Economics P3 Questions/Doubts

[Tohru Kyo Sohma]

Thanks alot

[Tohru Kyo Sohma]

Ok i have doubts!
P3-Oct/Nov'2008
Qns.2-The diagram shows the levels of utility corresponding to different allocations of resources
between two people.
The initial allocation is Z.
Which reallocation of resources would definitely be more Pareto efficient?
[i'll post the pic]
What doe pareto effecient means?

Qns.5-A firm currently employs 30 workers at a daily wage rate of $40.
It calculates that the marginal cost per day of hiring an additional worker would be $102.
By how much would the daily wage rate have to be increased to attract an extra worker?
A $2 B $42 C $62 D $102

Qns.12-The diagram shows the demand and cost curves of a monopolist who initially produces at the
profit-maximising level of output.[pic attached]
The monopolist is required by the government to adopt marginal cost pricing.
What will be the effect on the price charged and the output produced?
     price       output
A increase    increase
B increase    decrease
C decrease   increase
D decrease   decrease

Qns13-The table shows the costs of two milk producers
         costs per litre
firm X       $9
firm Y       $7
The price received by producers is $10 per litre. Both firms have been given quotas allowing
them to produce 200 litres per day. Firm X sells its quota to firm Y.
Assuming constant costs of production and zero costs of entry and exit, what price did firm Y pay
(per day) to buy X’s quota?
A $200
B $600
C $700
D between $200 and $600


Qns.16-The table shows some data for an economy.
       [pic attached]
What is the equilibrium level of national income?
A $700 m B $800 m C $900 m D $1000 m




I'm really sorry for throwing my doubts but i currently have no one to help me besides SF!
 

[Azland]

Ok i have doubts!
P3-Oct/Nov'2008
Qns.2-The diagram shows the levels of utility corresponding to different allocations of resources
between two people.
The initial allocation is Z.
Which reallocation of resources would definitely be more Pareto efficient?
[i'll post the pic]
What doe pareto effecient means?

Qns.5-A firm currently employs 30 workers at a daily wage rate of $40.
It calculates that the marginal cost per day of hiring an additional worker would be $102.
By how much would the daily wage rate have to be increased to attract an extra worker?
A $2 B $42 C $62 D $102

Qns.12-The diagram shows the demand and cost curves of a monopolist who initially produces at the
profit-maximising level of output.[pic attached]
The monopolist is required by the government to adopt marginal cost pricing.
What will be the effect on the price charged and the output produced?
     price       output
A increase    increase
B increase    decrease
C decrease   increase
D decrease   decrease

Qns13-The table shows the costs of two milk producers
         costs per litre
firm X       $9
firm Y       $7
The price received by producers is $10 per litre. Both firms have been given quotas allowing
them to produce 200 litres per day. Firm X sells its quota to firm Y.
Assuming constant costs of production and zero costs of entry and exit, what price did firm Y pay
(per day) to buy X’s quota?
A $200
B $600
C $700
D between $200 and $600


Qns.16-The table shows some data for an economy.
       [pic attached]
What is the equilibrium level of national income?
A $700 m B $800 m C $900 m D $1000 m




I'm really sorry for throwing my doubts but i currently have no one to help me besides SF!
 

2. Pareto efficient means no one can be made better of without making someone else worse off. Answer is A as that is the only point where the value of X has not changed but Y has increased. All other points represent a trade off. An increase in Pareto efficiency: through reallocation, improvements to at least one participant's well-being can be made better without reducing any other participant's well-being.

5. 30*40 = 1200$
    Consider option A first. 31 workers and wage increased to 42$.
    31*42 = 1302

1302-1200 = 102$ which is what the question states as the marginal cost per day. Answer = A

12. Originally producing at MC=MR ( D=MR ). Marginal Costing is P=AC. In this diagram its where AC=D. Output increase and price fall as diagram shows. Even if you dont understand this part just try to remember that anyone other then a monopoly will usually reduce the price and output has to increase as a result.

13. Firm X - Profit = 200*10 - 200*9 = 200$
     Firm Y - Profit = 200*10 - 200*7 = 600$

As you can see Firm X only makes 200$ profit so if they were going to sell it would have to be higher then 200$ or the same. Firm Y only gets 600$ so they would not pay more. As a result they would negotiate anywhere in-between.

16. Equilibrium is when Withdrawals = Injections.
   I,E,G = Injections into circular flow of income
   S,I,T = Withdrawls from circular flow of income.

   I,E,G = S,I,T ( In value ) = Equilibrium

As you can see when equilibrium is 800 both sides are equal.

I dread to think what your going to do if they ask you an essay on this stuff in P4

[Romeesa-Chan]

I dread to think what your going to do if they ask you an essay on this stuff in P4

Is her situation that bad ?

[Azland]

Is her situation that bad ?

No No..just mcq quests were quite straight forward..cant really do any essay quests without understanding main concepts first. Relax though its far from bad..my old classmates still get 15/100 ;p

[Tohru Kyo Sohma]

2. Pareto efficient means no one can be made better of without making someone else worse off. Answer is A as that is the only point where the value of X has not changed but Y has increased. All other points represent a trade off. An increase in Pareto efficiency: through reallocation, improvements to at least one participant's well-being can be made better without reducing any other participant's well-being.

5. 30*40 = 1200$
    Consider option A first. 31 workers and wage increased to 42$.
    31*42 = 1302

1302-1200 = 102$ which is what the question states as the marginal cost per day. Answer = A

12. Originally producing at MC=MR ( D=MR ). Marginal Costing is P=AC. In this diagram its where AC=D. Output increase and price fall as diagram shows. Even if you dont understand this part just try to remember that anyone other then a monopoly will usually reduce the price and output has to increase as a result.

13. Firm X - Profit = 200*10 - 200*9 = 200$
     Firm Y - Profit = 200*10 - 200*7 = 600$

As you can see Firm X only makes 200$ profit so if they were going to sell it would have to be higher then 200$ or the same. Firm Y only gets 600$ so they would not pay more. As a result they would negotiate anywhere in-between.

16. Equilibrium is when Withdrawals = Injections.
   I,E,G = Injections into circular flow of income
   S,I,T = Withdrawls from circular flow of income.

   I,E,G = S,I,T ( In value ) = Equilibrium

As you can see when equilibrium is 800 both sides are equal.

I dread to think what your going to do if they ask you an essay on this stuff in P4

LOL
Thanks alot for yer help!
although i didn't quite get question 16. but it's fine because we're still on ch.5 supplement in economics so i still need to finish the chapter to fully understand the question!

[Romeesa-Chan]

No No..just mcq quests were quite straight forward..cant really do any essay quests without understanding main concepts first. Relax though its far from bad..my old classmates still get 15/100 ;p

Lol, I hope Tohru improves.

Thank you for your help.

[Tohru Kyo Sohma]

Lol, I hope Tohru improves.

Thank you for your help.

LOL
i will..........IshaAllah

[Tohru Kyo Sohma]

I just did Nov 2011 P32 of Economics and kind of failed like got 21 answers wrong
If someone can please Help me out and explain to me why the other choices apart from the correct answer wasn't right
I'm posting the paper and the markscheme for it and I'm really sorry but from qns 1-30 i don't know any of them so can someone take out their precious time and help me out here
I'm posting the paper along with the markscheme
Please help me

[Azland]

I just did Nov 2011 P32 of Economics and kind of failed like got 21 answers wrong
If someone can please Help me out and explain to me why the other choices apart from the correct answer wasn't right
I'm posting the paper and the markscheme for it and I'm really sorry but from qns 1-30 i don't know any of them so can someone take out their precious time and help me out here
I'm posting the paper along with the markscheme
Please help me

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.

[Tohru Kyo Sohma]

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.

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]

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???

 

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]

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.

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!!!