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Fairy5eva
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(Question b)
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aidenj
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#2802
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Hey! Just wondering if anyone doing the AQA new spec (2015), knows of the best revision guide / text book to buy, in order to get a high grade (A), because I don't fancy buying a £25 book to find out its rubbish!
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Thanks alot
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11owolea
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#2803
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I am having some trouble understanding the multiplier effect. There are two main things I don't understand:

1) The effect is explained with an example in which there is a £100 million increase in investment. A firm receives the money from the investment. All of the money is then passed onto households. The households withdraw some of the money, in this case at a rate of 0.1, meaning £90 million flows back to firms. What I don't understand is why ALL the money firms receive must flow back to households, and why when calculating the multiplier, you only take into account the MPW of households. Surely firms save, import and pay taxes. Why are these withdrawals not included in the model?
2) I was taught beforehand that the MPC and the MPS must equal 1, as income is either spent or saved. Why is it then that the value of the multiplier is 1/1-MPC or 1/MPW, which suggests that the MPC and the MPW equal one. This makes more sense, but why was I taught it in terms of the MPS and MPC equalling 1 beforehand?

Thanks in advance for any help. I understand the concept in general but just a few details don't seem to make sense.
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Sionirhew123
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i am really struggling with these revision questions and was wondering if anyone could provide me with some help


A monopolists’s demand function is given by p +q = 100 Write down expressions for tr and mr in terms of q and sketch their graphs. Find the value of which gives a marginal revenue of zero and comment on the significance of this value. If the average cost function of a good is ac =15/q +2q+9 find an expression for TC What are the fixed costs in this case? Write down an expression for the marginal cost function. 3) If the supply equation is q = 7 + 0.1p + 0.004p2 find the price elasticity of supply if the current price is 80. is supply elastic or inelastic at this price and estimate the percentage change in supply if the price rises by five percent
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Ibrahim_q01
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#2805
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If a government imposes a minimum wage policy for workers in factories that produce computes but not on ones that produce computers’ accessories. What would be the effect of such a policy on the wages and products’ prices in these two industries in both the short and the long run?

I didn't do econ at a-level so forgive me if this is basic stuff
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stephaniechan
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#2806
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For normal goods and inferior goods, how do you know where the indifference curves go? For example, when price decreases of a good, why does for a normal good the new indifference curve is further up compared to an inferior good whose indifference curve is drawn further down (I know this is a bad explanation but if someone could just explain the reasoning to why the indifference curves are where they are)
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rasclerhys
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#2807
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#2807
(Original post by Sionirhew123)
i am really struggling with these revision questions and was wondering if anyone could provide me with some help


A monopolists’s demand function is given by p +q = 100 Write down expressions for tr and mr in terms of q and sketch their graphs. Find the value of which gives a marginal revenue of zero and comment on the significance of this value. If the average cost function of a good is ac =15/q +2q+9 find an expression for TC What are the fixed costs in this case? Write down an expression for the marginal cost function. 3) If the supply equation is q = 7 + 0.1p + 0.004p2 find the price elasticity of supply if the current price is 80. is supply elastic or inelastic at this price and estimate the percentage change in supply if the price rises by five percent
Hi,

So we know that p = 100 - q
Total revenue equals price * quantity so
TR = 100q - q^2

The marginal revenue is the differential of the total revenue so
MR = 100 - 2q
When MR = 0
q* = 50.

I will leave you to sketch the diagram. The significance is that revenue is maximised when the differential equals zero, hence at q*=50 (when MR=0 and we are thus maximising total revenue) we are making the most revenue possible. NB. This does not necessarily mean we are maximising profits, we would need more info.

The total cost is just the average cost multiplied by how much we produce: TC = AC*q hence TC = 15 + 2q^2 + 9q
The fixed costs would be 15 because that is the component which is unaffected by the amount we produce (the definition of a fixed cost).
Again for the MC just differentiate TC:
TC = 4q + 9

Hope this helps.
Rhys
www.learneconomicsonline.com
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rasclerhys
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#2808
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#2808
(Original post by 11owolea)
I am having some trouble understanding the multiplier effect. There are two main things I don't understand:

1) The effect is explained with an example in which there is a £100 million increase in investment. A firm receives the money from the investment. All of the money is then passed onto households. The households withdraw some of the money, in this case at a rate of 0.1, meaning £90 million flows back to firms. What I don't understand is why ALL the money firms receive must flow back to households, and why when calculating the multiplier, you only take into account the MPW of households. Surely firms save, import and pay taxes. Why are these withdrawals not included in the model?
2) I was taught beforehand that the MPC and the MPS must equal 1, as income is either spent or saved. Why is it then that the value of the multiplier is 1/1-MPC or 1/MPW, which suggests that the MPC and the MPW equal one. This makes more sense, but why was I taught it in terms of the MPS and MPC equalling 1 beforehand?

Thanks in advance for any help. I understand the concept in general but just a few details don't seem to make sense.
1. You are correct, a firm can save import and pay taxes so the withdrawals could be included; I guess the model you have viewed just tried to simplify matters.
Basically the multiplier is when the government increases spending by £x by say building a new school. £x goes to a firm who will then spend a percentage of x on domestic wages and materials, let us say 70% (allow the other 30% to go to taxes and imports). £0.7x is then in the hands of other individuals (i.e. the workers and material owners) who then spend a further percentage on other goods etc. This continues and basically means that the initial £x spent by the government translates into a greater effect on the economy of £x + £0.7x + ...

2. What do you mean by MPW? I have never heard of this term, is w wealth, or wages? What would that even mean?
MPC + MPS = 1 as you say because money can either be spent or saved.

From wikipedia:



Where c is the MPC and the LHS of the final expression is the multiplier.

Hope this helps,
Rhys
www.learneconomicsonline.com
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rasclerhys
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#2809
(Original post by stephaniechan)
For normal goods and inferior goods, how do you know where the indifference curves go? For example, when price decreases of a good, why does for a normal good the new indifference curve is further up compared to an inferior good whose indifference curve is drawn further down (I know this is a bad explanation but if someone could just explain the reasoning to why the indifference curves are where they are)
We know that an indifference curve is drawn in x1 and x2 space (where these are some goods) and the IC tells us the locus of points (how much of each good we need) to be indifferent at that consumption bundle. Hence we have downward sloping ICs assuming that these goods are indeed goods (i.e. we enjoy having both) this would be convex if we prefer to have a bundle consisting of a mix of both goods, and concave if we prefer to have extremes of either goods.
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rasclerhys
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(Original post by Ibrahim_q01)
If a government imposes a minimum wage policy for workers in factories that produce computes but not on ones that produce computers’ accessories. What would be the effect of such a policy on the wages and products’ prices in these two industries in both the short and the long run?

I didn't do econ at a-level so forgive me if this is basic stuff
A MW on Industry A would cause higher prices because labour is more expensive. Hence wages rise (due to the MW) and we would expect product prices to rise.
The two industries are complementary and so if the price of good A rises then we might expect demand for good B to fall. There should be no direct effect on the price of the good, but in the long run the lack of demand may cause a price fall. In the short run we would expect no change in wages in Industry B but the ability for workers to move between A and B will affect the wage. If workers can easily move then the wage of Industry B will fall, this is more likely in the long run.

Ultimately, you need to make a number of assumptions before you can make any conclusions:
Are the goods substitutes?
Is labour substitutable between industries?
Is the MW above the equilibrium level in both industries?

Rhys
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nisha.sri
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#2811
(Original post by rasclerhys)
A MW on Industry A would cause higher prices because labour is more expensive. Hence wages rise (due to the MW) and we would expect product prices to rise.
The two industries are complementary and so if the price of good A rises then we might expect demand for good B to fall. There should be no direct effect on the price of the good, but in the long run the lack of demand may cause a price fall. In the short run we would expect no change in wages in Industry B but the ability for workers to move between A and B will affect the wage. If workers can easily move then the wage of Industry B will fall, this is more likely in the long run.

Ultimately, you need to make a number of assumptions before you can make any conclusions:
Are the goods substitutes?
Is labour substitutable between industries?
Is the MW above the equilibrium level in both industries?

Rhys
What does income elastic and income inelastic mean ? I always have the trouble for understand what inelastic and elastic mean in economics ?
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rasclerhys
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(Original post by nisha.sri)
What does income elastic and income inelastic mean ? I always have the trouble for understand what inelastic and elastic mean in economics ?
I assume this is a separate question, as I don't think I mention income elasticity in my reply?

If a good is income elastic then it is sensitive to how much income I have. If it is inelastic it is insensitive. Therefore elasticity just measures the sensitivity of demand with respect to what we are examining (in this case income, but it could be price, or the price of another good).
When I say sensitivity it just means how much demand responds to the change.

So something like foreign holidays, may be income elastic: if income changes then demand changes quite a lot for foreign holidays: if my income goes up we'd assume that demand for foreign holidays increases a lot, if income falls we'd assume that demand for foreign holidays fall a lot.

Note. that income elasticity doesn't tell you the change in direction of demand: just because a good is income elastic, it doesn't mean that a rising income causes rising demand (such as in the above example.) We can consider supermarket basic ranges - these may also be considered income elastic but when incomes rise demand falls, whilst when incomes fall demand rises.


Hope this helps,
Rhys
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Ebie84
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Hi,

Just wondering if anyone can help me.

The following is a point from my A2 economics spec:


  • The relationship between returns to scale and economies or diseconomies of scale.









This is what I think the relationship is - can someone please check if this is correct??

Economies of scale and returns to scale are concepts related to each other even though they are terms that cannot be used interchangeably. Returns to scale refers to changes in the levels of output as inputs change, and economies of scale refers to changes in the costs per units as the number of units are increased.

A firm that just has increasing returns to scale may not have economies of scale because even though output increased at a higher rate than the increases in input, scarcity of resources may have resulted in higher raw material cost and, therefore, higher per unit cost. However, a firm that has economies of scale is likely to be experiencing increasing returns to scale existing due to the cost advantages they are exploiting.


Many thanks in advance.
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Ebie84
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#2814
(Original post by aidenj)
Hey! Just wondering if anyone doing the AQA new spec (2015), knows of the best revision guide / text book to buy, in order to get a high grade (A), because I don't fancy buying a £25 book to find out its rubbish!
(
Thanks alot
Hey! I do the AQA Econ spec and I've found the best books are the two by Ray Powell and James Powell. They do a book 1 which covers the AS content and a book 2 which builds on book 1 and covers the A2 syllabus. I find them really helpful and have bought both and use them extensively.

Book 1: https://www.amazon.co.uk/AQA-level-E...evel+economics

Book 2: https://www.amazon.co.uk/AQA-level-E...evel+economics

Hope this helps They're expensive but I find them worth it.
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samiz20891
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#2815
(Original post by Ebie84)
Hi,

Just wondering if anyone can help me.

The following is a point from my A2 economics spec:


  • The relationship between returns to scale and economies or diseconomies of scale.









This is what I think the relationship is - can someone please check if this is correct??

Economies of scale and returns to scale are concepts related to each other even though they are terms that cannot be used interchangeably. Returns to scale refers to changes in the levels of output as inputs change, and economies of scale refers to changes in the costs per units as the number of units are increased.

A firm that just has increasing returns to scale may not have economies of scale because even though output increased at a higher rate than the increases in input, scarcity of resources may have resulted in higher raw material cost and, therefore, higher per unit cost. However, a firm that has economies of scale is likely to be experiencing increasing returns to scale existing due to the cost advantages they are exploiting.


Many thanks in advance.
Yeah, looks like a good answer, as you mention that eos are cost advantages you as a firm can take advantage of as you expand as you will order more goods and therefore demand greater discounts due to your buying power. also you mention that this is not the same as ros as this is based on the idea you are producing more output from the inputs of the firm invested.

Seems like a good answer, could show it via a graph where you could maybe plot cost vs quantity and show the concepts.
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nisha.sri
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Hi is there anywhere I can find where they do questions by topic for economics and this is for edexcel
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Ebie84
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(Original post by samiz20891)
Yeah, looks like a good answer, as you mention that eos are cost advantages you as a firm can take advantage of as you expand as you will order more goods and therefore demand greater discounts due to your buying power. also you mention that this is not the same as ros as this is based on the idea you are producing more output from the inputs of the firm invested.

Seems like a good answer, could show it via a graph where you could maybe plot cost vs quantity and show the concepts.

Great! Thanks
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samiz20891
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(Original post by Ebie84)
Great! Thanks
No problem, nice to be able to help someone. If you have other questions, this is a great thread to get any guidance.
Good luck on your economics a level.
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nisha.sri
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Hey guys,
Can someone help me to understand the factors influencing PES ?Thanks x
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BasicMistake
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#2820
(Original post by nisha.sri)
Hey guys,
Can someone help me to understand the factors influencing PES ?Thanks x
The key factor influencing elasticities of all sorts is time. Everything becomes more elastic in the long-run. For PES, the long-run sees new firms entering/leaving the market and changes in technology that increase output.

Other factors affecting PES include the ability of firms to increase output in the short-run (i.e. turning on machines in a factory which were not being used beforehand), how much spare stock they have and factor mobility.
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