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Unit Test 2 Answers

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18 views2 pages

Unit Test 2 Answers

Uploaded by

tmthu1910
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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ECONOMICS REVISION

Knowledge and understanding 3  Analysis 3 Evaluation 2


1. With the help of the diagram, explain the difference (what is the difference – 1)
between the causes (analysis: how it change - reallocation and increase) of the
movement along, and a shift of, a production possibility curve and consider which
is likely to have the most immediate impact on an economy (evaluation: a valid
judgement) (8)
a. Understanding 3
- Accurate diagram
- A movement along a PPC showing a trade-off between production of two
different goods on the two axes, a shift demonstrates a change in productive
capacity with no trade-off between goods and services
b. Analysis
- A movement along a PPC is caused by a reallocation of resources, as
resources are shifted between the two types of products, involving an
opportunity cost
Eg. A country produces cars and computers. Now buyers have more desire to
purchase cars over computers, this shift in demand causes firms and
businesses to allocate more resources including labor, capital or materials
from computer production to car production. Graphically, this means the point
on the PPC curve may closer to the axes production of cars while the
economy operates within its existing productive capacity but there is an
inclination towards producing cars rather than computers
- An outward shift of a PPC is caused by an increase in the quantity and/or
improvement in the quality of resources, allowing more or less goods to
be produced  increase in overall productive capacity
c. Evaluation 2 (valid judgement and conclusion)
A shift of a PPC may have a more immediate impact on the economy as when
the economy has higher productive capacity it has more goods and services to
produce which increases the amount available for customers, international
organisations or foreign countries. This allows more purchases and more goods
to trade increasing the export rate. This spontaneously will give the country a
soak in revenue generated thus, rapidly boosting the economic scale. In
conclusion,…

2. With the help of the diagram, explain what equilibrium in a market means (what?
3 pts, 2 for definition and 1 for graph) and consider the extent (evaluation the
extent – magnitude of change) to which the equilibrium price and E quantity are
likely to change (analysis how it change – demand: left or right and why) for a
product following an increase in the wages for labour across the whole economy.
a. Understanding and knowledge 3
- Accurate graph with equilibrium point
- The equilibrium point is where the quantity demanded equals the quantity
supplied and there is no tendency to change in a market.
b. Analysis: either demand–side (normal or inferior goods) or supply-side
- Demand side
+ Accurate graph with shifts of demand curve (left or right) + show the change
in the equilibrium price and quantity
+ Explanation for both shifts
./ As income or wages increase, the demand for a normal good also
increases, making the demand curve for such a good shift to the right. A right
shift leads to an increase in price equilibrium and rise in quantity equilibrium
./ As income increases, the demand for an inferior good decreases, shifting
the demand curve to the left. A leftward shift leads to a decrease in PE and
QE
c. Evaluation: extent of change – PED
The extent of change of QE and PE might be due to the price elasticity of
demand
+ When the good has elastic demand (PED>1), the quantity demanded is highly
responsive to price changes. In this case, the wage increase will result in
a significant change in equilibrium quantity but a relatively smaller increase (for
normal) and decrease (for inferior) in equilibrium price
+ When the good has inelastic demand, consumers are less sensitive to price
changes so it would lead to a greater rise or fall in equilibrium price and smaller
change in that of quantity
+ Conclusion

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