Sample Solutions: LC HL 2009 Short Questions

Here are sample solutions to the nine short questions asked in this year's Economics exam. I'll try to get solutions to the long questions up as soon as I can.

Remember, these are sample solutions only. Some questions here could have many different answers, so if you wrote different points than I did in answering some of these questions you may still receive full marks

Q.1. Outline two uninsurable risks faced by entrepreneurs?

- Strikes
- Entry of rival firms


Q.2.
The demand curve is perfectly elastic.

Reason: The firm can sell all of the output that it wants at this price because it is a relatively small part of the market. As a price taker, the firm cannot charge a higher price or demand will drop to zero and has no reason to charge a lower one. The market price facing a perfectly competitive firm is also average revenue and marginal revenue.


Q.3. Ireland has a mixed economy. What do you understand by this term? State one economic advantage and one economic disadvantage of this type of economic system.

This is an economic system in which both private enterprise and a degree of state monopoly coexist.

Economic Advantage: There are many freedoms in a mixed economy. People may go into business for themselves, decide what they will produce or sell, and set their own prices.

Economic Disadvantage: The state may have a monopoly in some industries and be unwilling to give up power by opening the market to competition.


Q.4. Define 'Cost push inflation'. Identify two sources of this form of inflation in the Irish economy.

Cost push inflation occurs when firms suffer a rise in their costs of production and they then pass on these higher costs to the consumer through increased prices.

Source 1: Increased labour costs (e.g. wages)
Source 2: Increased cost of raw materials


Q.5. The demand for land is 'derived demand'. Explain this term with reference to land.

- The demand for all factors of production is derived demand. This means the demand is not for the factor of production in itself but rather because the factor is necessary for the production of some good/service which people want.
E.g. a property developer will not buy land because he likes to watch the grass growing on it - he will use the land to build houses etc.


Q.6. Outline two possible economic effects of UK Sterling (£) falling in value relative to the euro (€) for the Irish economy?

Effect 1: Consumers may travel to Northern Ireland to buy products which are cheaper there because of the fall of Sterling. This can have grave consequences for producers in the Republic whose sales are likely to drop as a result.

Effect 2: It becomes more difficult to export Irish products to the UK as their prices rise. This can lead to a general lack of competitiveness by Irish firms in that export market.


Q.7. (a) State the Law of Diminishing Marginal Utility.

Diminishing Marginal Utility states that as increasing amounts of a good/service are consumed, the extra utility (satisfaction) received by the consumer from each extra unit will eventually reduce.


(b) The point where DMU sets in is when the third unit is consumed.


Q.8. Define ‘economic development’. Explain two social costs of economic development.

Definition: Economic development is an increase in output per worker accompanied by a change in the structure of society.

Social Cost 1: Increased pollution. The most economically developed countries are often also the ones placing the heaviest environmental burden on society. USA has 4.5% of world population yet emits 22% of the world's carbon dioxide.

Social Cost 2: Large scale migration. Moving away from rural to urban areas in search of work will cause some upheaval in peoples' lives and may mean the loss of the traditional way of life to which they had become accustomed.

Q.9. Economists have commented on Ireland’s ‘greying population’, i.e. the structure of Ireland’s population is getting older. Outline two economic effects of this development for the Irish economy.

Effect 1: Increase for the state in health care costs.
Effect 2: Increase for the state in the cost of state pensions.