty demanded/ %age change in interest
  Change in qty demanded of loans is (4000-5000)/5000= -0.2
  Change in interest= (10-8)/8= 0.25
  Therefore, elasticity= -0.2/0.25= -0.8 which is option C.
  

I tried 9th, it came out to be wrong. Maybe Monopoly can again share the work load

[Monopoly]

legal tender: it is defined as the form of money that must be accepted in settlement of debt by law. It consists of all notes and coins.

another form is the near money which consists of financial assets. Mainly near money are used as a store of value rather than medium of exchange.

Q9) I'll just do the calculation for 1200cc as it is same for 2000cc
now XED = %change in D of car/%change in P of petrol
since the XED is negative, A and B are invalid (a rise in petrol price will cause a fall in demand and hence sales of car)

now %change in D of car = [(10000 - x)/10000] * 100 where x is the new number of car sold/demanded after rise in price of petrol

XED = 0.25 (ignoring the -ve sign as it)
[(10000 - x)/100]/100 = 0.25
solve for x = 7500

decrease in car demand = 10000-7500 = 2500

calculate urself and you will find also a decrease of 2500 for 2000cc cars

hence total fall in demand is 5000

[~cornelia~]

thanks a lot both of you!!

lastgift, ur welcome
dont worry i will be here all year making you revise!
are you doing AS level econ??

monopoly and lastgift,
can you do two more questions from the same year?
ques 4 and 11
thank you

[Dasith]

thanks a lot both of you!!

lastgift, ur welcome
dont worry i will be here all year making you revise!
are you doing AS level econ??

monopoly and lastgift,
can you do two more questions from the same year?
ques 4 and 11
thank you

4
1kG beef = 3kg lamb

1kG beef Price = 2 x lamb price

so as u see He gives up 1 kg beef to produce 3 kg lamb & vice versa
if he gives up lamb production he gains 2 x lamb price(for 3 lamb given up) , but however if he decides to produce lamb he gets 3 x lamb price for (1kg beef given up which equals to 3 lamb units) .

He has a better advantage in producing lamb than beef

11)

well if supply of y is increased, price of y would reduce & therefore since the goods are complements(goods used together) the demand for X would increase ,which would raise both price & quantity demanded of good X