ECONOMICS The UK Government

ECONOMICS The UK Government
PART 1
Candidates should attempt BOTH items.
ITEM A
Read the following and answer the questions below and on
Page three
.
Fizzy Fizz is a manufacturer of soft drinks. The firm has experienced economies of scale
and improved efficiency in the
long run
. The UK Government has, however, increased
indirect taxation that has led to an increase in the
rate of inflation
in the economy.
The following table shows the firm’s short run costs.
Fizzy Fizz output per day
(barrels)
Total cost
(£)
Average cost
(£)
Marginal cost
(£)
0
100
–
–
1
200
200
100
2
280
140
80
3
330
A
50
4
360
90
30
5
450
90
90
6
600
100
150
7
770
110

Explain what is meant by the following terms:
(i) “long run”;

(ii) “rate of inflation”.

(i) Using the table, identify the amount of fixed costs for Fizzy Fizz.

(ii) Give one example of a variable cost for Fizzy Fizz.
Using the table calculate:
(i)
the average cost at
A
;
(ii)
the marginal cost at

(i) Using a demand and supply diagram, explain the effect on the market for soft drinks if the UK government imposes an indirect tax.

(ii)Other than an increase in indirect taxation, describe another cause of inflation.
(i) Suggest and explain 2 economies of scale Fizzy Fizz might achieve as it
expands its scale of production in the long run.
(ii) Identify 2 benefits to Fizzy Fizz of improving its efficiency in the long run.
PART 2—Essay Questions
Candidates should attempt ONE essay question.
1.
All countries are faced with the basic economic problem of scarcity. Governments
can intervene in their economies through the use of budgets.
Explain why all countries face the basic economic problem of scarcity.
Explain why governments have to make choices, and give an example of
one choice they might face.
Explain the term “labour mobility” and describe 2measures that the government could introduce to improve it.

Explain how the UK government can use the Budget to:
(i) increase the disposable income of consumers;
(ii) reduce the income gap between rich and poor.

2. Smart phones have become increasingly popular. Some UK manufacturing firms
have relocated their production process to newly industrialised countries.

Identify and explain 3 factors which could increase the demand for smart phones.

Using a diagram, explain how the market for basic mobile phones will be
affected by an increase in demand for smart phones.

Explain 2 reasons why a UK manufacturer may wish to relocate production to
a newly industrialised country.

Explain why demand curves usually slope downwards from left to right.
3. National Income statistics are used by governments of developing countries.

Explain 2 uses of National Income statistics.

Describe 3 difficulties of calculating National Income.

Describe 3 economic features of developing countries.

Explain 2 ways developed countries can help increase the national income of
developing countries.
4. The rate of interest and government spending influence the UK economy.

Exp lain how an increase in the rate of interest is likely to affect:

(i)savers and borrowers;
(ii)th e rate of inflation.

Describe the advantages and disadvantages of increased government spending
on education for the UK economy. Explain 2 effects of unemployment on:

(i) individuals;
(ii) the economy.

5. UK unemployment rates and levels of unemployment have an effect on the Current
Account of the UK Balance of Payments.

Explain the difference between the rate of unemployment and the level of
unemployment.
Explain 4 reasons why there may be an increase in the level of unemployment.

Explain one reason for the UK Trade in Services being in surplus and one reason for the UK Trade in Goods being in deficit.
Other than the Trade in Goods and Trade in Services, describe the components of the UK Current Account.
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