Define the Law of Diminishing Marginal Utility.
Successive quantities of a good consumed will generate smaller amounts of extra satisfaction.

(ii) Identify ONE factor that would cause Hemi to have an increase in the
quantity demanded of expresso.
A decrease in the price of expresso coffee will cause Hemi to increase the quantity demanded of expresso coffee.


(ii) Identify ONE factor that could cause Hemi to have a decrease in his
demand for expresso.
Decrease in income Negative change in taste
Increase in price of complement Decrease in price of substitute


(a) Graph 5 shows the market for a product which has had an indirect tax imposed. Initially the market is in equilibrium at point L. Describe the market forces that will now be at work at the original equilibrium price and quantity once the supply curve has shifted. 2 marks
At price D and quantity V, when the supply curve has shifted after the tax has been imposed there will now be an excess demand of SL (at price D), producers will only be willing to supply quantity T. This will cause pressure for the price to rise, which will be forced up eventually to C. Only at point K (price = C, quantity = U) will equilibrium be restored where there is no excess demand or excess supply.


(a) How do we know Firm A is an imperfect competitor? 1 mark
Marginal Revenue is not equal to the average revenue/price.
(b) Explain why Firm B, a perfect competitor, should continue to produce 10,000
units. 2 marks
As average cost is at its minimum level, it is equal to marginal cost.
(1 mark)
The firm is operating at the point where marginal cost equals marginal revenue which is the profit-maximising level of output. (1 mark)


(a) How do we know Firm A is an imperfect competitor? 1 mark
Marginal Revenue is not equal to the average revenue/price.
(b) Explain why Firm B, a perfect competitor, should continue to produce 10,000
units. 2 marks
As average cost is at its minimum level, it is equal to marginal cost.
(1 mark)
The firm is operating at the point where marginal cost equals marginal revenue which is the profit-maximising level of output. (1 mark)


Explain how the principle of increasing costs has the effect of causing the PPC in
Graph 1 to be concave to its origin. (2 marks)
As the production of wine increases, the opportunity cost of producing additional units is increasing.
The resources used in the production of wine are not perfect substitutes to be used in the production of wool.
Resources are better suited for producing one good than another


The good returns in the grape growing industry that occurred from 1998 to 2008,
affected the price of land suitable for growing grapes. Explain both how and why
the price of farmland was affected. (2 marks)
The demand for resources is a derived demand. 1 mark
As the demand for grapes increased, the demand for land suitable for growing grapes also increased. This resulted in an increase in the price of land suitable for growing grapes. 1 mark


7. Explain why the supply curve for grapes is relatively inelastic. (2 marks)
It takes time for more land to be purchased, new plants to grow and be harvested.
In the short run the grape grower’s ability to respond to changes in price is limited.


Explain how a firm in perfect competition can make a subnormal profit in the short
run but is unlikely to make a subnormal profit in the long run. (3 marks)
A firm makes a subnormal profit when its average cost is greater than its average revenue. 1 mark
If a firm in perfect competition is making a subnormal profit in the short run, it can leave the industry in the long run. This occurs because there are no barriers to exit in perfect competition. 1 mark
This decreases market supply and forces the price up. Firms will continue to leave the industry, increasing the market price until a normal profit is made by each of the individual firms in the long run. 1 mark


PED>1 elastic P↑TR↓
PED<1 inelastic P↓ TR↑
PED=1 unit elasticity P.TR same
PED=0 perfectly inelastic P↑， TR large ↓
YED>0 normal good(0<YED<1 - necessity good, YED>1 luxury good)
YED<0 inferior good


Whenever you spend money to use or buy something you acting as a __consumer______________. People must make many economic _decisions_____________ each day to solve economic _problems____________ . Because we do not have all the _resources_____________ we want they are called scarce________________ . Everybody must have food, clothing and shelter. These are called needs ______________.
__firms___________ must choose goods and services to produce ___________________
with their _limited______________ resources because they cannot produce everything consumers want.

A) Factor of production: __Enterpreneurship_____________________
Define
The person who takes the risk of combining the factors of production
(1 mark)
B) Factor of production: ___Labour__________________________________
Define
The human input into the production process


d. Discuss how the concepts of scarcity and unlimited wants are related to Opportunity cost.
Limited resources versus unlimited wants leads to scarcity
As a result need to make choices => opportunity cost arises

a) State the basic economic problem that Tom is facing.
What and how much product (combinations) he should produce
(1 mark)
b) Define the term opportunity cost
The next best alternative foregone when a choice is made
(1 mark)
c) Identify two assumptions that are made when constructing the production possibility curve.
Two goods produced
Fixed amount of resources and technology