Beruflich Dokumente
Kultur Dokumente
Topics
No.
Title
Page
No.
1
Chapter
1:
Scarcity,
Choice
and
Opportunity
Cost
2-3
2
Explain
two
ways
in
which
an
economy
might
move
from
a
point
within
4
its
PPC
to
a
point
on
it.
3
Discuss
the
most
effective
economic
policies
to
move
the
PPC
outwards.
5
4
What
is
meant
by
the
basic
economic
problem
of
scarcity?
6
5
Discuss
whether
economic
growth
solves
the
problem
of
scarcity.
7
6
Chapter
2:
Resource
Allocation
in
Competitive
Markets
I
8-9
7
A
manufacturer
wishes
to
sell
more
of
his
product.
How
may
he
try
to
10
achieve
his
aim?
8
Chapter
3:
Resource
Allocation
in
Competitive
Markets
II
11-13
9
Explain
price
elasticity
of
demand
and
income
elasticity
of
demand.
14
10
A
government
is
proposing
to
increase
the
tax
on
petrol.
Examine
the
14
relevance
of
price
elasticity
of
demand
and
income
elasticity
of
demand
for
this
proposal.
11
Assess
the
relevance
of
elasticity
concepts
in
explaining
the
effects
of
the
15-16
worldwide
recession
caused
by
the
911
terrorist
attacks
on
the
airline
industry.
12
Chapter
4:
Microeconomic
Problems:
Market
Failure
17-18
13
Policies
on
Pollution
and
Evaluation
Summary
19-21
14
Policies
on
Pollution
and
Congestion
caused
by
Cars
Summary
22-23
15
Chapter
5:
Government
Intervention
in
the
Market
I
24
16
Chapter
6:
Firms
and
How
They
Operate
I
25-30
17
Discuss
whether
rising
costs
limit
the
size
of
firms
over
time.
31
18
Banking
Merger
in
Singapore
Analysis
31
19
Chapter
7:
Firms
and
How
They
Operate
II
32-38
20
Discuss
the
view
that
the
profit
motive
will
always
lead
to
a
few
large
39
firms
dominating
the
market
for
each
and
every
type
of
product.
21
Explain
what
is
meant
by
productive
and
allocative
efficiency.
40-41
22
A
firm
should
be
encouraged
to
maximize
profits
because
this
makes
it
42
efficient.
Discuss
whether
this
argument
is
true
for
a
firm
operating
in
an
imperfect
market.
23
Distinguish
between
monopolistic
competition
and
oligopoly.
43
24
Explain
why
oligopoly
is
a
common
market
structure
in
many
economies.
44
25
Explain
why
governments
throughout
the
world
have
been
involved
in
45
the
supply
of
services
such
as
electricity.
26
Chapter
8:
Government
Intervention
in
the
Market
II
46-48
Wheat
*Draw
dotted
line
to
show
comparison
between
2
countries
with
a
common
yardstick
0
Cloth
5.
The
Marginalist
Principle
! Consume
till
MPB
=
MPC:
cost
of
producing
an
additional
unit
of
good
=
benefit
of
consuming
an
additional
unit
of
good
! For
the
price
mechanism
to
work,
information
need
not
be
known
with
perfect
accuracy
by
every
individual
acting
in
the
marketplace:
dependent
on
marginal
buyers
who
keep
suppliers
on
their
toes
6.
Efficiency
! Static
efficiency:
how
much
output
can
be
produced
now
from
a
given
stock
of
resources
at
a
given
point
in
time
! Dynamic
efficiency:
changes
in
the
amount
of
consumer
choice
available
in
markets
together
with
the
quality
of
goods
and
services
available
! Productive
efficiency:
absence
of
waste
in
the
production
process
=
minimizing
the
opportunity
costs
for
a
given
value
of
output
! Allocative
efficiency:
society
produces
and
consumes
a
combination
of
goods
and
services
that
maximizes
its
welfare
! Distributive
efficiency:
goods
and
services
produced
to
those
who
want
or
need
them
Explain
two
ways
in
which
an
economy
might
move
from
a
point
within
its
PPC
to
a
point
on
it.
[10m]
Introduction
Define
PPC
Good
X
A:
resources
not
fully
utilized
underemployment
and
unemployment
B
B:
efficient
use
of
resources
full
A
employment
Good
Y
O
Body
A.
Increase
employment
of
resources
! Lower
wages
to
be
more
competitive
may
be
enticed
to
produce
more
goods
! Fiscal
policy:
increase
government
spending
eg.
circle
line
multiplier
effect
! Monetary
policy:
lower
interest
rate
firms
borrow
more,
increase
investment
B.
Increase
efficiency
in
use
of
resources
! Pay
based
on
productivity:
but
only
for
jobs
where
output
can
be
measured
(factory
workers)
! Reallocate
resources
to
more
efficient
uses
! Retraining
Discuss
the
most
effective
economic
policies
to
move
the
PPC
outwards.
[15m]
Introduction
Outward
shift:
increase
in
productive
capacity
sustain
economic
growth
over
long
run
Body
A.
Labour
! Increase
birth
rate
but
difficult
to
do
so
in
developed
countries
female
labour
force
participation
+
need
lots
of
incentives
! Education
and
training
but
takes
long
time
and
does
not
necessarily
yield
results
! Foreign
talent
through
tax
incentives
B.
Capital
! MNCs
investment
(machines)
+
learn
their
technological
knowledge
! Invest
in
r+d
C.
Entrepreneurship
! Incentives
and
subsidies
to
start
businesses
D.
Land
! Reclamation
Conclusion
Depends
on
which
country
Eg.
For
USA:
encourage
capital
goods,
less
consumption
goods.
For
China:
entrepreneurship
!
!
Adjustment
to
equilibrium
" Below
equilibrium
# Shortage
consumers
compete
for
goods,
bidding
up
prices
price
increases,
quantity
supplied
increases
shortage
eliminated
market
settles
at
equilibrium
" Above
equilibrium
# Surplus
-
producers
reduce
prices
to
get
rid
of
stocks
increase
sales
and
decrease
production
price
falls,
quantity
demanded
increases,
surplus
eliminated
market
settles
at
equilibrium
Shifts
in
supply
and
demand:
consider
individual
effects
on
price
and
quantity
then
sum
up
Interrelated
demand
and
surplus
" Joint
/
competitive
/
derived
demand
" Joint
/
competitive
supply
4.
Case
Study
! When
asked
to
explain
how
a
group
of
people
intend
to
affect
a
certain
market,
bring
in
limitations
" Elasticity
of
demand
" Responses
of
other
firms
/
groups
of
people
! Analyse
theoretically
first,
then
see
how
and
why
the
data
fits
/
does
not
fit
the
theory
! Desirability:
consider
for
whom:
producer,
consumer,
society
! Effectiveness:
limitations,
long
run
vs.
short
run
A
manufacturer
wishes
to
sell
more
of
his
product.
How
may
he
try
to
achieve
his
aim?
[12m]
Introduction
Sell
more
only
considering
equilibrium
quantity
increase
demand
/
supply
Effect:
long
run
vs.
short
run
Body
1)
Increase
demand:
explain
effect
on
quantity
demanded
! Advertising
and
promotion:
create
product
differentiation
and
brand
loyalty
" Competitive
market:
other
firms
will
do
likewise
as
they
fear
losing
market
share
" Huge
funds
need
to
be
devoted
increase
COP
reduce
profits
# If
firm
passes
cost
increase
to
consumers
in
terms
of
higher
prices
fall
in
quantity
sold
assuming
demand
elastic
total
revenue
falls
# But
unable
to
increase
price
in
competitive
market
firms
may
engage
in
price
wars
# But
in
long
run
if
campaign
successful
in
altering
peoples
taste
and
preference
rise
in
quantity
sold
! Expanding
number
of
markets:
go
regional
/
global
" Easier
to
penetrate
markets
where
demand
for
product
more
price
elastic
# Increase
supply
fall
in
price
more
than
proportionate
rise
in
quantity
demanded
! Improve
quality
of
product
/
increase
product
differentiation
through
better
sales
service
/
improved
packaging
" Effect
of
money
spent
for
r+d
on
# Costs
then
price
of
product
# Market
share
in
long
run
(increase)
! Deliberate
attempt
to
reduce
price
of
good
through
discounts
" Price
elasticity
of
demand
" How
long
discount
can
be
sustained
without
eroding
profits
2)
Increase
supply:
explain
effect
on
quantity
demanded
! Investment
in
r+d
" Lower
COP,
more
efficient
production
methods,
better
quality
products
! Raising
productivity
through
greater
specialization
and
better
labour-capital
combination
! Sourcing
cheaper
sources
of
raw
materials
! Evaluation
" Reduces
price
may
conflict
with
profit
maximization
" More
effective
strategy
if
selling
product
that
is
price
demand
elastic
mass
produce
reap
EOS
lower
prices
increase
sales
volume
more
than
proportionately
10
11
12
7.
Essay
! Limitations
to
using
elasticity
concepts
to
explain
price
changes
" Elasticity
concepts
are
static
need
to
relax
ceteris
paribus
assumption
in
reality
simultaneous
changes
occur
need
to
consider
relative
magnitudes
of
changes
in
demand
and
supply
" Coefficients
of
elasticity
mere
estimates
" Consumers
not
homogenous
group
# Among
high-income
earners,
there
are
the
yuppies
seeking
the
high
life
and
are
likely
to
be
more
price
and
income
sensitive
compared
to
foreign
investors
who
would
consider
socio-political
factors
# May
not
consider
some
goods
as
substitutes
13
14
The
terrorist
attack
on
New
York
on
11
September
2001
caused
a
worldwide
recession
and
an
increased
fear
of
flying,
both
of
which
severely
affected
the
demand
for
travel
by
air.
This
led
to
the
closure
of
some
of
the
major
airlines
in
the
world.
Assess
the
relevance
of
elasticity
concepts
in
explaining
the
effects
of
these
events
on
the
airline
industry.
[15m]
Body
1)
Price
elasticity
of
demand
! Definition
! When
supply
of
airlines
fell
due
to
closure
of
major
airlines
price
expected
to
increase
quantity
demanded
fall
by
more
than
proportionate
total
revenue
fall
! Relevance
" Airlines
should
expect
that
reducing
supply
causing
a
rise
in
price
can
lead
to
a
fall
in
total
revenue
" But
the
demand
for
travel
for
business
is
likely
to
be
inelastic.
So
price
increase
less
than
proportionate
fall
in
quantity
demanded
total
revenue
increase
" Effect
on
total
revenue
depends
on
size
of
business
market
vs.
holiday
makers
" Due
to
the
ceteris
paribus
assumption,
the
above
will
only
take
place
if
other
factors
remain
constant.
In
this
context,
incomes
have
changed
causing
demand
curve
to
shift
total
revenue
fall
2)
Income
elasticity
of
demand
! Definition
! Air
travel
luxury
good
for
most,
necessity
for
business
travelers
! Relevance
" Recession
fall
in
income
fall
in
demand
fall
in
total
revenue
" Implication:
individual
airlines
need
to
reduce
price
/
engage
in
non-pricing
strategies
to
increase
market
share
3)
Cross
elasticity
of
demand
! Definition
! Potential
substitutes:
train
/
coach
/
ship
" Degree
of
substitutability
depends
on
the
length
of
flight
# Long
haul
flights:
weak
substitutes
especially
for
business
travelers
# Short
distance:
stronger
substitutes
! If
another
airline
(eg.
Qantas)
reduces
price
to
increase
market
share
fall
in
demand
for
a
particular
airline
(eg.
SIA)
SIA
reduces
price
price
war
may
not
cover
costs
erode
profits
" Budget
airlines
also
pose
as
competition
15
Airlines
close
down
routes
/
less
schedules
fall
in
supply
increase
price
" Demand
inelastic:
long
haul
flights
no
close
substitutes
total
revenue
increase
" Demand
elastic:
short
distance
flights
switch
to
trains
/
coaches
total
revenue
falls
4)
Price
elasticity
of
supply
! Definition
! Fall
in
price
fall
in
quantity
supplied
! But
short
run:
supply
price
inelastic
less
than
proportionate
fall
in
quantity
supplied
! Reasons
" Labour:
need
time
to
retrench
/
reallocate
labour
to
other
departments
" Flight
schedule
/
routes:
need
time
to
deliberate
which
routes
/
schedules
to
close
choose
the
unprofitable
/
lowest
passenger
volume
Conclusion
Cannot
look
at
each
value
separately
because
in
real
world
many
variables
change
at
the
same
time
16
17
3.
Public
Goods
! Non-excludable:
impossible
/
costly
to
exclude
non-paying
consumers
from
receiving
the
good
! Non-rivalrous:
consumption
by
one
person
does
not
reduce
amount
available
to
others
! Eg.
National
defense
! Free
rider
conceal
demand
private
producer
cannot
gauge
demand
will
not
produce
non-production
in
free
market
total
market
failure
! Government
provision
necessary
since
public
goods
are
socially
desirable
and
largely
indivisible
4.
Inequality
! Represented
by
the
Lorenz
Curve
/
Gini
coefficient
! Singapore:
0.485
in
2007
! European
countries:
0.25
0.3
! Latin
America
and
the
Caribbean:
0.6
! Average
worldwide:
0.4
5.
Essay
! When
asked
to
suggest
new
policies,
consider
whether
it
is
possible
/
practical
to
enact
them
! Policies
may
be
difficult
to
administer,
and
policing
expensive
! Opportunity
costs
involved
in
attempted
to
control
negative
externalities
! Political
implications
eg.
public
satisfaction
18
19
Evaluate:
4)
Identify:
Explain:
Evaluate:
5)
Identify:
Explain:
Evaluate:
6)
Identify:
Explain:
Evaluate:
20
7)
Identify:
Explain:
Evaluate:
Urban
planning
Locate
factories
away
from
residential
areas
eg.
Jurong
Island
Greenery
(to
reduce
impact)
x
Merely
shifting
the
pollution
to
another
area
does
not
solve
the
root
of
the
problem
but
reduces
external
cost
since
less
people
affected
by
pollution
X
Contentious
as
to
whether
greenery
helps
to
reduce
impact
Summation:
Air
pollution
may
not
be
due
to
the
country
itself,
so
need
international
/
regional
cooperation
Can
integrate
a
few
policies
for
better
results
21
22
6)
Identify:
Explain:
Evaluate:
Weekend
cars
Restricts
car
usage
x
Still
not
widely
advocated
X
People
associate
cars
with
prestige
(eg.
Americans
love
for
SUVs)
23
25
Graph
!
!
!
AVC:
total
variable
costs
per
unit
of
output
AVC
=
TVC
/
Q
Stage
1:
AVC
falls,
AFC
falls.
Since
AFC
and
AVC
fall,
ATC
also
falls
Stage
2:
AVC
rises,
AFC
falls.
Since
fall
in
AFC
>
rise
in
AVC,
ATC
still
falls
Stage
3:
AVC
rises,
AFC
falls:
Since
fall
in
AFC
<
rise
in
AVC,
ATC
rises
26
3.
Objectives
of
Firms
! Profit-maximisation:
equilibrium
level
of
output
since
there
is
no
tendency
to
change
" Before
equilibrium
level,
MR
>
MC
so
firms
want
to
produce
more
" After
equilibrium
level,
MR
<
MC
and
rational
firms
will
not
produce
at
this
output
level
" Firm
continues
production
as
long
as
it
can
cover
variable
costs
! Motivation
of
owners
vs.
motivation
of
managers:
separation
of
control
and
ownership
principal-agent
problem:
managers
tend
to
pursue
their
alternative
goals
while
maintaining
minimum
level
of
profits
to
appease
shareholders
! Revenue
maximization:
managers
aim
to
maximize
firms
short
run
total
revenue
! Long-run
profit
maximization:
managers
aim
to
shift
cost
and
revenue
curves
so
as
to
maximize
profits
over
some
longer
time
period
! Growth
maximization:
managers
may
aim
for
expansion
to
maximize
growth
in
sales
volume
over
time
4.
Theory
of
Costs
in
the
Long
Run
! Returns
to
scale:
measure
of
resulting
change
in
output
when
all
inputs
are
changed
in
the
same
proportion
(can
be
increasing,
decreasing
or
constant)
! LRAC:
lowest
average
cost
for
given
level
of
output
when
all
inputs
are
variable
! Minimum
efficient
scale:
smallest
plant
size
beyond
which
no
significant
additional
IEOS
can
be
achieved
! IEOS:
savings
in
costs
that
occur
to
a
firm
due
to
the
firms
expansion,
and
have
been
created
by
firms
own
policies
and
actions
" Technical:
concerned
with
production
process
# Factor
indivisibility
economies:
larger
plant
size
makes
it
possible
to
effectively
use
indivisible
factors
(combine
harvesters,
power
transmission:
large
and
costly)
raises
average
output
and
reduces
LRAC
# Specialisation
of
labour:
simpler
and
repetitive
jobs
which
require
less
training
+
more
efficient
eg.
car
manufacturing
" Managerial:
functional
specialization
by
employing
experts
to
increase
efficiency
as
a
whole
# Greater
use
of
existing
staff
# Decentralisation
of
decision-making:
increasing
efficiency
of
management
because
of
faster
flow
of
information
within
firm
distortions
and
delays
of
information
avoided
" Commercial
# Bargaining
advantage
and
accorded
preferential
treatment
by
suppliers
because
they
buy
raw
materials
in
bulk
# Bulk
sales
from
bulk
advertising
and
large-scale
promotion
27
" Financial
# Easier
and
cheaper
to
raise
funds:
given
lower
interest
rate
and
larger
loans
because
better
credit
ratings
and
more
collateral
# Raise
capital
through
issue
of
shares
to
public
who
has
more
confidence
in
reputed
firms
" Risk-bearing
# Advantage
in
bearing
non-insurable
risks
eg.
conditions
of
demand
for
final
products
and
supply
of
raw
materials
# Diversification
of
products
and
markets
# Diversification
in
sources
of
supply
" R+d
# Better
quality
products
increased
market
share
and
demand
# Better
methods
of
production
more
productively
efficient
lower
average
cost
" Welfare:
making
workers
feel
they
belong
to
the
company
more
apt
to
increase
efficiency
and
productivity
of
company
IDOS
" Complexity
of
management
# Principal-agent
problem
# Bureaucracy
" Strained
relationships:
impersonal
no
loyalty
to
firm
apathy,
strikes
EEOS:
savings
in
costs
that
occur
to
all
firms
in
an
industry
due
to
the
expansion
of
the
industry
" Economies
of
concentration
# Availability
of
skilled
labour:
demand
for
labour
large
enough
special
educational
institutions
/
firms
can
collaborate
to
develop
training
facilities
No
lack
of
labour
to
employ
because
experts
want
to
migrate
there
eg.
Silicon
Valley
# Well-developed
infrastructure
to
cater
to
that
industry
# Reputation:
builds
up
name
which
consumers
associate
with
quality
encourages
brand
loyalty
and
steady
clientele
" Economies
of
disintegration
# Subsidiary
industries
developed
to
cater
to
needs
of
major
industry
Eg.
car
industry
in
Japan:
range
of
firms
specialize
in
production
of
different
inputs
for
car
manufacturing
provide
output
at
lower
prices
to
main
industry
because
specialization
allows
subsidiary
firms
to
produce
at
large
scale
enjoy
EOS
# Process
waste
products
into
useful
products
and
sell
them
to
cover
COP
" Economies
of
information:
publications
help
improve
productivity
of
firms
(research
and
expertise)
28
EDOS
" Increased
strain
on
infrastructure:
taxed
to
limits
eg.
congestion
loss
of
time
and
increased
fuel
consumption
" Rising
costs
of
FOP:
growing
shortage
of
specific
raw
materials
/
skilled
labour
5.
Growth
of
Firms
! Methods
of
growth
" Internal
expansion:
make
more
of
existing
product
or
extending
range
of
product
when
it
builds
a
new
bigger
plant
" Merger
# Vertical
integration:
firms
engaged
in
different
stages
of
productive
process
Backward
integration
vs.
forward
integration
Eg.
Starbucks
merge
with
firm
producing
coffee
beans
wants
guaranteed
access
to
raw
materials
# Horizontal
integration:
firm
takes
over
similar
firm
at
same
stage
of
production
in
the
same
industry
Eg.
Coffee
Bean
and
Starbucks
merge
Eg.
DBS
and
POSB
Market
domination
" Conglomeration
# Eg.
bank
taking
over
developing
firm
to
build
properties
# Diversify
output
6.
Survival
of
Small
Firms
! Demand-side
factors
" Nature
of
product
# Bulky
and
perishable
goods:
small,
localized
markets
eg.
fresh
fish
# Variety
preferred
to
standardization
eg.
fashion
# Specialised
products:
limited
markets
eg.
highly
specialized
machines
" Prestige
markets:
limited
by
price
eg.
sports
cars,
luxury
yachts
" Direct
and
personalized
services
eg.
lawyers,
doctors
" Geographical
limitations:
high
transport
costs
for
bulky
products
local
market
rather
than
national
market
! Supply-side
factors
" DEOS
set
in
early:
optimum
size
of
firm
small
" Vertical
disintegration:
entire
production
process
broken
into
series
of
separate
processes
and
different
small
firms
perform
each
process
" Low
BTE
" Lack
of
capital
29
7.
Case
Study
! Factors:
think
long
run
vs.
short
run,
demand-side
vs.
supply-side
! EOS
lower
LRAC
able
to
reduce
price
" Profits
plough
to
r+d
better
quality
products
+
further
reduction
in
AC
" Block
new
entrants
due
to
enormous
FC
less
existing
competitors
increase
market
share
! Always
end
EOS
with
AC
! If
a
particular
industry
is
stated
in
the
extract,
try
to
give
egs
of
EOS
specific
to
the
industry
8.
Essay
! Survival
of
small
firms:
for
conclusion,
use
banding
/
small
firms
may
want
to
merge
in
the
face
of
globalisation
30
Discuss
whether
rising
costs
limit
the
size
of
firms
over
time.
[15m]
Introduction
! Size:
sales
revenue
/
turnover,
level
of
output,
market
share
! Over
time
long
run
firm
no
longer
constrained
by
fixed
factor
Body
1)
Can
limit
! Short
run
cost
" Reason:
over-use
of
fixed
factor,
inefficient
labour-capital
combination
increase
MC
eventual
increase
in
AC
" Increase
costs
fall
in
profits
if
total
revenue
is
constant
constrain
firms
ability
to
expand
2)
Will
not
limit
! Long
run
" All
inputs
can
vary
firm
can
expand
enjoy
fall
in
LRAC
due
to
internal
EOS
(list
2
egs)
" Fall
in
LRAC
fall
in
price
to
ward
off
competitors
(erecting
barriers
to
entry)
increase
profits
plough
into
r+d
better
quality
products
+
if
yields
results
further
fall
in
AC
due
to
better
production
methods
" Size
of
firm
determined
by
demand
for
firms
product
if
firm
making
supernormal
profits
can
still
expand
in
size
even
if
cost
increases
eg.
monopoly
selling
unique
products
Conclusion:
However,
size
of
firm
over
time
constrained
by
MES
(list
1
eg
of
internal
DOS).
MES
huge
eg.
electricity
/
water
compared
to
MES
limited
eg.
fashion.
Banking
Merger
in
Singapore
Analysis
Why
merge?
! Face
competition
from
foreign
banks
Singapore
wants
to
expand
beyond
our
shores:
big
enjoy
EOS
fall
in
AC
can
compete
with
foreign
banks
! Core
part
of
Singapore
economy
1997
Asian
financial
crisis
big
$
stable
Why
should
not
merge?
! Possible
monopoly
power
" Increase
price
" Quality
of
service
# Reduction
/
removal
of
familiar
products
and
services
affects
consumer
satisfaction
# Neglect
lower-income
group
! Retrenchment
31