Posted: September 17th, 2017


Answer all of the following six questions


  1. A) Explain, with the use of a diagram, the externalize generated from a production process that excessively pollutes the local environment.


  1. B) Explain how an optimum tax can be used to correct the market failure (identified in part A).



  1. A) Explain, with the use of a diagram, the reasons why a monopoly is illegal per se in the United Kingdom.


  1. B) Discuss how a firm may maintain a monopoly profit in the long run. Use a firm of your choosing to contextualise your answer.



  1. A) With the use of a diagram, explain how the circular flow of income can be used to build a model of a national economy which shows how Gross Domestic Product (GDP) may vary from year to year.


  1. B) Measured by nominal Gross Domestic Product (GDP), the economy of Brazil became larger than the economy of the UK in 2010. To what extent does this indicate that Brazil is more prosperous than the UK?



  1. A) Inflation in many countries is measured using the Consumer Prices Index (CPI). Define inflation, and explain carefully how the CPI is constructed.


  1. B) India’s GDP grew by more than 5% in 2014, but experienced inflation of almost 8%. Using a diagram, explain why demand-pull inflation occurs and discuss the economic problems caused by accelerating inflation.



  1. A) Describe the function and purpose of the financial system in the United Kingdom.


  1. B) How does the financial system contribute to economic prosperity in a market economy?



  1. A) Under what circumstances will the coefficient of variation of a security’s returns and the standard deviation of that security’s returns give the same relative measure of risk when compared with the risk of another security?


  1. B) Why are financial markets more risky to participate in than are markets for goods and services?

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