A. If the Equilibrium Price increases then this will reduce Consumer Surplus and increase P reducer Surplus. Try it on a diagram.  Remember Elasticity will influence things so for example if Demand is very inelastic and there is an increase in tax ( Supply decreases ) then most of the tax burden will fall on consumers and consumer will reduce by a greater amount - again try drawing this

A. This should help. 

A.  A natural monopoly occurs when the most efficient number of firms in the industry is one.A natural monopoly will typically have very high fixed costs meaning that it impractical to have more than one firm producing the good.

A. It is all about developing new production processes or new products.  The his can be a benefit of a monopoly who will make large enough profits to do this. However if the barriers to entry are high they may have no incentive to be dynamically efficient

A. Correct. Remember the higher the number the stronger substitute or complement.

A . Think about the idea of government failure and I intended consequences. For example the creation of shadow markets. Also think about the costs involved in implementing them.

A. For Max price you could consider Maximum Rents as recently suggested by Ed Milliband. For Minimum Prices think about Alcohol Prices in Scotland. Always look to evaluate and so think about Govt Failure and Unintended Consequences

A. For a start you should be talking about specific supply side policies as each one will involve a different evaluation. So for example a cut in Corporation Tax rates may increase Investment, but it will depend on Business Confidence and also their level of spare capacity. It will also vary across different markets depending on the level of competition.

A. It increases the costs of production. However if PED is relatively inelastic them most of the increased costs will be passed onto the consumer in the form of higher prices.

A. Yes this would be fine to say that govt austerity may influence whether a certain micro policy is implemented.

A. Economic Growth is shown by an outward shift in the PPF. This is an increase in the productive potential of the economy and so this means the economy can produce more with all the factors of production. On an AD/AS diagram this would be shown by a shift to the right in LRAS

A. One way is that increased tax on a Demerit Good will reduce consumption of the good. Another could be a cut in the basic rate of income tax or a cut in benefits could provide an incentive for more people to work. This would lead to an increase in the LRAS and hence an increase in E Conomicsconomics Growth. This question is all about really making sure you read it very carefully and actually answer the question set.

A. This would be appropriate for a Monopoly. Another thing you could say is that it is very hard for the UK govt to subsidise certain industries as we are in the EU and it would be seen as unfair competition unless subsidies were given to every firm in that industry across the whole of the EU.

A. For AS all you need to know is that any point on a PPF is Allocatively Efficient. Anymore than this is A2.

A. If this is the pasta question then really use the case study and relate it to Italy. Same theory but simply a different country.

Q. So this is about Govt Intervention to reduce the market failure of Monopoly Power. There are various ways this could be done. One way is to prevent mergers that create monopolies in the first place. If there is a monopoly such as water companies then it is important that there is strong regulation to control their power. Govt can also open up markets to competition through privatisation as they are trying to do with the Royal Mail.

Sometimes if left to the market, foreign competition or changes in technology will increase competition. For example the decline in the power of Microsoft is partly due to changes in technology.

A. The most common example of missing markets are Public Goods as if left to the free market they will not be produced. This is an example of Market Failure and so the govt intervenes to provide them. Make sure you can fully explain Public Goods ( non-rival and non-excludability).

A. No. Economies of Scale is all about as output increases the cost per unit falls. Many monopolies will have high levels of output and so are more likely to benefit. Think Amazon and the Purchasing and Technical economies they can achieve.

A. Simple AC curve.

A. Lower inflation would increase real incomes so help these families. However it would make borrowing money more expensive and if they are borrowing this would make them worse off. Strong economic Growth is likely to mean there are more jobs and so this increases income of those who find work. However it will depend on the skills some of these people have and also the types of jobs on offer as some jobs may be low paid temporary or zero hour ones.

A. Surplus is 10million units and they pay farmers £15 per unit, so cost is £150. But sell the 10million units to Foreign buyers for £5 so get £50 revenue and so actual cost of scheme is only 150-50 =100 so answer is B

A. Quantity of whatever the good or service is. For decent evaluation you need to consider the specific product or market otherwise the evaluation is going to be of a very low level. The chances are that there will be clues in the case study.

A. Both. So right Quantity of Alcohol ( or whatever the good is).

A. As increased growth would increase the costs per unit produced which would reduce profit. However not a likely question at AS.

A. Quite hard to argue that it should be left to the market as it is clearly a demerit good that is overconsumed. The main diagram you should use is a negative externalities in consumption and you could say that if the free market were to take into account the full social costs then it would be fine not to intervene. I guess you could also argue that as demand increases if the free market was working then the increase in demand would lead to an increase in price, but in reality prices tend to fall.

Also govt intervention may lead to govt failure and so argue that they should not intervene. Remember the case study will have very useful clues.

A. Lots of possible policies here.

A. Please see an earlier answer. Scroll down!

A. Tax impacts on the Supply Curve. So a decrease in tax would reduce costs to the betting shops so they would increase supply which causes the supply curve to shift to the right.

A. You may well lose 1 mark but it depends if you put other things in like the externality and the Socially Optimum point. Worth including as it gives you something else to talk about in your analys

A. A missing market is something that is not provided or accounted for by the free market and so in this case an externality. This is an example of Market Failure. C is incorrect as private goods are provided by the Free market.

A. Because farmers supply OQ2 and get paid OP2 for each unit. Therefore as total revenue is Price x Quantity the Total Revenue will be shown by the rectangle as per answer A.

A. They are the same thing. For example DVD players and DVD

A. The first thing to say is that at AS there will be huge clues in the case study so use them. One case against is an equality issue as those on low income may be unable to afford treatment . Healthcare is a Merit good so this will mean it will be underconsumed and society will not benefit from the full social costs.

A case for charging might be that resources are limited and charging for certain services ( not all ) would ration demand (use a demand and supply diagram). There is also the argument that this may save the govt some money which would play a part in helping to cut the budget deficit which currently stands at £90bn.

A. Simply set the scene. If it is about govt intervention due to Market Failure then explain what Market Failure is in relation to the product/market in the question. Do not spend too long on it as time is tight. Remember a little plan before you start is essential to ensure you keep focus on the question.

A. You could probably run with either as long as your chain of reasoning was appropriate. You could argue that individuals use cars too much or that there are too many roads. In both cases govt needs to intervene to correct the market failure to to ensure the full social costs are taken into account.

A. Goods or services that are substitutes can be said to be in compe

A . Simply explain the free market equilibrium and how it results in under production of the good. Make sure you link to the example in the case study as there will be huge clues as to the externalities that are ignored by the free market.

A. Yes.

A. Yes, or they be short term improvements but in the long term there may be some sort of Government Failure. You could also take the view that some policies may have a significant impact in the short run while others may be more effective in the long run.

A. Depends on the market. For example the number of substitutes and whether it is a necessity. Key thing to remember is that supply is likely to be inelastic. Remember PED could be a good way to evaluate

A. Yes this would a good idea.

A. Sounds good. Using economic theory to put forward a policy that is not realistic and then saying why it is unlikely is a good way to evaluate. For example if the UK govt provides subsidies to a particular industry then you can draw a diagram and explain it. Then evaluate by saying it is not realistic as we are part of the EU and any subsidy for an industry would have to be provided to all firms across the EU.

A. Yes.Signalling happens when there is disequilibrium. So for example when there is excess demand it will signal to suppliers to reduce prices. The opposite for excess demand.

A. It is all about research and development into new products and production methods. This is a form of Investment by Businesses. Governments can encourage this with supply side policies such as reducing Corporation Tax rates or tax breaks for businesses who invest. Innovation is particularly important if a country wants to increase their level of exports and help to rebalance the economy.

A. Yes this would be good. You could then go on and say some alternatives.

A. Certainly post 2008 there was some evidence of a Liquidity Trap as very low interest rates failed to stimulate borrowing and spending. This was largely due to low consumer confidence and so saving increased and also the Credit Crunch which meant some banks were reluctant to lend. Less of an issue in 2014.

A. Yes it does, so I feel there are better ways to evaluate.

After the definitions, are you supposed to discuss how monetary policy reduces inflation, fiscal policy decreases unemployment, then in a third paragraph discuss supply side polices and then a final paragraph or do you discuss how fiscal and monetary BOTH reduce unemployment AND inflation?

A. The key thing here and in most questions is that there should be combination of supply side and demand side policies. If there was only expansionary monetary or fiscal policy then we would get increased growth but the trade off would be increased inflation. 

A stable economy means we want low unemployment and inflation and steady sustainable growth. Note that you must be realistic as to the best policies in light of the economic events over the last few years (the question says "using your knowledge of recent economic events")

Finally Macroeconomic policies always involve Trade Offs.

A. Sounds good but do not forget a diagram in some of the paragraphs and always refer to the case study.

A. Nominal is the actual GDP but it does not take into account the effect of inflation and so Real GDP is a much more useful measure. For example if Nominal GDP grew at 5% but Inflation was 4% then Real GDP would only be 1%. In other words the real increase in the Productive Potential of the economy is 1%

A. It becomes cheaper to borrow and so more people take out mortgages which means more demand for houses and so prices increase. Big issue at present especially in London.

A. Better analysis would be to say that this would decrease business profits and so is likely to reduce their level of investment and so this would impact on AD in the short term and LRAS in the long term.

A. GDP has gone up by 30% while CPI (inflation) has only gone up by 25% so real national income has increased. To get the CPI increase divide the difference by the original and then times by 100. (30/120)x100.

A. Yes you will get credit for Unit 4 theory but do not go too over the top as you need to ensure you do the basic analysis especially in the 12 marker. Any relevant knowledge you use will earn you marks.

A. Need to be careful here as it is the Bank of England that sets interest rates and not the govt. The MPC at the Bank of England are concerned about house prices and this could be a reason for increasing interest rates, but remember they take into account numerous things when deciding on interest rates. The article below is worth a read.

A. Correct. So this will impact on Consumption. Remember this will vary across different parts of the UK as house prices are not increasing by much in some areas.

A. Base your answer around a good AD/AS diagram. Think lower demand pull inflation, lower output and hence higher unemployment. Also lower inflation may make exports more competitive and as incomes are lower there may be a decrease in imports and so trade deficit improves. Always remember there are trade offs between the different macroeconomics objectives.

A. It also includes investment income and government transfers. See the diagram I tweeted earlier today that shows the parts of the Current Account. For AS the main focus is likely to be trade in goods and services.

A. Exports are an injection into the circular flow. They are more likely to be into businesses as they produce and sell them.

A. Consumption accounts for over 60 % of AD. There is a big focus at the moment on trying to rebalance the economy so that we are less reliant on Consumption. This is difficult at G is falling due to govt cutbacks and we have not seen any real increase in I or X. Over reliance on C is not sustainable if much of it is funded by consumer borrowing (debt)

A. This link should answer your question.

A. You are correct. George Osborne is reducing govt spending in order to reduce the structural budget deficit. Govts tend to use Contractionary Fiscal Policy in order to reduce inflationary pressures. Of course this is the main role of Monetary Policy.

A. If there is an increase in spare capacity this means the negative output gap has increased. Businesses may have machines not being used or factories working below full capacity so there is less need to invest in new capital.

A. Sounds good to me.

A. If the inflation rate is lower than our competitors it means our exports are not increasing in price as fast. Thanks will mean will be more competitive. Remember there are many other factors that could influence how competitive our exports are. See my tweet from earlier today on this subject.

A. Red ember it is the Bank of England who use QE. They have not use it for a while but when they did the main purpose was to encourage banks or increase their lending. As a result this should increase C and I which will increase short term growth (increase AD) and long term growth.

A. Both

A. To work out the Inflation rate using CPI you need to calculate the % increase. You do this by the formula (difference/original) x 100. So it is 5% and therefore the answer is A.

A. Great example to use. Other policies might include making planning easier and govt support for social housing. Remember all these policies are long term and will not have an immediate impact.

A. An increase in Hot Money will mean an increase in demand for the £ and so the exchange rate will appreciate. This will make imports cheaper and exports more expensive and so this will be an advantage or disadvantage depending on the type of business. In recent years we have seen an increase in Hot Money as foreign investors buy London property which has had a big impact on house prices.

A. An increase in national income will mean businesses will respond by increasing planned investment as they will want to be able to meet the increased demand.

A aggregate demand upon imports. B national income upon aggregate demand. C saving upon investment. D investment upon national income.

Why is the answer D and not B?

A. I suggest you check your definition of the Multiplier. "An initial injection into the economy leads to a greater increase in national income".

A. Depends on the question and whether it says "any country". Remember the economic theory is the same. The time period will be at least 18 months old but you should still refer to the current state of the economy.

A . Demand and Supply policies needed. Increase in interest rates is possible, but think of the trade offs with other macro objectives. Also they may well reduce the "help to buy" scheme to reduce demand. Remember there will be clues in the case study.

A . It means reduced and so available to less buyers. See tweet this morning on 10 ways to reduce house prices.

A. Any fall in the rate of inflation compared to our competitors is likely to make our exports more competitive. Remember there are many other factors that could also influence the competitiveness of our exports.

A. Increased innovation could mean better production methods that reduce costs and so make our goods cheaper or it may mean new products being developed that are attractive to our trading partners.

A. For Unit2 brief definitions are fine.

A. Bank of England think there is quite a large output gap so demand pull pressures are low.

A. Yes. The Bank of England base rate was cut very sharply after 2008 in order to try and stimulate the economy after the credit crunch. There was also a large amount of QE.

A. FDI can be seen as an injection into the economy and can have multiplier effects and create jobs. profits are likely to leave the country however.

A. Largely because that is what inflation is. Also it is possible to say the other answers are incorrect. http://www.bbc.co.uk/news/business-12196322 This may help.

A

A. Big issue is real incomes are still falling as wage increases are still below inflation

A. £71bn for 2013

A. Output gap increases.

A. Up to you. I. guess it will depend on what you want to show. Remember the A3 sheet we did in the lesson when we looked at all the diagrams.

A. Yes. Think GUBBI and how it will effect the macro indicators.

A. A Fiscal Policy that is being used for the supply side, so increase in LRAS.

A. It is all about confidence. If Businesses feel more confident then they will increase investment and if consumers feel more confident then they will consume more.

A. GUBBI helps you to remember the main macro indicators: Growth, Unemployment, B of P , Budget Deficit and Inflation.

A. Generally strengthened especially against the dollar so this will not help our exports if it continues to remain strong.

A. For your exam tomorrow you really only need to focus on the fact that we have a current account deficit and especially the deficit in goods and surplus in services. More detail on the balance of payments comes in A2.

A. 6%. A good export success story.

A . Investment by UK firms. Always talk about the multiplier.

A. Yes. This would reduce incomes and so we would import less and evaluation on how it impacts on other macro objectives would be good. See below for other policies.

A. Increasing productivity will reduce the costs per unit for business and so will allow them to sell their products at a lower price and so this makes them more competitive and reduces the current account deficit. See previous answer for some supply side policy u

A. Yes. Trade deficit is when we import more goods and services than we export, while a current account deficit includes other things - see graph below.

A. Cost push pressures for inflation and as for unemployment we were in and out of recession - cyclical unemployment.

A. The link below should help.