PowerPoint Presentation

Session 1 Answers to workbook

A Level Economics Year 1 (AS) Revision WorkshopTodays event:02SessionTopic1How markets work and elasticities2Market Failure and Government InterventionBreak (back for 12:15)3Measuring UK Economic performanceLunch (back for 13:55)4Demand Side policies (Fiscal and Monetary)5Supply side policies and policy conflicts

A Level Economics Year 1 (AS) Revision WorkshopSession 1How Markets Work and Elasticities03In this session we will consider the importance of price as a means to allocating resources in an economy, the factors that impact on demand and supply of products, the calculation of elasticities and the factors that impact on elasticities.

A Level Economics Year 1 (AS) Revision WorkshopThe Price MechanismWhat are the functions of the price mechanism?03RIS

RationingIncentiveSignalling

A Level Economics Year 1 (AS) Revision WorkshopThe Price Mechanism03

5p charge on bags from supermarkets and other retailers

RationingIncentiveSignalling

A Level Economics Year 1 (AS) Revision Workshop

What factors affect demand and supply for a product or service?DemandSupply

2 minutesPrice (change)Price of related goodsIncomeTaste & PreferenceCompetitionCost of ProductionNo. of sellersChange in TechnologyGovt taxes & subsidiesChanges in climate03

A Level Economics Year 1 (AS) Revision WorkshopWhich is the most important factor that can impact on demand and supply for each of the following firms?DemandSupplyA Luxury Gold WatchA budget tabletFlight between Mcr and LdnDry cleaning service

IncomePrice of related goodsCompetitionPriceCost of ProductionChange in technologyCost of ProductionNo. of sellers04

A Level Economics Year 1 (AS) Revision WorkshopApplication - Hoverboards

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A Level Economics Year 1 (AS) Revision WorkshopApplication - Hoverboards

04FactorExplanation12

Taste and PreferencePrice of related goodsLeisure Products are less popular after ChristmasPrice of bicycles could impact on demandWhat are the most important factors that have influenced the price of hoverboards in the UK from January 2016?

A Level Economics Year 1 (AS) Revision WorkshopApplication - Hoverboards

04FactorExplanation12

Taste and PreferenceCost of production if safety modifications are requiredPeople less willing to purchaseWill this push prices up?What about the safety concerns?

A Level Economics Year 1 (AS) Revision WorkshopApplication Availability of dieselTax on diesel fuel reduced in 2001. Govt encourage use.

UK sales in diesel fuelled cars increase.

2011, Govt have evidence that diesel has higher impact on poor health

Time lag between Govt change in tax and change in consumption

Issue compounded by lack of refineries to create diesel fuelShortage of diesel05

A Level Economics Year 1 (AS) Revision WorkshopList 2 factors that have impacted on the demand and supply of diesel.05FactorCauseImpact on priceDS

Government cuts tax on dieselLack of diesel refinery capacityLower the costs of production of diesel Technology - difficulty of creating diesel refineriesLower pricePossible increase in price due to shortage

A Level Economics Year 1 (AS) Revision WorkshopWhat has caused a potential failure of government intervention in this market?Lack of Information (about the impact of diesel fuel on health)Time lags05

A Level Economics Year 1 (AS) Revision WorkshopPrice of DieselQuantity of DieselD1S106P1Q1What has happened to demand and supply of diesel over the last 15 years?S2P2Q2P3Q3S3

A Level Economics Year 1 (AS) Revision WorkshopQuantity of Product APrice ofproduct AD1D2S1D3S2S3XGICABDEF06Demand and Supply Criss-CrossGWorkers making Product A receive a pay increase1Demand for product C (which uses Product A as a component) decreases. Producers of Product A install new machinery to reduce cost of production.2Product A and Product D are in joint supply. There has been an increase in demand for product D.3FThere has been a large increase in utility bills in the past few months. The poor weather conditions have hampered production of Good A4IProduct Z is a complement to product A. Product Z falls in price. The government increases an indirect tax on Product A5CThe Government provides a subsidy to the manufacturers of Product A. New manufacturers enter the market for Product A.6FDYou are about to be shown 6 changing market conditions that could cause the demand and/or supply curve for good A to shift. Assuming for each question the original equilibrium point is at position X, what is the new equilibrium position after each change that has occurred?

Assume that Product A is a normal good.6 and not 10 as it says in the workbook

A Level Economics Year 1 (AS) Revision WorkshopElasticities Perfect RecallLook at the questions on page 7. You are about to see the answers on screen. You have 3 minutes to work out which numbered answer on the screen applies to the questions in your booklet.

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A Level Economics Year 1 (AS) Revision Workshop

3 minutesElasticities Perfect Recall2unitaryXED (or CED)YEDFall-0.2Less than 1-0.33An inferior good74129683512345678907Ready

A Level Economics Year 1 (AS) Revision WorkshopWhat are the factors that can impact on elasticity?Price Elasticity Of Demand (PED)Income Elasticity Of Demand (YED)The Price Elasticity Of Supply (PES)12

Number of substitutesDegree of necessityLuxury(YED > +1)Inferior(YED < 0)Spare production capacityTime period07

A Level Economics Year 1 (AS) Revision WorkshopThe Impact of Elasticities

Student 1 response:

The price elasticity of demand for peak rail tickets is inelastic. As the cost of purchasing these tickets increases the demand for rail travel will decrease but by a relatively small proportion compared to the increase in cost. This will mean that the government will see an increase in revenue from increasing taxes rail travel.08

A Level Economics Year 1 (AS) Revision WorkshopThe Impact of Elasticities

Student 2 response:

The elasticity of demand for peak rail tickets is price inelastic. Extract C (line 3) indicates that some substitutes do exist (such as road travel) but many rail users choose to do so as it is the quickest form of transport for their daily commute. So if, for example, the government increases taxes by 5% the government will see a rise in revenue. Some of this rise in revenue may be offset by the fact that all rail fares will increase so there may be some reduction in demand for rail use during off-peak times.08States price elasticityReferences case studyUses valid own exampleEnsures comments apply to case study

A Level Economics Year 1 (AS) Revision WorkshopExam tipElasticity is an important topic when you are evaluating Government policies to combat market failures. It is worth attempting to include discussion about elasticity of the product or service that you are covering in any evaluative questions

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A Level Economics Year 1 (AS) Revision WorkshopIs demand for these price elastic or inelastic? What would be the impact of an increase in government indirect tax on consumption?CigarettesAir travelCrispsElasticityImpact of indirect tax increase on consumption

Price InelasticLittle changePrice Inelastic in short termSmall decrease in short termPrice ElasticLarger decrease as substitutes available08

A Level Economics Year 1 (AS) Revision WorkshopApplication - Substitutes for Solar Panels09Govt give subsidies for solar panels to increase consumption

1.5% of UK households now have solar panels

Govt believes that profits made by solar panel firms during this period allows them to produce at low cost without need for subsidy

Money saved can be used elsewhere!

A Level Economics Year 1 (AS) Revision WorkshopAssess whether market forces should be left to determine the price of solar panels.Price of Solar PanelsQuantity of Solar PanelsD1S1P1Q1S2P2Q2

A Level Economics Year 1 (AS) Revision WorkshopApplication - Substitutes for Solar PanelsArgument against subsidiesPoint:Subsidy of industry reduces incentive to become productively efficientExplanation:Subsidy keeps the price to customers artificially low increasing demand. Firms might keep profits as a reward rather than use them for innovating in the industry assuming government maintain subsidy.09

A Level Economics Year 1 (AS) Revision WorkshopApplication - Substitutes for Solar PanelsArgument for subsidiesPoint:Subsidy increases demand for a merit goodExplanation:Lower price to consumer ensure greater demand for a merit good (solar panel has lower impact on environment than gas or coal).09

A Level Economics Year 1 (AS) Revision WorkshopExtension activities

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A Level Economics Year 1 (AS) Revision Workshop