OCR A Level Microeconomics Paper
2022
Explain what is meant by resource allocation. - correct answer-The assignment of variable
resources to various uses.
How do the incentives of consumers signal resource allocation? - correct answer-They may
be responsive to price. If prices are toot high for consumers then the product will not be
bought. Therefore the resources are allocated elsewhere.
How do the incentives of firms signal resource allocation? - correct answer-Firms may be
responsive to price. If the price paid for the good/service they are producing is not enough
then they will allocate their resources elsewhere.
How do the government incentives affect resource allocation? - correct
answer-Governments want welfare maximisation. If resources aren't allocated accordingly
then they may impose taxes or subsidies to re-allocate resources .
Why might the theory of incentives not be useful in explaining the behaviour of economic
agents? - correct answer-- Animal spirits may cause irrational and emotionally driven
behaviour.
- The existence of charities contradicts the theory of economic incentives for firms
Who are the economic agents? - correct answer-Producers
Consumers
Governments
Why might the theory of incentives be useful in explaining the behaviour of economic
agents? - correct answer-It is realistic the firms and consumers respond to changes in price.
This is foundational to the entire theory of economics. For example the demand curve shows
an inverse relationship between price and quantity demanded because consumers demand
less of a good at an increased price.
Why might incentives not be effective at distributing resources efficiently? - correct answer--
the free rider problem
- the existence of merit and demerit goods
Why might incentives be effective at distributing resources efficiently? - correct
answer-incentives perform the rationing and signalling functions.
what is the rationing function? - correct answer-the function of the price mechanism that
ensures that the quantity purchased is equal to the quantity available and that the
purchasers are the one who gain the most utility from it.
, What is the signalling function? - correct answer-the function of the price mechanism that
encourages economic agents to either leave or enter the market.
How do market economies allocate resources? - correct answer-The price mechanism
distributes resources at equilibrium where the consumers who are willing to purchase a good
is equal to firms who are willing to produce it. This is what Adam Smith cals the invisible
hand.
What countries are market economies (or most similar to)? - correct answer--Singapore
-Canada
-The United States of America
How do planned economies allocate resources? - correct answer-The government dictate
who produces what and who receives it.
What are some examples of planned economies? - correct answer-- North Korea
- Maoist era China
What are negatives to a free market economy? - correct answer-- allocatively inefficient
production of merit goods and demerit goods
- High inequality
- poor quality due to profit maximisation objectives
- absence of public goods
- monopolies
What are advantages to a free market economy? - correct answer-- efficiency, brought by
competition
- innovation
- more choice
What are some disadvantages of a planned economy? - correct answer-- inefficient due to
no competition
- hindrance of innovation
- no specialisation
- weak confidence in the economy
What are some advantages of a planned economy? - correct answer-- less inequality of
wealth
- prices are kept under controll
- provision of public goods
- no monopolies
What is a mixed economy - correct answer-an economy that allows: supply and demand to
determine fair prices, the protection of private property, innovation being promoted,
standards of employment, the limitation of government in business yet allowing the
government to provide overall welfare, and market facilitation by the self-interest of the
players involved. It contains free market elements but also socialist elements.
2022
Explain what is meant by resource allocation. - correct answer-The assignment of variable
resources to various uses.
How do the incentives of consumers signal resource allocation? - correct answer-They may
be responsive to price. If prices are toot high for consumers then the product will not be
bought. Therefore the resources are allocated elsewhere.
How do the incentives of firms signal resource allocation? - correct answer-Firms may be
responsive to price. If the price paid for the good/service they are producing is not enough
then they will allocate their resources elsewhere.
How do the government incentives affect resource allocation? - correct
answer-Governments want welfare maximisation. If resources aren't allocated accordingly
then they may impose taxes or subsidies to re-allocate resources .
Why might the theory of incentives not be useful in explaining the behaviour of economic
agents? - correct answer-- Animal spirits may cause irrational and emotionally driven
behaviour.
- The existence of charities contradicts the theory of economic incentives for firms
Who are the economic agents? - correct answer-Producers
Consumers
Governments
Why might the theory of incentives be useful in explaining the behaviour of economic
agents? - correct answer-It is realistic the firms and consumers respond to changes in price.
This is foundational to the entire theory of economics. For example the demand curve shows
an inverse relationship between price and quantity demanded because consumers demand
less of a good at an increased price.
Why might incentives not be effective at distributing resources efficiently? - correct answer--
the free rider problem
- the existence of merit and demerit goods
Why might incentives be effective at distributing resources efficiently? - correct
answer-incentives perform the rationing and signalling functions.
what is the rationing function? - correct answer-the function of the price mechanism that
ensures that the quantity purchased is equal to the quantity available and that the
purchasers are the one who gain the most utility from it.
, What is the signalling function? - correct answer-the function of the price mechanism that
encourages economic agents to either leave or enter the market.
How do market economies allocate resources? - correct answer-The price mechanism
distributes resources at equilibrium where the consumers who are willing to purchase a good
is equal to firms who are willing to produce it. This is what Adam Smith cals the invisible
hand.
What countries are market economies (or most similar to)? - correct answer--Singapore
-Canada
-The United States of America
How do planned economies allocate resources? - correct answer-The government dictate
who produces what and who receives it.
What are some examples of planned economies? - correct answer-- North Korea
- Maoist era China
What are negatives to a free market economy? - correct answer-- allocatively inefficient
production of merit goods and demerit goods
- High inequality
- poor quality due to profit maximisation objectives
- absence of public goods
- monopolies
What are advantages to a free market economy? - correct answer-- efficiency, brought by
competition
- innovation
- more choice
What are some disadvantages of a planned economy? - correct answer-- inefficient due to
no competition
- hindrance of innovation
- no specialisation
- weak confidence in the economy
What are some advantages of a planned economy? - correct answer-- less inequality of
wealth
- prices are kept under controll
- provision of public goods
- no monopolies
What is a mixed economy - correct answer-an economy that allows: supply and demand to
determine fair prices, the protection of private property, innovation being promoted,
standards of employment, the limitation of government in business yet allowing the
government to provide overall welfare, and market facilitation by the self-interest of the
players involved. It contains free market elements but also socialist elements.
