Explain the main economic features of a free market economy

Explain the main economic features of a free market economy

ECONOMICS FOR BUSINESS

Instructions to candidates:

a) Time allowed: Three hours (plus an extra ten minutes’ reading time at the start – do not write anything during this time)

b) Answer any FIVE questions

c) All questions carry equal marks. Marks for each question are shown in [ ]

1.

a) Explain the main economic features of a free market economy.

[10]

 

b)

Discuss the reasons why the state might interfere with the free market economy.

[10]

2.

a)

Using examples, explain what you understand by the concept of elasticity in economics.

[8]

b) Discuss why a business would like to know the price elasticity of demand and income elasticity

of demand for its products.

[12]

3. a) Illustrate and describe, using the appropriate graph, the profit maximising point of a monopoly

firm earning supernormal profit.

[10]

b) Discuss the main barriers to entry which can create and maintain monopoly power.

[10]

4. Discuss the nature of, and possible government response to, the following examples of market failure:

 

a)

Externalities

[10]

 

b) Merit goods and public goods

[10]

5.

a)

Outline the main functions of money.

[8]

 

b) Consider how a bank can ‘create’ money and explain the main limitations of this process.

[12]

6.

a)

Outline the main types of unemployment in a developed economy.

[10]

 

b) Discuss the ways in which a government might attempt to reduce the level of unemployment.

[10]

7.

a)

Outline the main functions of taxation in a developed economy.

[10]

 

b) Analyse to what extent direct taxes carry out these functions effectively.

[10]

8.

a)

Discuss why a government might try to reduce imports into its economy.

[8]

 

b) Outline THREE means by which a government may reduce imports.

[12]

 


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