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. An increase in demand means there is a right shift in the demand curve. This is caused by the factors of demand.
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.
Demand is the quantity of goods and services that consumers are willing and able to buy at each 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 demand, which could be caused by related goods. For example, if the price of teabags went down, the demand for teabags would increase and therefore the demand for milk would also increase. This is because teabags and milk are complementary goods. Compliments are a pair of goods which have a positive XED. Consumers use milk and teabags together to make tea. If teabags are more affordable then consumers are more willing and able to buy milk at any given price, causing a right shift in the demand curve for milk.
The diagram shows the right shift in the demand for milk causing the price of milk to increase.
Another factor that could cause an increase of milk is a left shift in the supply curve for milk. This could be caused by an improvement in technology. If there was new technology that made it easier to package milk, then supply would shift to the right. This is because there would be an increase in the number of goods and servicies that firms are willing and able to produce at each given price.
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 produced in the UK, 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 is a lower disposable income due to an increase in 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 consumers' disposable income will decrease, 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.
june 2017
Extract B (line 12) states ‘The average debt per household, including mortgages, was £53 904 in December 2015.’ Explain two factors that influence the willingness of UK households to borrow.
Extract F (lines 7–8) states ‘productivity remains a key issue in improving competitiveness and aiding the recovery of the economy.’ Explain two factors that may have contributed to low productivity in the UK.
june 2018
Extract B (lines 9–11) states ‘The Bank of England’s Monetary Policy Committee loosened its monetary policy in an attempt to prevent a downturn in the economic cycle.’ Explain how monetary policy might help to prevent a downturn in the economic cycle.
Extract E (lines 18–19) states ‘the 2017 Budget Report stated the intention to reduce the rate of corporation tax further to 17% by 2020.’ Explain how a reduction in corporation tax on firms’ profits might lead to supply-side improvements in the economy.
june 2019
Extract C (lines 10–11) states: ‘It has announced increased government spending on technological education and training.’ Explain how an increase in government spending could affect the national debt.
Extract F (lines 8–10) states: ‘Hopefully, firms will feel encouraged by the increases in demand and output, and, according to the accelerator process, this should have positive effects on investment.’ Explain how the accelerator process is likely to affect economic growth.
june 2020
Extract C (lines 3–4) states: ‘Household consumption accounts for approximately 60% of aggregate demand so has a vital role to play in the economy.’ Explain two factors that could cause a fall in consumption.
Extract E (lines 9–10) states: ‘Inevitably, the volume of exports will fall, and it is highly likely that the trade deficit will increase further.’ Explain two factors that could cause a fall in the volume of UK exports.
june 2022
Extract B (line 2) states: ‘…there were signs that economies were in the midst of a global slowdown’. Explain how a global slowdown can affect employment in the UK.