Externalities

The diagram below shows the equilibrium position of a dental practice operating in a monopolistically competitive industry.

Which one of the following applies to the dental practice’s equilibrium at point E?

The dental practice is:

average cost

marginal revenue

The government subsidises dental care in the UK through the National Health Service (NHS). There has been a large decrease in the work carried out by NHS dentists. Up to 90% of practices are not accepting new NHS patients.

(Source: adapted from https://www.theguardian.com/society/2023/jul/14/ mps-demand-urgent-reform-nhs-dental-services-report)

Draw an externalities diagram to identify the welfare gain area from the consumption of dental care in the UK.

High Speed 2 (HS2) was a £100 billion UK government rail project designed to expand the existing network. The journey time between London and Manchester would take just 1 hour and 11 minutes, 54 minutes quicker than today’s fastest time. Almost 900 homes, 1 000 businesses and around 60 ancient woodlands would be destroyed by its construction.

(Source: adapted from https://www.independent.co.uk/climate-change/news/ hs2-railway-route-houses-demolish-woodland-destroy-environment-impact-london-birmingham-manchester-a8582316.html)

Evaluate the likely microeconomic effects of building major infrastructure projects.

In 2023, the UK prime minister Rishi Sunak said that he wanted to see all students in England study some form of mathematics until they reach the age of 18 to ‘ensure that they leave school better equipped for the jobs of the future’. This would require additional spending on education.

Just half of all 16 to 19 year-olds study mathematics. Yet in a world where data is everywhere and statistics are vital in every job, the workforce will require more analytical skills than ever before.

(Source: adapted from https://educationhub.blog.gov.uk/2023/01/04/ studying-maths-to-18-what-you-need-to-know/)

Evaluate the likely microeconomic effects of increased spending on education.

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(a) Explain one reason why consumers buy less than the social optimum quantity of healthy food.

(b) With reference to Extract B, examine two likely reasons why wages in supermarkets are above the National Minimum Wage of £10.42.

(c) With reference to Figure 1 and Extract C, discuss whether supermarkets charging similar prices for petrol is evidence of collusion. Use game theory to support your answer.

EITHER

(d) Evaluate the microeconomic and macroeconomic effects of high levels of inflation. Refer to the UK or any other developed economy in your answer.

Explain one reason why consumers buy less than the social optimum quantity of healthy food.

With reference to Extract B, examine two likely reasons why wages in supermarkets are above the National Minimum Wage of £10.42.

With reference to Figure 1 and Extract C, discuss whether supermarkets charging similar prices for petrol is evidence of collusion. Use game theory to support your answer.

EITHER

Evaluate the microeconomic and macroeconomic effects of high levels of inflation. Refer to the UK or any other developed economy in your answer.

Evaluate the microeconomic and macroeconomic effects of a regional trade agreement between the UK and the EU.

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With reference to Figure 1 and Extract A, explain what is meant by ‘price inelastic demand’ (line 8).

Examine one likely externality that arises when a producer generates electricity by burning gas. Use a diagram to show the external costs of production.

With reference to Figure 2 and Extract B, discuss the possible constraints on business growth for firms supplying energy to households in the UK.

EITHER

Evaluate the microeconomic and macroeconomic factors that explain gender-based wage differences in the UK oil and gas industry.

Evaluate the microeconomic and macroeconomic advantages for a country specialising in energy production using gas.

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With reference to Figure 1, explain the market structure that best describes the market for UK online streaming services.

With reference to the information provided, assess whether Netflix subscribers behave rationally.

With reference to the information provided, examine the likely numerical value of the cross elasticity of demand between UK online streaming services.

With reference to Extract C, discuss the likely private and external benefits of viewing educational websites and TV programmes.

Using examples from Figure 2 or Extract B, discuss the likely impact of price discrimination on a firm’s profits. Use a relevant diagram to support your answer.

A company that provides drinking water and treats waste water has been fined £180 000 after an incident that killed about 2 500 fish. The charges relate to an illegal discharge of sewage from the waste water treatment plant that polluted nine kilometres of the River Severn, a popular tourist destination.

(Source: adapted from https://www.leaderlive.co.uk/news/wrexham/ 19393552.water-company-fined-today-sewage-leaked-wrexham-river-killing-2-500-fish/)

Draw an externalities diagram to show the likely impact of the sewage discharge on the local tourist industry.

Which one of the following is the most likely effect of the £180 000 fine?

To:

Using the information provided, explain one externality that arises in the food delivery market.

With reference to Extract B, examine whether the demand for delivered food is price inelastic and income elastic.

With reference to Extract C, discuss the likely effects of increasing integration within the food delivery market.

EITHER

Evaluate the microeconomic and macroeconomic effects of a depreciation of the pound. Refer to restaurants or other food delivery services in your answer.

Evaluate the microeconomic and macroeconomic effects of significant increases in the minimum wage. Refer to restaurants or other food delivery services in your answer.

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Explain the likely impact of diminishing marginal productivity of labour on cabin crew staffing levels. Refer to Extract A in your answer.

Examine the likely impact of Thomas Cook’s plan ‘to reduce their airline emissions’ (Extract B, line 6) on the social optimum position. Use an appropriate externalities diagram in your answer.

With reference to Extract C, assess whether Thomas Cook’s failure was caused by the principal-agent problem.

With reference to Extract C, discuss the proposed government subsidy to prevent Thomas Cook from reaching its shut-down point.

With reference to the information provided, discuss the decision by Jet2 to increase its package holiday prices.

The external benefits of higher education include increased tax revenue, faster economic growth, greater innovation and labour market flexibility.

(Source adapted from: https://www.timeshighereducation.com/news/higher-education-its-good-for-you-and-society/2008681.article#survey-answer)

Draw an externalities diagram to show the likely impact of the consumption of higher education.

On average, in the UK, a working-age graduate earns approximately £10 000 more per year than a non-graduate.

(Source adapted from: https://assets.publishing.service.gov.uk/government/uploads/ system/uploads/attachment_data/file/701720/GLMS_2017.pdf)

This suggests a university degree provides a substantial

The external benefits of higher education include increased tax revenue, faster economic growth, greater innovation and labour market flexibility.

(Source adapted from: https://www.timeshighereducation.com/news/higher-education-its-good-for-you-and-society/2008681.article#survey-answer)

Draw an externalities diagram to show the likely impact of the consumption of higher education.

On average, in the UK, a working-age graduate earns approximately £10 000 more per year than a non-graduate.

(Source adapted from: https://assets.publishing.service.gov.uk/government/uploads/ system/uploads/attachment_data/file/701720/GLMS_2017.pdf)

This suggests a university degree provides a substantial

The International Energy Agency has predicted that oil use by cars will peak in 2025 because of the increasing number of drivers switching to electric vehicles.

(Source adapted from: https://www.thetimes.co.uk)

Evaluate the likely microeconomic consequences of consumers shifting from vehicles powered by fuel obtained from oil to electric‑powered vehicles.

The International Energy Agency has predicted that oil use by cars will peak in 2025 because of the increasing number of drivers switching to electric vehicles.

(Source adapted from: https://www.thetimes.co.uk)

Evaluate the likely microeconomic consequences of consumers shifting from vehicles powered by fuel obtained from oil to electric‑powered vehicles.

In September 2016 the government approved the building of an £18 billion nuclear power station, Hinkley Point C, which will supply 7% of UK electricity for up to 60 years. The power station is funded by Chinese and French investment.

Evaluate the likely private costs and external costs involved in such major power station construction projects. Use an appropriate externalities diagram in your

In 2015 a report by Public Health England recommended the imposition of a 20% tax on the sale of soft drinks that contain high levels of sugar.

Evaluate the likely microeconomic effects of such a tax.

With reference to Figure 2, explain one likely reason for the change in the Chile peso exchange rate between 2013 and 2015.

Examine the likely impact of externalities of copper mining on firms and communities within Chile.

Apart from externalities, discuss the problems that Chile faces as a result of dependency on copper mining.

EITHER

With reference to the information provided and your own knowledge, evaluate the microeconomic and macroeconomic effects of policies that could be used to stimulate economic growth and development in Chile.

With reference to the information provided and your own knowledge, evaluate the microeconomic and macroeconomic impact on Chile’s economy of changes in the level of investment.

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