Tuesday, December 9, 2008

Some Techniques To Answer Unit 1: Markets & How They Work?

This will be a great revision tips & answering techniques for those of you taking the Unit 1: Markets & How They Work? (Edexcel) economics examination next month

Generally the paper consists of 2 parts. Part A has 8 multiple choice questions with options A to D. In part B, there will be 2 sets of data response questions where you have to choose 1. The weight carry by this paper is 90 & I always advise my students to attempt to score well in this paper since it’s the easiest among all

Time for the paper is 1 hour

Are those questions in Part A predictable? My answer is YES

Popular concepts being tested:

(1) Production possibility frontier. Standard of living in the present & future, PPF shifting inward & outward, concept of increasing opportunity costs from further producing one more unit of output

(2) Opportunity costs. The question will give a scenario e.g. 2 projects but the government only have such limited amount of funds. So in this case it has to choose & the project foregone is the opportunity costs

(3) Comparative advantage & absolute advantage. Students will be given 2 straight lines & asked to determine if trade is possible between the 2 countries & if it is, what good will be traded?

(4) Positive & normative statement. Students will be given 2 statements & asked to identify which is positive & which is normative

(5) Producer & consumer surplus. Question will normally give demand & supply curve intersecting one another. Students will be asked to determine area of consumer surplus/ producer surplus, what is the additional area/ fall in area of consumer surplus/ producer surplus when demand/ supply curve shifts

(6) Price elasticity of demand (PED). A table is given & students will be asked to determine if total revenue has increased/fallen given the demand for the product is elastic/ inelastic

(7) Cross elasticity of demand (XED). Identifying from options given, which pair of good is complement/ substitute, simple calculation of XED

(8) Income elasticity of demand (YED). Determining types of good whether it is inferior, luxury or necessities by calculation

(9) Price elasticity of supply (PES). Determining which option has inelastic supply in short run/ elastic supply in long run. Overall there will be normally 2 or 3 questions tested on the concept of elasticity itself

(10) Taxes & subsidies. Determining total subsidy payout by government/ tax collection by government, producers/ consumers portion of subsidy/ tax

(11) Demand & supply. This is the most popular question. Since establishment of the exam, without fail there will be a question on this. Student will be given 2 scenarios, where one will lead to movement of demand curve while another will give information about supply curve. Then students need to decide the new equilibrium

Techniques to score well in Part A

Rule no.1: Whenever you think that your answer can be supported by drawing a diagram please do so. Very applicable to questions involving PPF such as drawing out the PPF based on information given. The information here can be a scenario or data. Also very applicable to questions involving PED, XED, YED & PES

Rule no 2: If you are given a diagram, please do something onto it. Again if you are given a PPF, perhaps you can draw an inward or outward PPF. Or if you are given question on producer/ consumer surplus, please shade the area of the surplus. If there is question on taxation/ subsidy, please shade those areas

Rule no 3. If you are given data, please do interpretation or calculation. Very much applicable to PPF as sometimes you are given set of data or even PED/ PES/ XED/ YED

What to expect in Part B?

(1) Commodities. Very popularly tested in every single exam. They can be palladium, steel, uranium, bauxite, oil, aluminium etc. They could even give you some kind of plantations which share the same nature like commodities. You should feel very happy if you get commodities-based questions as nothing much they can test you on. Questions they will definitely ask, define PES, short run & long run PES of the mentioned commodity, impact onto producer from the increase in the price of that commodity & also what happen to the demand of the commodity if the price of substitutes change?

(2) Demand-supply diagram. This carry about 5m or 6m. Also the most popular question in Part B of each exam. I noticed that normally the intersection of both demand-supply curves will always lead to price increase

(3) Evaluation of price increase. Always mention, depends on the extent of shift in demand/ supply curve, the larger the shift the greater will be the price increase. Also can mention depends on PED/ PES, the more inelastic they are, the more will be the price increase

(4)Evaluation on substitute. Always mention depends on the level of substitubility between the 2 goods. If they are weak substitutes, increase in the price of one may not even affect the demand in another

I hope this helps you a lot in narrowing down the scope of your revision!

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