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Microeconomic 25 mark essay plans, including evidence
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9 plans, they have KAA and evaluation. With own evidence to support with KAA and EVAl.
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1) Evaluate the extent to which a case can be made for subsidies to be provided to producersof goods that generate positive externalities in consumption.
KAA
Yes subsidies should be provided to producers to generate positive externalities in consumption so
to resolve underconsumption of the good causing welfare losss
Example: yes should be made as seen with tuition fees for universities in England where there is
student loans which are same as the fees and maintaince loans
Also can be seen with other governmentsusidies programmes like the Apprentice levy which is a
form of taxation by government to help incentiv e increase use of Apprenticships
EVAl
It can be exspaneive and result in government failure due to the expense also may not result in more
people apply due to student finanance due to interest rates
So not applicable to everyone
KAA
Subsides should not be proivided for positive externalities for producers that generate positive
externalities in consumption because it can worsening the welfare loss as it could make producers
be overeliant so in the long term without the subsidy the producer would not survive
Example :government subsidy’s to energy firms which was 13.6pm in 2021 could damage the
industry yet 30 firms went bust in 2021 even with that
Positive to society as it ensure that goods and services can be produced and work which need energy
Example: with solar energy where in 2022 Tocan energy holding colapsed which owned 53 solar
farms
Even there was a government subsidy for energy companies for exmape this can be seen 0% VAT for
installing energy saving materials
Also government failure as it is giving subsidies to firms which positive externalities are less than
other like renewable energy firm a
EVAl
This is only an issue if the firm because compliancent and overealient
In the case of energy companies this is less likely the case as the government currently has a windfall
tax of 35% which means that there in incentive still there to be productive fly effeunt therefore not
worsening the welfare loss
2) Evaluate the likely microeconomic impact of an increase in the UK national minimum wage.
One microeconomic impact of increase in UK national minimum wage is an increase in Labour supply
Example: This can be seen with the increase in minimum to £10.42
This can also be seen with a decrease in economically inactive from Oct 2022-Dec 2022 by 0.3%
EVAL:
However, this may not always be the case because it may not always incentive people to work this
can be seen where although there has been a decreased in economically inactive in the last three
months it has increased from 2019 by 1.2%
, KAA Another microeconomic impact of an increase in min wage is a decrease in labour demand
This is because it is an added expense and some markets and firm that is not affordable
As seen in 2021 where 30 energy companies went bust causing over 100 people to lose there job
Also can be seen with the company accentura where in March 2023 they had planned to have 19000
layoffs
EVAL: This may not always be the case and there could be other reasons for decrease in Labour
demand
Can be seen with unemployment being 3.7% which is a decrease of 0.2% from 2019
Also may be as a result of the increase in price of supply due to oil price increasing
3) Evaluate the advantages and disadvantages of free market economics
An advantage of free market economies increase incentive to reduce cost to remain competitive
This can be seen in 2023 when Tesco planned to reduce the price of milk by 10p so did Aldi and Lidal
Also reduce prices for consumer increase welfare as a result of the compition
This can be seen with Amazon where there is a reduced price for books than other competitors this
can be seen with the Great Gatsby being £7.35 while in Whsmiths it is £9
Do a game theory matrix
EVAL
This is not always the case with Monopolies as a result of imperfect compititon resulting in some
firms having Monopoly power so having the lack of incentive to reduce costs as they already have
market share
This can be seen with Apple in 2023 having 30% market share having a legal Monopoly and this
translates to an increase cost of product with Iphone 14 pro being around a 1,000 pounds
KAA
A disadvantage to free market economies is that it can lead to negative externalities
Energy marker increase in profits which would lead to the continuum use of non renewable energy
Power generation accounts for 1/4 of global carbon emmsions
This can be seen with an increased price
This can be seen with the energy market where there has been an increased price then in prior years
Increased profit by energy compaonies this can be seen with Shell in 2023 having $40 billion profits
And can be seen with British Gas have around 3.3 billion in profit comapred to 948 mill in 2021
Corrospends with bills increasing by 40%
Eval
This can be corrected by government intervention and regulation
This can be seen with the price cap which will cause houshold bills to be around3280 pounds a year
Also the use of a windfall tax where there will be a 35% windfall tax on energy companies
Can deter the increase also use of tradable pollution permits
This was also used in 2005 by Blair and geerated 5bn
4) Evaluate the effects of collusion on firms and consumers
KAA:
Negative effect on consumers increase in price
Can be seen with OPEC where there was an increased price
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