1) Answer: A

A possibility frontier shows the total maximum output of two goods in an

economy. Point W shows unemployed resources due to something such as
a war. A shift to point V would show a step towards full employment thus
a reduction in unemployed resources. If there is a reduction in
unemployed resources, it means that in this case capital goods and
consumer goods will increase in output.

2) Answer: D
In this case, the government is introducing an indirect tax. An indirect tax
increases the cost of a product/service by shifting the supply curve left.
Flights to the USA are relatively inelastic
because there is no other way to get there
(apart from ferry) so the incidence of tax
is on the consumer, which means that the
air flights will increase.






3) Answer: C b
The price mechanism is a method of rationing and allocating resources in
a free market economy. For example, it means that if an apple computer
costs 900, then only those who can afford a 900 computer will be able
to buy the apple computer. This means that there will be an elimitation of
consumer surpluses of a good, because the price is at the correct point.

4) Answer: D

A subsidy is something that a government
introduces to increase supply of a
product/service. It is usually to eliminate
market failure as the car is probably under
consumed and under produced. The arrow
on the diagram shows the subsidy given by
the government.



5) Answer: what is this.?
The equilibrium price is where demand meets supply.

6) Answer: B
Market failure is when a good (usually positive) is under provided, and
under consumed and a negative good over provided and over consumed.
The answer cannot be D because a misallocation of resoucres by a
government is government failure. Firms exiting a market has nothing to
do with market failure, and is more to do with supply and demand. The
free rider problem is often associated with market failure, because there
are certain public goods such as defence and street lighting that would not
be provided by companies.

S
S1
D
7) Answer: C
The geographical mobility of labour refers to how easy it is for workers to
move from place to place in order to seek work.
A decrease in regional house price differentials means that people can
move from home to home without worrying about the price of their house
compared with where they want to move to for a job. Letter B is definitely
wrong because an increase in rail and bus fares would decrease the
mobility of labour.

8) Answer: C
Imperfect information is when a producer/company/person knows more
about a product/service than the consumer. It leads to people not
understanding what they are buying, or leading them to not buy it. Letter
D is wrong because if there was a tax incentive, more people would
contribute to pensions.

9a) A positive statement is a statement of face, and can be tested through
statistics and other means the title of extract 1 is a positive statement. A
normative statement is a value judgement and we know this is a normative
statement because of the word unfair

b) Opportunity cost is the value of the next best alternative forgone in a
decision. The opportunity cost of higher education to students is the salary as
a result of working full time straight after A levels,. According to the data, it
will cost a maximum of 9,000 a year to go to university up from 3,920.












c) A private benefit is a benefit to the consumer and producer from a transaction.
An external benefit is a benefit to the 3
rd
party outside the transaction.
(MPB MPC diagram)












Work
Salary
University
fees
The private benefits of going to university and getting a degree, according to the
extract 1, are 160,000 more over a lifetime, which gives a higher chance of a
better job.
The external benefits that arise from going to university are increased
productivity, which in turn means increased output in GDP of a country. As a
result of increased GDP, people earn higher wages, and therefore living
standards will increase.
However, private benefits may not be initially clear, because according to extract
1, there is a record high of unemployed graduates