Qualification > Commerce
Economics P3 Questions/Doubts
Tohru Kyo Sohma:
--- Quote from: Azland on April 18, 2012, 12:57:01 am ---This was the same paper I did for my main CIE exam, haha. Not sure why your finding it so difficult though as it felt the same as previous past papers. Honestly, though I dont think anyone can explain why every option is wrong for all questions. Gotto be a bit more specific.
--- End quote ---
ok...let me be honest here.....i didn't practice P3 much.....i'll do the previous papers and then do this and if i still have doubts then i'll post, kay?
I just had a mock exam and this was the paper i practiced and i got stuck:P
plus i got a 9/30 in this paper.....so you see i suck very much!
Tohru Kyo Sohma:
May/june 2005-
Qns 13- the government imposes a specific tax equal to $0.20 per unit on the output of a monopoly producer.
what will be the effect on the price charged by the monopoly and on the quantity it produces?
Price quantity
A. increase by $0.20 decreases
B. increases by less than $0.20 decreases
C. increases by $0.20 unchanged
D. increases by less than $0.20 unchanged
i taught it's C but it's B.
fine an imposition of tax will decrease quantity produced but why will thw price rise by less than $0.20....won't a monopoly put the whole burden on consumers!!!?
Qns 18- In a closed economy with no gov , consumption is three-quarter of income at all levels of income
the present equilibrium level of income is $220 million
the full employment level of income is $240 million
by how much would investment have to increase to reach full employment?
A.$5 million B.$15 million C.$20 million D.$30 million
dunno how to even calculate this???:(
Azland:
--- Quote from: Tohru Kyo Sohma on April 27, 2012, 05:43:02 pm ---May/june 2005-
Qns 13- the government imposes a specific tax equal to $0.20 per unit on the output of a monopoly producer.
what will be the effect on the price charged by the monopoly and on the quantity it produces?
Price quantity
A. increase by $0.20 decreases
B. increases by less than $0.20 decreases
C. increases by $0.20 unchanged
D. increases by less than $0.20 unchanged
i taught it's C but it's B.
fine an imposition of tax will decrease quantity produced but why will thw price rise by less than $0.20....won't a monopoly put the whole burden on consumers!!!?
Qns 18- In a closed economy with no gov , consumption is three-quarter of income at all levels of income
the present equilibrium level of income is $220 million
the full employment level of income is $240 million
by how much would investment have to increase to reach full employment?
A.$5 million B.$15 million C.$20 million D.$30 million
dunno how to even calculate this???:(
--- End quote ---
For the first question, you have to just remember the concept. The entire burden of the tax can never be fully shifted to the consumers in the case of a monopoly. This is because they still have to produce at the quantity where MC = MR. I've added an Attachment and an explanation if needed, but its a bit complicated. Better to just remember that the increase in Tax will always only shift a specific ammount on the consumer which is lower then the original tax. The value which does shift however depends on elasticity's. Also, if it helps at all it even if you dont know much of this, its just a guessing game between option A and B as monopoly's can never control both price and quantity. If one changes the other has to change, which means quantity will never be unchanged.
Read this with the help of the diagram if you still want to understand further. Bit complicated though -
The original equilibrium of the monopolist firm is established at point 'E' in the figure, when the marginal cost (MC) intersects the marginal revenue (MR) from below. OP and OQ are the equilibrium price and equilibrium quantity respectively. In this situation, the firm maximizes its profit. When the Government imposes a specific tax on the monopolist's output, both MC and AC would rise upward to MC1 and AC1 respectively. The amount of tax is measured by the vertical distance between MC and MC1 The new marginal cost curve MC1 intersects the MR curve at point E1. The new equilibrium quantity gets reduced to OQ1. Further, the new equilibrium price P1 Q1 is greater than the old equilibrium price. It indicates that the tax has been shifted to the consumers. However, the increase in the price as a result of the levying of the tax is generally less than the amount of the tax. Since the increase in price is equal to P1T, the incidence of the tax on the consumers is equal to P1T. Thus, monopolist cannot shift the whole burden of a specific tax to the consumers. To what extent the monopolist will be able to shift the burden of tax to the consumersTo what extent the monopolist will be able to shift the burden of tax to the consumers depends upon the elasticity of demand and elasticity of supply of his product. The more elastic the demand curve (AR) and less elastic the supply curve (MC), the larger will be the incidence of the tax borne by the monopolist and vice-versa. A sales tax whether based upon quantity sold or value of sales will reduce his profit and output level and raise his price.
Question 2.
Find value of multiplier first.
mpc = 3/4
Multiplier = 1 / 1 - mpc
= 1 / 0.25
= 4
Present income is 220 and they want to reach 240. How much investment is needed for it to reach that? a 5 million investment will change to 20 million as the value of the multiplier is 4. Answer is A
I think your main problem with question one is that your thinking of it like a person who doesn't consider economic theory behind any decision. In the real world its entirely possible for firms to increase it by the complete 0.20$ but the question assumes that decision makers for the firm make full use of economics and the assumptions behind a monopoly.
Tohru Kyo Sohma:
--- Quote from: Azland on April 28, 2012, 06:25:56 pm ---For the first question, you have to just remember the concept. The entire burden of the tax can never be fully shifted to the consumers in the case of a monopoly. This is because they still have to produce at the quantity where MC = MR. I've added an Attachment and an explanation if needed, but its a bit complicated. Better to just remember that the increase in Tax will always only shift a specific ammount on the consumer which is lower then the original tax. The value which does shift however depends on elasticity's. Also, if it helps at all it even if you dont know much of this, its just a guessing game between option A and B as monopoly's can never control both price and quantity. If one changes the other has to change, which means quantity will never be unchanged.
Read this with the help of the diagram if you still want to understand further. Bit complicated though -
The original equilibrium of the monopolist firm is established at point 'E' in the figure, when the marginal cost (MC) intersects the marginal revenue (MR) from below. OP and OQ are the equilibrium price and equilibrium quantity respectively. In this situation, the firm maximizes its profit. When the Government imposes a specific tax on the monopolist's output, both MC and AC would rise upward to MC1 and AC1 respectively. The amount of tax is measured by the vertical distance between MC and MC1 The new marginal cost curve MC1 intersects the MR curve at point E1. The new equilibrium quantity gets reduced to OQ1. Further, the new equilibrium price P1 Q1 is greater than the old equilibrium price. It indicates that the tax has been shifted to the consumers. However, the increase in the price as a result of the levying of the tax is generally less than the amount of the tax. Since the increase in price is equal to P1T, the incidence of the tax on the consumers is equal to P1T. Thus, monopolist cannot shift the whole burden of a specific tax to the consumers. To what extent the monopolist will be able to shift the burden of tax to the consumersTo what extent the monopolist will be able to shift the burden of tax to the consumers depends upon the elasticity of demand and elasticity of supply of his product. The more elastic the demand curve (AR) and less elastic the supply curve (MC), the larger will be the incidence of the tax borne by the monopolist and vice-versa. A sales tax whether based upon quantity sold or value of sales will reduce his profit and output level and raise his price.
Question 2.
Find value of multiplier first.
mpc = 3/4
Multiplier = 1 / 1 - mpc
= 1 / 0.25
= 4
Present income is 220 and they want to reach 240. How much investment is needed for it to reach that? a 5 million investment will change to 20 million as the value of the multiplier is 4. Answer is A
I think your main problem with question one is that your thinking of it like a person who doesn't consider economic theory behind any decision. In the real world its entirely possible for firms to increase it by the complete 0.20$ but the question assumes that decision makers for the firm make full use of economics and the assumptions behind a monopoly.
--- End quote ---
ok...i get......at first i taught since it's a monopoly...they have the power to increase price by whole amount since they dont have competition!
Thanks alot Azland!
Tohru Kyo Sohma:
i have doubts in Economics A2-P3
O/N'07- qns 10,2027,29
QP-http://www.xtremepapers.com/papers/...d AS Level/Economics (9708)/9708_w07_qp_3.pdf
MS-http://www.xtremepapers.com/papers/...d AS Level/Economics (9708)/9708_w07_ms_3.pdf
p31 O/N '11-2,3,9,24,29 & 30
QP-http://www.xtremepapers.com/papers/... AS Level/Economics (9708)/9708_w11_qp_31.pdf
MS-http://www.xtremepapers.com/papers/... AS Level/Economics (9708)/9708_w11_ms_31.pdf
p3 O/N '08-25 What would increase an economy’s actual output but not its potential output?
A an increase in the capital available to the labour force
B an increase in the labour force’s skill level
C an increase in the number in the labour force
D an increase in the proportion of the labour force employed
ANSWER IS "D"
P31-O/N'09- 5,6,8,9,10,13,18,21,24,26,27 & 29
QP-http://www.xtremepapers.com/papers/... AS Level/Economics (9708)/9708_w09_qp_31.pdf
MS-http://www.xtremepapers.com/papers/... AS Level/Economics (9708)/9708_w09_ms_31.pdf
P31 O/N 2010- 20,27,28 & 30
QP-http://www.xtremepapers.com/papers/... AS Level/Economics (9708)/9708_w10_qp_31.pdf
MS-http://www.xtremepapers.com/papers/... AS Level/Economics (9708)/9708_w10_ms_31.pdf
P3 O/N 2006- 4,16,18,21 & 23
QP-http://www.xtremepapers.com/papers/...d AS Level/Economics (9708)/9708_w06_qp_3.pdf
MS-http://www.xtremepapers.com/papers/...d AS Level/Economics (9708)/9708_w06_ms_3.pdf
PLEASE HELP ME OUT!!!
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