Answer with explanation

1. Explain the concept Opportunity Cost. Why is the concept central to the study of Economics? (16 marks) 2. Outline THREE reasons for the survival of small firms in the Irish economy, even though they do not have the benefits of economies of scale. (i) (ii) (iii) (16 marks) 3. Explain what is meant by Consumer Surplus. (16 marks) 4. A consumer in equilibrium buys 10 cups of coffee at 62 each and 10 phone cards at 66 each. The marginal utility of the cups of coffee is 5 utils. What is the marginal utility of phone cards? Show your workings. Workings Answer: (16 marks) 5. Explain what is meant by the term Public Sector Borrowing Requirement. (16 marks) Page 2 of 7 6. For a composite (weighted) price index covering the three types of expenditure given in the following table, calculate the price index for the current year. The base value is 100. Show your workings. Category Prices of Prices of Calculation of Weight Result income item(s) item (s) Simple Price Index spent base year current on year item(s) E E Food 30% 10.00 11.50 Clothing & 20% 40.00 36.00 Footwear Other Items 50% 20.00 22.00 100% Price Index for the Current Year ->(17 marks) 7. "When a firm produces at a level of output at which marginal cost is greater than marginal revenue the firm is maximising profit (or minimising losses)". True/False (Place a circle around your choice and write a one-sentence explanation of your answer). (17 marks) 8. Outline THREE key ideas, which John Maynard Keynes contributed to economic thought. (i) (ii) (iii) (17 marks) 9. Given that Gross National Product at Current Market Prices is (180 million; Price Subsidies (4 million; Depreciation (15 million; Indirect Taxes (25million; complete the following calculations. Show your workings (i) Gross National Product at Factor Cost (ii) Net National Product at Factor Cost/National Income (17 marks) Remember to return this question paper with the answer book(s) used to answer the questions in Section B. Page 3 of 71. (a) State and explain FIVE factors which affect a consumer's demand schedule. (25 marks) (b) (i) Show, by means of a labelled diagram, the market demand and supply for a product. Indicate the equilibrium price and quantity in this market. (ii) Explain, with the aid of a separate diagram in each case, the effects which each of the following may have on the above equilibrium position: A successful advertising campaign in favour of the product is introduced; . A tariff on imports of the product is removed. (30 marks) (c) Assume that the average spending on energy by a low-income family is 640 weekly. The price of energy rises by 20% so that the same consumption by a low-income family would now cost (48 weekly. The government is considering introducing one of the following policy measures to assist low-income families: giving low- income families an increased allowance of 68 weekly (income supplement); . subsidising the producers of energy so that energy can continue to be sold at the initial price (price subsidy). Which policy measure would you advise the government to take? Explain the economic reasons for your answer. (20 marks) [75marks] 2. (a) State and explain the assumptions underlying the theory of imperfect competition. (20 marks) (b) (i) Explain, with the aid of a clearly labelled diagram the long run equilibrium position of a firm in imperfect competition. (ii) State and explain ONE feature of this firm in long run equilibrium which would be common to a firm in long run equilibrium under perfect competition. (iii) State and explain ONE feature of this firm in long run equilibrium which would be common to a firm in long run equilibrium under monopoly. (40 marks) (c) Consider the retail market for petrol. Do you believe that this market operates under conditions of imperfect competition? State reasons for your answer. (15 marks) [75marks] Page 4 of 7 3. (a) Marginal Revenue Product (MRP) equals Marginal Physical Product (MPP) multiplied by Marginal Revenue (MR). (i) Explain the underlined terms. (ii) Outline the factors which influence MPP and MRP. (25 marks) (b) (i) Define LAND as a factor of production. (ii) Outline TWO economic characteristics of land. (iii) Explain the concept of Economic Rent and illustrate with a relevant example. (30 marks) (c) The price of residential property has increased in Ireland in recent years. Discuss FOUR reasons for this development. (20 marks) [75marks] 4. (a) In each of the following distinguish between the terms:(b) There has been an increase in government income from taxation in the past year. (i) Outline THREE reasons for this outcome. (ii) State ONE revenue opportunity and ONE expenditure opportunity for the government arising from this increased income. Which of these would you consider a priority? Explain your choice. (25 marks) (c) Explain how an understanding by the Minister for Finance of the concept of Price Elasticity of Demand would help in setting levels of indirect taxation. Use examples to illustrate your answer. (20 marks) [75marks] Page 5 of 7 5. (a) Explain the following terms: (i) Balance of Trade; (ii) Balance of Payments on Capital Account; (iii) Terms of Trade. (25 marks) (b) Country Output (production per worker per week) MACHINES CARS SPAIN 20 5 JAPAN 40 15 Total Output 60 20 (i) Explain how benefits for both countries arise from international trade, in the above example. (ii) Calculate the Total Output when specialisation takes place. Show your workings. (iii) Calculate the terms of trade for both commodities. Show your workings. (25 marks) (e) Ireland is promoted abroad as an attractive location for investment by foreign firms. (i) Discuss THREE economic reasons why foreign firms choose to invest here. (ii) Describe how these foreign firms, operating in Ireland, may affect Ireland's Balance of Payments. (25 marks) [75marks] 6. (a) (i) Explain, with the aid of a diagram of Circular Flow of Income for an open economy, the main elements of aggregate demand. (ii) Outline the expected effects which an injection of government spending into the economy, could have in each of the following cases: a closed economy at less than full employment; an open economy at full employment. (30 marks) (b) It has been estimated that MPM = 0.2, MPT = 0.1 and MPC = 0.9. Calculate the following, showing all your workings: (i) The size of the Multiplier; (ii) The increase in the level of national income if there was an injection of government spending of (500 million. (20 marks) (c) "GNP growth of 5% is forecast for 2005". (Report of the Central Bank and Financial Services Authority of Ireland-Autumn 2004). Discuss the economic consequences (positive and negative) of economic growth on the Irish economy.(c) "GNP growth of 5% is forecast for 2005". (Report of the Central Bank and Financial Services Authority of Ireland-Autumn 2004). Discuss the economic consequences (positive and negative) of economic growth on the Irish economy. (25 marks) [75marks] Page 6 of 7 7. (a) A bank needs to keep a balance between its twin objectives of liquidity and profitability. Explain the underlined terms. How does the bank reconcile these twin objectives? (20 marks) (b) The Central Bank (now called the Central Bank and Financial Services Authority of Ireland) continues to play a very important economic role in the Irish economy. Explain the role it plays in the Irish economy. (30 marks) (c) The euro is now well established as a currency in Ireland. Discuss the economic effects which the introduction of the euro has had on: Irish consumers; Irish exporters and importers. (25 marks) [75marks] 8. (a) The last census of population (in 2002) showed that the Irish population continues to grow and now exceeds 3.9 million. Discuss the economic consequences of an increasing population. (25 marks) (b) Discuss the main economic benefits of the inflow of labour into the Irish Economy. (20 marks) (c) (i) One of the government's economic aims is to achieve balanced regional development. Outline FOUR possible government policies to achieve this aim. (ii) "Policies to achieve balanced regional development may make it more difficult for the government to achieve other economic aims". Explain this statement, using examples to support your answer. (30 marks) [75marks]