Unit 3: Microeconomics

UNIT 3: MICROECONOMICS

Question 1: Efficiency and price intervention in markets

In 2007 the European Union Competition Commission introduced maximum prices for the roaming charges made by mobile phone service providers. These are the rates charged by one operator to another to enable its customers to make calls while visiting another country.

1) Explain the conditions required for productive and allocative efficiency in a market (15 marks)

2) Evaluate the view that a policy of price capping for European Union mobile phone operators will lead to an improvement in consumer and producer welfare (25 marks)

Question 2: Costs, innovation and market structures

1) Explain using examples why the minimum efficient scale of production can influence the market structure of an industry over time (15 marks)

2) Evaluate whether high levels of innovation are best achieved in competitive rather than monopolistic markets (25 marks)

Question 3: Equity, equality and market failure

1) Explain using examples the difference between equity and equality (15 marks)

2) To what extent is an unequal distribution of income and wealth a result of market failure? (25 marks)

Question 4: Microeconomics of labour migration

1) Explain the circumstances in which an economy may see a rise in net inward migration of labour (15 marks)

2) Evaluate the view that free movement of labour within the European Union improves the efficiency of British businesses (25 marks)

UNIT 4: MICROECONOMICS

Question 1: The economic cycle and price deflation

1) Explain the circumstances in which an economic slowdown can turn into a recession (15 marks)

2) Evaluate policies that could be used to deal with the threat of a falling price level during a recession (25 marks)

Question 2: Living standards and EU enlargement

1) Explain how an economist might measure differences in living standards between countries within the European Union (15 marks)

2) Evaluate the argument that the enlargement of the European Union single market has been to the longer-term benefit of the British economy (25 marks)

Question 3: Exchange rates and macroeconomic effects of depreciation

1) Explain the concept of a managed floating exchange rate and the factors that determine the value of a currency in such a system (15 marks)

2) In recent years the value of sterling against a basket of currencies has fallen by more than 20 per cent. To what extent does the macroeconomic benefits of a lower currency outweigh the costs? (25 marks)

Question 4: Comparative advantage and protectionism

1) Explain the concept of comparative advantage and, using examples, explain the factors that determine comparative advantage for a country or producer in a particular good or service (15 marks)

2) In 2009, the volume of world trade declined by 12 per cent and the World Trade Organization warned of the dangers of a return to forms of protectionism such as tariffs, quotas export subsidies and dumping.

Evaluate the view that protectionism damages the long-term performance of both developed AND developing countries. (25 marks)