Paper 3 SAQs (microeconomics + theory of the firm)
*Condensed for revision purpose
*The questions included are based on pure economic knowledge
1.1 competitive markets: demand & supply
N19/3/ECONO/HP3/ENG/TZ0/XX/M
Using a fully labelled monetarist / new classical diagram, explain why, while there may be short-term
fluctuations in output, the economy will always return to the full employment level of output in the
long run. [4]
● For a fully labelled diagram showing AD shifting right and SRAS shifting left,
with a new LR equilibrium at the intersection of LRAS and the new AD
● For explaining that a higher price level (and lower unemployment) will lead to
higher wages/input prices, so SRAS/production falls (to the left). The new
long-run equilibrium is where the new AD intersects LRAS at a higher price
level with no impact on real GDP (the full-employment level of output)
N18/3/ECONO/HP3/ENG/TZ0/XX/M
Define the term social (community) surplus. [2]
● The sum of the consumer surplus and producer surplus received/enjoyed
M18/3/ECONO/HP3/ENG/TZ0/XX/M
Using an example, outline why the assumption of ceteris paribus is necessary when analysing the
effect of a change in price on the quantity demanded of a product. [2]
● a change in any of the non-price determinants, such as income and tastes and preferences, may distort
the effect of the change in price, meaning that the impact of the change in price alone cannot be
determined
Widgets and Pidgets have negative cross price elasticity of demand (XED). Explain how the demand
function for Widgets, Qd = 249 - 4P, is likely to change as a result of an increase in the price of Pidgets. [2]
● demand for widgets will decrease and hence the “a term” intercept or horizontal intercept or
Q-intercept will decrease
N17/3/ECONO/HP3/ENG/TZ0/XX/M
Outline the reason why the coefficient of price in the supply function above is positive. [2]
● At higher prices, quantities supplied are greater since marginal costs are likely to increase as output
increases
Define the term consumer surplus. [2]
● The difference between how much consumers are willing to spend and what they actually spend
N15/3/ECONO/HP3/ENG/TZ0/XX/M
Define the term producer surplus. [2]
● The price received by a producer in excess of the price at which the producer would be willing and able
to offer for sale
Explain the meaning of the term "allocative efficiency" and its implication for social (community)
surplus. [4]
● explicit reference to the use of resources
● resources are used in the best possible way
● just the right amount of the good is produced from society’s point of view (or reference to stakeholders
e.g. consumer & producer surplus)
● social/community surplus is maximized
Compiled by @oatsnwaffles
*Condensed for revision purpose
*The questions included are based on pure economic knowledge
1.1 competitive markets: demand & supply
N19/3/ECONO/HP3/ENG/TZ0/XX/M
Using a fully labelled monetarist / new classical diagram, explain why, while there may be short-term
fluctuations in output, the economy will always return to the full employment level of output in the
long run. [4]
● For a fully labelled diagram showing AD shifting right and SRAS shifting left,
with a new LR equilibrium at the intersection of LRAS and the new AD
● For explaining that a higher price level (and lower unemployment) will lead to
higher wages/input prices, so SRAS/production falls (to the left). The new
long-run equilibrium is where the new AD intersects LRAS at a higher price
level with no impact on real GDP (the full-employment level of output)
N18/3/ECONO/HP3/ENG/TZ0/XX/M
Define the term social (community) surplus. [2]
● The sum of the consumer surplus and producer surplus received/enjoyed
M18/3/ECONO/HP3/ENG/TZ0/XX/M
Using an example, outline why the assumption of ceteris paribus is necessary when analysing the
effect of a change in price on the quantity demanded of a product. [2]
● a change in any of the non-price determinants, such as income and tastes and preferences, may distort
the effect of the change in price, meaning that the impact of the change in price alone cannot be
determined
Widgets and Pidgets have negative cross price elasticity of demand (XED). Explain how the demand
function for Widgets, Qd = 249 - 4P, is likely to change as a result of an increase in the price of Pidgets. [2]
● demand for widgets will decrease and hence the “a term” intercept or horizontal intercept or
Q-intercept will decrease
N17/3/ECONO/HP3/ENG/TZ0/XX/M
Outline the reason why the coefficient of price in the supply function above is positive. [2]
● At higher prices, quantities supplied are greater since marginal costs are likely to increase as output
increases
Define the term consumer surplus. [2]
● The difference between how much consumers are willing to spend and what they actually spend
N15/3/ECONO/HP3/ENG/TZ0/XX/M
Define the term producer surplus. [2]
● The price received by a producer in excess of the price at which the producer would be willing and able
to offer for sale
Explain the meaning of the term "allocative efficiency" and its implication for social (community)
surplus. [4]
● explicit reference to the use of resources
● resources are used in the best possible way
● just the right amount of the good is produced from society’s point of view (or reference to stakeholders
e.g. consumer & producer surplus)
● social/community surplus is maximized
Compiled by @oatsnwaffles
