Economics All 10 Markers
AS Microeconomics 10 Markers
Explain two factors that could lead to an increase in demand for conventional cigarettes (10 marks) - November 2020
Demand is the quantity of goods and services that people are willing and able to buy at a given price. If the factors of demand change, this would lead to a shift in the demand curve.
One of the factors that affects the demand for conventional cigarettes could be related goods. There is an uncertainty or an expectation that e-cigarettes have unknown health impacts, which may have been seen through the news, rumours, or advertising. E-cigarettes are a substitute to conventional cigarettes, because they have a positive XED to each other. If the demand for the e-cigarettes goes down, the demand for the conventional cigarettes goes up.
Another factor that could lead to an increase in demand for conventional cigarettes is an increase in income. As incomes has risen, people have more disposable income, so conventional cigarettes have become more affordable so the demand for them has increased. As you can see in the diagram below, there would be a right shift in demand because there is more quantity demanded at every given price. As demand increases from D1 to D2, quantity also increases from Q1 to Q2.
Explain two factors that could increase the price of milk.
- if demand shifts to the right (PIRATES)
- OR
- if supply shifts to the left (PCTWINS)
Demand is the quantity of goods and services that consumers are willing and able to buy at a given price. Markets are a place where buyers and sellers meet to exchange goods and services (such as milk).
One factor that could lead to an increase in the price of milk is an increase in population.
Another factor that could lead to an increase in the price of milk is a fall in productivity.
AS Macroeconomics 10 Markers
Explain two factors that could cause a fall in consumption (June 2020 paper 2 AS)
Consumption is one of the factors of AD (which is C+I+G+X-M), and refers to when consumers buy goods and services, and this takes up more than 60% of an economy’s aggregate demand.
One example of a factor that could cause a fall in consumption is increased income tax by the government. Income tax is a tax on peoples' earnings, and it is progressive. If the government increases income tax, this will mean that consumer’s disposable income decreases, so they have less money to spend on goods and services. The diagram below shows a left shift in aggregate demand as a result. As AD decreases from AD1 to AD2, the real GDP also decreases from Y1 to Y2.
INSERT DIAGRAM OF AD SHIFTING LEFT.
Another factor that can cause a fall in consumption is a fall in confidence. This may happen if there is uncertainty about the state of the economy (and this could be uncertainty about future interest rates, or other things like economic recovery). If this happens, consumers would not be sure about whether to spend or save their money. When there is uncertainty, consumers would opt for the safer choice of saving money and therefore consumption would fall. Consumption is a factor of AD so this would mean that AD would shift to the left and price level would decrease and unemployment would increase.
Explain how the accelerator process is likely to affect economic growth. (June 2019)
The accelerator effect is when an increase in economic growth leads to even further increases in investment and therefore further increases in economic growth. Economic growth is when there is an increase in the rate of growth of real GDP. The accelerator effect happens because firms are more encouraged to invest when the state of the economy is positive, for example in a boom. A boom has high economic growth, more consumer spending and more investment spending, high employment, and high confidence. Because consumers have confidence and are spending more, firms want to take advantage to improve their products during this time and therefore are more likely to invest. This investment can lead to even further economic growth, which should further encourage investment.
The diagram above shows AD shifting to the right during economic growth and the accelerator process. As a result. real GDP and employment increases from y1 to y2 and price levels increase from PL1 to PL2.
Explain how the monetary policy might help to prevent downturn. (June 2018)
Economic growth is the increase in real GDP over a time period. Monetary policy is when the bank of England fluctuates the interest rate to shift AD. When the bank of England decreases interest rate people are going to borrow more money because the cost of borrowing is lower, which leads to consumers spending more money in the economy, as well as consumer confidence increasing, and confidence is going to be higher in the economy which will all lead to an increase in real GDP. the diagram below shows a right shift in aggregate demand from AD1 to AD2. As the aggregate demand increases, the real GDP also increases from Y1 to Y2 as well as the price level increasing from P1 to P2. If this happens (Y1 to Y2) the increase in real GDP would suggest that there is economic growth which means that the downturn should end.