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2020 Paper 1c MS

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Hữu Thành Nguyễn
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1 views

2020 Paper 1c MS

Uploaded by

Hữu Thành Nguyễn
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Q1.

A. Given the following Demand and Supply functions for a computer game called ‘World of Banks’;
Qd = 500 - 50P
Qs = 50 + 25P

Note: All calculations should use two decimal places.

a. Find the equilibrium price and equilibrium quantity demanded and supplied. [2 marks]

500 - 50P = 50 + 25P


450 = 75P
P=6 [1]

Q = 500 – 50(6)
Q = 200 [1]

b. The government decided to subsidise all computer games about finance of £1. Find the new
Supply function for World of Banks. [2 marks]

Qs = 50 + 25(P + 1) [1]
QS = 50 +25P + 25
Qs = 75 + 25P [1]
c. Find the new equilibrium price and equilibrium quantity demanded and supplied, using two
decimal places. [1 mark]

500 - 50P = 75 + 25P


425 = 75P
P = 5.67
Q = 75 + 25(5.67)
Q = 216.75 or 216.5 [1 for both correct Q and P]

d. Find the consumer surplus for World of Banks from before the subsidy, then find the new
consumer surplus after the subsidy; finally calculate the change in the consumer surplus caused
by the subsidy, using two decimal places for all calculations. [5 marks]

CS1

Y axis intercept of D = 10 [1]


Height of CS1 triangle = 10 – 6 = 4 [1]
Base of CS1 triangle = 200
Area of CS1 = 0.5* (200 * 4) = 400 [1]
CS2

Y axis intercept of D = 10
Height of CS2 triangle = 10 – 5.67 = 4.33
Base of CS2 triangle = 216.5 or 216.75
Area of CS2 = 0.5* (216.5 * 4.33) = 937.44 or OF [1]
∆ in CS = 537.44 of OF [1]

B.
a. A firm sells quality pens for £150 each then decides to increase the price of each pen by
20%; as a result sales fall from 3,000 to 2,400; calculate the Price Elasticity of Demand of the
pens, using two decimal places. [2 marks]
%∆P = 20%
%∆Qd = -20% [1]
PED = - 1 [1]

b. A town’s fried chicken shop saw its sales increase from 1,600 customers a month to 1,800
following a decrease in average incomes of the town’s people by £50 from £1800 a month.
Calculate the Income Elasticity of Demand, using two decimal places. [3 marks]
%∆Y = - 2.7% [1]
%∆Qd = 12.5% [1]
YED = - 4.63 [1]
Q2

MC

AC

40 AR = MR = P

35

0
100 110 150
Qm

A. With reference to the diagram above, assuming the firm is acting to maximize profits;
A. Identify the profit maximizing level of output. [2 marks]
MC = MR [1] ; output = 110m [1]
B. Calculate the total level of profit or loss now made by the firm.
Profit = £5 [1] * 110m = £550m [1] [2 marks]
£

MC
AC

90
80
65
55

20 AR
MR

0
10 20 30 40
Qm

B. With regard to the firm in the diagram above:


a. Find the total revenue gained when the firm operates at the level of output where profit is
maximized. [3 marks]

Profit Maximization where MR = MC so Q = 10m [1]; P = £90 [1]; TR = £900m [1]

b. Find the total revenue gained when the firm operates at the level of output where revenue
is maximized. [4 marks]
Revenue Maximization where MR = 0 [1] so Q = 20m [1]; P = £80 [1]; TR = £1600mm [1]
c. Find the total revenue gained when the firm operates at the level of output where sales are
maximized. [4 marks]
Sales Maximization where AR = AC [1] so Q = 40m [1]; P = £55m [1]; TR = £2200m [1]
SECTION C – answer BOTH parts of ONE question
Q1

a) With the use of relevant diagrams and examples, explain how a firm
may use the income price elasticity of demand (YED) in order to protect
its profit.

AND [15]

b) Average real incomes have been rising in the Vietnam; discuss the
positive and negative impacts that this could have on markets of your
choice.

[20]

Q2

a) Air travel produces pollution; explain this problem using economic


analysis.

AND [15]

b) Discuss policies that could be used to solve the problem of pollution


caused by air travel..

[20]

Q3

a) With the aid of a diagram, explain why the agricultural food markets
such as that for potatoes may be considered a perfectly competitive
market.

AND [15]

b) Using the example of an industry of your choice, discuss the advantages


of a perfectly competitive market compared to those of a monopoly.

[20]

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