Past Paper OLevels Economics 2281, IGCSE 0455 | May June 2019 | variant 22 | Micro economics

Key Concepts in Microeconomics
1. Demand and Supply
Demand: This refers to how much of a product or service people want to buy at different prices. The demand curve typically slopes downward, meaning that as prices decrease, demand increases.
Supply: This represents how much of a product or service producers are willing to sell at different prices. The supply curve usually slopes upward: higher prices motivate producers to supply more.
Example: Imagine a concert ticket. If the ticket price is set high, fewer people will buy it (low demand). If the price drops, more people will want to go (high demand). Conversely, if the cost to produce the ticket is low, producers might be willing to sell many tickets, but at high production costs, they might sell only a few.
2. Market Equilibrium
This is the point where the quantity demanded equals the quantity supplied. It’s where the demand and supply curves intersect.
Example: Think of a lemonade stand. If you have 10 cups of lemonade and sell them for $2 each, but people only want 5 cups at that price, you'll have excess supply. If you lower the price to $1, you might sell all 10 cups, which represents market equilibrium.
3. Elasticity
Elasticity measures how much the quantity demanded or supplied changes when there is a change in price.
Price Elasticity of Demand: If a small price change leads to a large change in demand, the product is said to have elastic demand (e.g., luxury goods). If demand doesn’t change much with price changes, it’s inelastic (e.g., essential goods like bread).
4. Market Structures
Different types of market structures affect how businesses operate and compete. Key structures include:
Perfect Competition: Many firms, identical products, easy entry and exit (e.g., agriculture).
Monopoly: One firm controls the market (e.g., utility companies).
Oligopoly: A few firms dominate, can lead to collusion (e.g., car manufacturers).
5. Government Intervention
Governments may intervene in markets for various reasons:
Price Controls: To protect consumers or producers. A price ceiling prevents prices from rising above a certain level (e.g., rent control), while a price floor sets a minimum (e.g., minimum wage).
Taxes and Subsidies: Taxes can discourage certain behaviors (like smoking), while subsidies encourage production of certain goods (like renewable energy).
Application to Past Paper Example Questions
When preparing or analyzing past paper microeconomics questions (like the May June 2019 variant), focus on:
Identifying Concepts: Try to recognize which concepts (demand, supply, elasticity, market structures) the question is addressing.
Applying Real-World Examples: Use contemporary products or services to illustrate your understanding of these economic theories.
Arguing Different Perspectives: In questions where arguments are made for or against government intervention or market outcomes, it’s beneficial to explore both sides to demonstrate a comprehensive understanding.
Remember, successful answers not only define concepts but also apply them through examples, illustrating the real-world implications of microeconomic principles.
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