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AQA A-level Economics new 7136 - 06, 13 & 19 Jun 2017 [Exam Discussion] watch

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    (Original post by physicsamor)
    how does uncertainty affect oligpolies?
    Why are nudge policies (behav econ..) more effective at reducing market failure?
    Why do cartels break down?
    Evaluate one advantage of collusive behaviour?
    Is monopolistic market in the lr better than a monopoly?
    How does price discrimination benefit consumers?
    If there is a threat of contestability should governments intervene?
    Is the internet good for consumers?
    Why is there price stability in an oligiply?
    Why does inequality benefit society?
    Should we nationalise public transport?

    Are these hard?? XD
    Uncertainty and Oligopolies: Since firms in an oligopoly, e.g. Big 6 energy firms (UK) aren't always aware of future events that could occur they may be more reluctant to invest in new technologies - so less productive efficiency, or perhaps they'll use collusion to minimise the risk of profit maximization being lost in the future

    Nudge policies reducing Market Failure: They're less intrusive, so gradual changes won't be necessarily noticeable (which otherwise may prevent people from changing), thus making them more effective than a Shove (e.g. Tax) which may cause retaliation

    Why Cartels break down: A cartel (e.g. OPEC) will eventually succumb to enough regulation that ensures it operates efficiently, that it will lose its market power- e.g. if the Natural barriers to entry are broken down and firms enter (minimising the sunk costs), allowing these Cartels to be broken down

    One Advantage of collusive behaviour: They profit maximise, which can (doesn't always) get redistributed through higher wages

    Monopolistic market in the lr better than a monopoly:
    The market is more efficient and also dynamically efficient, innovative in terms of new production processes or new products which a Monopoly may not have motive to persue

    Price discrimination benefit consumer:
    The elderly/young may be able to use transport at a lower price, encouraging more use of them instead of more polluting cars?


    Threat of contestability and intervention:
    Depends who the stakeholder is? if it threatens a naturally allocative efficient market then intervention may be favourable to protect this. On the other hand, if a market has opportunities for contestability it will benefit consumers who get more choice/lower prices- hence Laissez-faire "let it be"

    Is the internet good for consumers?Some may say that whilst there is hostility from e-tail and globalisation, i'd say the internet is perhaps a merit good- it has helped solve info failure, assymetric information and developed an 'altruism' approach (behavioural econ) where we are more aware of issue, e.g. poverty and so charitable websites has helped ease poverty abroad

    Why is there price stability in an oligiply?
    They act with rigid prices, whereby it won't change too considerably to ensure they don't undercut and reduce the profitability of each other- despite their ability to do so (especially the market leaders, e.g. Tesco could easily force Morrisons out of the market). As a result, prices tend to be stable as a result of firms' motives

    Why does inequality benefit society?
    It may lead to motivation of some workers, e.g. those in poverty will want to get out of that poverty trap, which is only done through working hard and developing themselves in terms of skills, as a result it will have a positive (unintended) consequence of greater economic production (GDP-dont get too much into Macro)

    Should we nationalise public transport?
    Bringing transport back into government control may see a fall in services (depends on budget), but on the contrary they may be more willing to subsidise the failing/unused routes (moral hazard)- e.g. in the Lake District where only a few elders use it, which private firms wouldn't. It will mean less is spent by the CMA (Competition market authority) and so this can be reallocated, e.g. back into providing training of new drivers, though this is unlikely as the finance will be limited


    Hopefully the OP can take a look and compare answers
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    (Original post by AindowJ)
    Uncertainty and Oligopolies: Since firms in an oligopoly, e.g. Big 6 energy firms (UK) aren't always aware of future events that could occur they may be more reluctant to invest in new technologies - so less productive efficiency, or perhaps they'll use collusion to minimise the risk of profit maximization being lost in the future

    Nudge policies reducing Market Failure: They're less intrusive, so gradual changes won't be necessarily noticeable (which otherwise may prevent people from changing), thus making them more effective than a Shove (e.g. Tax) which may cause retaliation

    Why Cartels break down: A cartel (e.g. OPEC) will eventually succumb to enough regulation that ensures it operates efficiently, that it will lose its market power- e.g. if the Natural barriers to entry are broken down and firms enter (minimising the sunk costs), allowing these Cartels to be broken down

    One Advantage of collusive behaviour: They profit maximise, which can (doesn't always) get redistributed through higher wages

    Monopolistic market in the lr better than a monopoly:
    The market is more efficient and also dynamically efficient, innovative in terms of new production processes or new products which a Monopoly may not have motive to persue

    Price discrimination benefit consumer:
    The elderly/young may be able to use transport at a lower price, encouraging more use of them instead of more polluting cars?


    Threat of contestability and intervention:
    Depends who the stakeholder is? if it threatens a naturally allocative efficient market then intervention may be favourable to protect this. On the other hand, if a market has opportunities for contestability it will benefit consumers who get more choice/lower prices- hence Laissez-faire "let it be"

    Is the internet good for consumers?Some may say that whilst there is hostility from e-tail and globalisation, i'd say the internet is perhaps a merit good- it has helped solve info failure, assymetric information and developed an 'altruism' approach (behavioural econ) where we are more aware of issue, e.g. poverty and so charitable websites has helped ease poverty abroad

    Why is there price stability in an oligiply?
    They act with rigid prices, whereby it won't change too considerably to ensure they don't undercut and reduce the profitability of each other- despite their ability to do so (especially the market leaders, e.g. Tesco could easily force Morrisons out of the market). As a result, prices tend to be stable as a result of firms' motives

    Why does inequality benefit society?
    It may lead to motivation of some workers, e.g. those in poverty will want to get out of that poverty trap, which is only done through working hard and developing themselves in terms of skills, as a result it will have a positive (unintended) consequence of greater economic production (GDP-dont get too much into Macro)

    Should we nationalise public transport?
    Bringing transport back into government control may see a fall in services (depends on budget), but on the contrary they may be more willing to subsidise the failing/unused routes (moral hazard)- e.g. in the Lake District where only a few elders use it, which private firms wouldn't. It will mean less is spent by the CMA (Competition market authority) and so this can be reallocated, e.g. back into providing training of new drivers, though this is unlikely as the finance will be limited


    Hopefully the OP can take a look and compare answers
    These are some really good responses
    Here are my thoughts

    1. Why does uncertainty occur in an oligopoly?

    Firms are unsure of the impact to their own profit/revenues may be due change in prices, this is because mutual interdependence between rival firms, for example if one form cuts price others are likely to follow, to avoid this situation firms are more likely to fix prices and collude to reduce the uncertainty because they know it is of mutual benefit to all participating firms.

    2. Nudge policies

    - nudge policies are often preferred to traditional forms of goverment intervention as they do not Iead to market distortions. Given that for example consumers tend to not have symmetric information and follow rules of thumb patterns they are unlikely to take into account the true externalties in consumption. Nudge policies are effective because they nudge the consumer to make the right choices by altering their behaviour. Changes in consumer preference to the more efficient/healthier product utilises the price mechanism so is preferred.

    3. Why do cartels break down?

    External shocks such as the global recession means that falling demand for the cartels product may cause excess capacity. This lead to rising tensions for OPEC because it essentialIy might destroy the cartel price if demand fell significantly.

    4. One advantage of collusive behaviour?

    Joint profits are maximised meaning that supermormal profits are Iikely to be made. These profits could be reinvested into new innovative products for example new medicine. Which would benefit consumers through better quality products.

    5.Monopolistic vs monopoly in LR

    Prices are likely to be lower in a monopolistic market but in the long run monopolies that benefit from economies of scale (which a monopolistic firm cannot do) could lead to cost savings and thus lower prices.

    5. Price discrimination benefits consumers:
    3rd degree price discrimination, I.e separated by elasticity, they are likely to charge higher prices for higher income countries and lower prices for lower income countries for medicines for example due to varying elasticity so more equitable as it brings more consumers to the market who wouldn't be able to pay at the higher price.

    6. Is the threat of contestability enough?

    If there is a threat of contestability firms are Iikely to try their best to be the most efficient to protect their market share and power so In theory the threat is enough to deter abuse of monopoly power. However firms can easily avoid this threat through predatory pricing tactics, hence actually making the more anti-competive in the Iong run. Governments must ensure that firms arent adopting anti competive prices.

    7. Is the internet good for consumers?
    It brings markets to a more perfectly competitive outcome as it has erroded barriers to entry and exit, this means that there is fresh competition between online retailers so prices may remain low. Consumers may also have more information as information is freely available and can make well informed rational decisions.

    8. Why is their price stability ?

    Interdependence exists within an oligopoly market which means firms have to consider likely reactions of other firms. This often leads to price wars, which is not favourable to a firm and it leads to falling profits. Hence there tends to be a sticky price to avoid this.

    9. Why does inequality benefit society?

    Inequality rewards hard work, if workers learn harder skills, they may find better paid jobs, higher wages increase productivity!

    10. Should we nationalise public transport?

    Goverments are Iikely to consider long term investment into better quality of services, in the train industry individuals are often faced with delays, private Firms arent likely to be interested in consumer welfare but rather max profits whereas the goverment may have different objectives to protect consumer sovereignty
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    Can someone tell me exam technique tips, or the structure for 9,10,15,25 markers xx


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    (Original post by Soulgeass)
    How to people elaborate on the economic theory stuff (i.e. explain the shape of MRP/MC/etc curve) for those 9 or 15 mark questions?
    Looking at the mark scheme, sometimes it seems like they award marks for waffling for those types of questions? Or at least they've included statements that I would have never thought about since it's not a point made in the textbook anywhere.
    it really depends on the question, may be post the ones? I know that you can explain marginal cost through the law of diminishing returns
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    (Original post by physicsamor)
    it really depends on the question, may be post the ones? I know that you can explain marginal cost through the law of diminishing returns
    So one of the question goes:

    Explain why the average and marginal revenue curves of a perfectly competitive firm are horizontal, while those of a monopoly slope downwards.

    And the mark scheme mentions (my comments regarding several bits are in bold):

    Perfect competition: the firm is small compared to the industry (1 mark) with no entry/exit barriers (1 mark) and is therefore a price taker (1 mark) [I get how this shows your knowledge on perfect competition but I never thought it would be worth 3 marks already since it does not yet answer the question] it can clear its production lines if it sells at the current market price (1 mark). Since it can clear production lines at the current market price it would be irrational (assuming profit maximisation) to sell below that price (1 mark). If the seller tries to sell above the market price, demand will disappear (or price elasticity of demand is infinity) (1 mark), because of perfect knowledge (1 mark) and homogeneous products (or products being perfect substitutes (1 mark). While the market demand curve is downward sloping (1 mark) the seller-perceived demand curve (demand curve for the output of the firm) is horizontal (1 mark) and therefore AR = MR (1 mark).

    Monopoly: the firm is the industry and the firm has some control over price; the downward sloping market demand curve is the firm’s average revenue line. Because the firm reduces price to increase quantity demanded or increases price to reduce quantity demanded MR also slopes downwards and MR is less than AR at each level of quantity. [Tbh, I was expecting this last statement to be more of an explanation but it seems like it was just stating a relationship of MR and AR]


    I can see how marginal cost can be explained through law of diminishing returns but often my explanation for those topics seem rather short (in my opinion, I felt like I was just being concise in my writing except it ends up being too simplified). Just wondering how you would have elaborated on the answer for the question about marginal cost?
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    I feel like I don't know anything I'm so stressed and keep having break downs !!!


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    How would you go about answering an eassy on sugar tax?


    Same going for price mechanism involving the europe freeze? (i think it was fruits and stuff that went up in price not sure).

    Thank you
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    (Original post by Soulgeass)
    So one of the question goes:

    Explain why the average and marginal revenue curves of a perfectly competitive firm are horizontal, while those of a monopoly slope downwards.

    And the mark scheme mentions (my comments regarding several bits are in bold):

    Perfect competition: the firm is small compared to the industry (1 mark) with no entry/exit barriers (1 mark) and is therefore a price taker (1 mark) [I get how this shows your knowledge on perfect competition but I never thought it would be worth 3 marks already since it does not yet answer the question] it can clear its production lines if it sells at the current market price (1 mark). Since it can clear production lines at the current market price it would be irrational (assuming profit maximisation) to sell below that price (1 mark). If the seller tries to sell above the market price, demand will disappear (or price elasticity of demand is infinity) (1 mark), because of perfect knowledge (1 mark) and homogeneous products (or products being perfect substitutes (1 mark). While the market demand curve is downward sloping (1 mark) the seller-perceived demand curve (demand curve for the output of the firm) is horizontal (1 mark) and therefore AR = MR (1 mark).

    Monopoly: the firm is the industry and the firm has some control over price; the downward sloping market demand curve is the firm’s average revenue line. Because the firm reduces price to increase quantity demanded or increases price to reduce quantity demanded MR also slopes downwards and MR is less than AR at each level of quantity. [Tbh, I was expecting this last statement to be more of an explanation but it seems like it was just stating a relationship of MR and AR]


    I can see how marginal cost can be explained through law of diminishing returns but often my explanation for those topics seem rather short (in my opinion, I felt like I was just being concise in my writing except it ends up being too simplified). Just wondering how you would have elaborated on the answer for the question about marginal cost?
    I had only seen questions like explain how a firm can experience diminishing returns in the short run and returns to scale in the long run
    So I would define the short run and diminishing returns then I would draw a marginal cost curve may be even a marginal product curve,
    All you have to is explain the shape so label the point of diminishing returns and then a point before and after
    So let's say A is the point before diminishing returns sets in B is the point of diminishing returns and C is the B
    Points A to B shows marginal cost falling this is because initially when you add a variable factor to a fixed production, marginal product increases as MP increases MC falls. However we get to the point B wheneventually if you keep adding variable factor of production, the other fixed factors limit the additional output you get so mp starts to fall, law of dr sets in when mp falls as input increases. As MP falls MC rise as shown from B to C because if you are getting less additional output from each unit of input then the cost per unit of output is greater
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    (Original post by Nirm)
    How would you go about answering an eassy on sugar tax?


    Same going for price mechanism involving the europe freeze? (i think it was fruits and stuff that went up in price not sure).

    Thank you
    If you have ever answered a question on intervention into negative externalties caused by smoking or unhealthy food is the same sort of question

    Define market failure

    Explain the negative externalties caused by the excessive consumption of sugar, you could draw a diagram to support this, show how this means we need to get back to the social optimum

    How do we do this? with a tax, draw a diagram to show the effect of a tax
    Explain the effect to a firm, costs of production, incentives, pass on higher prices to consumers, explain how higher prices alter consumer behaviour - evaluate this why might it not alter behaviour, is it regressive ?
    Can it fail? Goverment failure?

    Are there alternatives methods?

    Is it out responsibility/value judgement should we care about other people's lifestyles?

    http://www.economicshelp.org/blog/14...ar-tax-debate/

    This has pretty much everything you need to know
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    That sugar tax essay at the end was so good!!!
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    what was the concentration ratio for context 1?
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    (Original post by Nik12)
    what was the concentration ratio for context 1?
    I got like 50 something per cent? maybe 53.4 or something??? Can't remember exactly
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    (Original post by CJEV18)
    That sugar tax essay at the end was so good!!!
    I absolutely loved it OMG
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    (Original post by zwatkins66)
    I got like 50 something per cent? maybe 53.4 or something??? Can't remember exactly
    i got 53.6 !!
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    (Original post by Nik12)
    i got 53.6 !!
    Ah yeah that rings a bell
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    Concentration ratio for Extract 1 was 53.5
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    Anyone else think that the 4 and 9 mk Qs for context 1 were a little harsh?
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    Whay did everyone say for that 9 marker in context 1
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    I only had 25 minutes left for the last 15 and 25 marker, I chose the sugar tax one. For the 15 marker I just quickly explained how it's over consumed because of imperfect information, explained what imperfect info is and how it relates to the question and said how they're demerit goods because of negative externalities bla bla and spoke about the inelasticity of the good. How many marks can I get for this ?


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    (Original post by Arran1109)
    Anyone else think that the 4 and 9 mk Qs for context 1 were a little harsh?
    Yes !! I wrote so much waffle for the 4 marker and 9 marker sksksk


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