Essay Plans for the majority of A Level Economics Questions
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Course
Microeconomics
Institution
PEARSON (PEARSON)
These are a collection of essay plans, for your A Level Economics Exam. They were checked by my teacher who has a Doctorate in Economics, so they are correct. They are accumulation of possible question you could be asked. They are broken down into the relevant papers, macro, micro and macro & micro...
The main factor which constrains the growth of small businesses is limited access to
finance. To what extent do you agree with this statement?
Definitions
● Finance – money used for further investment in the business
● Satisficing - when business owners make enough profit to satisfy shareholders they
pursue other business objectives
K = Yes, small so seen as a high risk business therefore limited finance
A = small firms perceived as higher risk due to lower value of assets → less collateral for banks
→ banking sector less willing to lend
Ev = Difficult to assess whether access to finance is the most important constraint
= this will be a bigger issues for developing countries with fragmented financial markets or in
times of recession due to high interest rates
K = No, Business objectives e.g satisficing limits growth
A = owners/managers may be satisfied with keeping the business small → opportunity cost of
growth is too large → growth is risky, expensive, time-consuming → business may be in a
niche market → lack of managerial skills → satisficing behaviour → limiting growth
A = if firms are in a niche market they could grow through inorganic conglomerate integration →
risk bearing economies of scale → fall in LRATC → fall in costs and increase in growth and
profit
= shareholder and owner tend to want to revenue maximise therefore may be reluctant to profit
satisfice and so will want to grow business if the opportunity cost is small
K = No, size and composition of market limits growth
A = high barriers to entry → technical and pricing barriers → lack of scope for growth →
monopolies have large economies of scale → small firms can’t compete (predatory pricing) →
inability to grow
Ev = Government policy towards small businesses may play a vital role in promoting small
businesses e.g financial benefits, tax concessions, help & advice, pressure on banking sector to
encourage small business growth
1
,Abby & Tilly Micro Essay Plans
To what extent are the objectives of public sector organisations different to those of
organisations in the private sector?
Definitions
● Private - firms owned by individuals; for profit (companies) and not for profit (charities)
● Public - firms owned by gov, includes gov departments (health, education, defence)
K = They are different, public sector looks to meets people’s needs and improve welfare
A = e.g. healthcare, defense, education, housing - NHS, council houses, state schools
A = government wants to raise living standards → provides merit (healthcare) and public goods
(streetlights) → solve the free rider problem → rise in consumers welfare → increase in
consumption of positive externalities → raising economic growth
Ev = Commercially-based public sector organisations often have a profit objective much the
same as in the private sector. May be a question of the extent to which profit is an absolute
requirement for survival and/or growth
K = Different, prime objective of most private sector
organisations is to make a profit
A = profit maximising → objective of shareholder → more profit →
MC = MR → higher income and profits can be reinvested into
capital to increase firm's productive potential and SRAS
Ev = Some private sector organisations are non-profit making,
others may prioritise social factors e.g. co-operatives
= There may be similarities between the public and private sector
in the short run as they may sustain losses
K = The are different, private sector directors usually want to revenue maximise
A = private sector owned by individuals → directors objectives =
maximise sales → higher sales bonus → maximise revenue →
increase company size and market power → more prestige
Ev = private sector may be more geared towards being efficient in
order to achieve objectives whereas public sector more likely to
have greater emphasis on social objectives
2
,Abby & Tilly Micro Essay Plans
Discuss the extent to which a divorce of ownership from control might influence the
objectives of private sector organisations.
Definitions:
● Private sector : non-gov owned business organisation, including profit & non-profit.
● Divorce: where a firm is owned by shareholders but controlled by the firm’s managers.
● PAP: conflict between “ownership & control” → managers may wish to “satisfice” whilst
owners will want to maximise profits.
K = Shareholders objectives.
A = desire profit maximisation → through risk taking → in hope
of returns in form of dividend payments & rising share price →
however have no day-to-day (passive) control over managers
so cannot D risk
A = profit maximising (MC = MR) (P = R-C)
Ev =
● Shareholders often passive for companies with no
day-to-day control over managers, → big investors often large institutional shareholders,
eg. pension funds & insurance companies → therefore not influence objectives greatly
● No automatic link between different objectives and
separation of ownership from control.
● Shareholders may also prefer to see short term company growth rather than short term
profit gains → meaning objectives aline with managers
K = Managers objectives.
A = Satisficing → managers often intent on growth, have different
objectives = power, bonuses, prestige, sales maximising → not long
term profit through great risk that may jeopardise their employment
→ instead ↑market share
A = Sales maximisation (where ATC meets AR) = normal profit, not
profit maximising like owners instead potentially ↑market share
Ev =
● LR usually all parties seek profit maximising as in order to
achieve pay↑ - as long as the pay is set by bonuses linked to
profits - have to please active shareholders who will block
bonuses if not profit maximising
● Directors and senior managers may be major shareholders so not necessarily a divorce
between the two
● Private sector includes 'co-operatives' so all profit satisficing, or non-profit organisations
where neither likely to seek high profit levels instead social objectives
3.1.2 BUSINESS GROWTH
3
, Abby & Tilly Micro Essay Plans
The benefits of growth to business are so great that no business should aim to remain
small. Explain and critically examine this statement
K = economies of scale
A = if firms grow → more economies of scale → e.g marketing economies will be able to bulk
buy → decrease in costs → rise in profits benefiting the firm → supernormal profit → more
dynamically efficient → share price rise
Ev = firms may want to stay small to avoid DEOS → rise in LRAC → increase in costs → fall in
profits especially in industries with low MES
= firms may not have access to finance to grow
K = risk diversification
A = if business grows → can diversify → enjoy risk bearing economies of scale → decrease risk
of failure → decrease costs of expanding → rise in profits
Ev = firms may want to stay small to take advantage of niche market and price inelastic/income
inelastic demand
= may want to maintain high level of flexibility / innovation
K = increased market share
A = if a business grows → more market share → more control of market → more price making
power → raise prices → maximizes profits → more monopsony power over suppliers →
decrease costs → further increase profits → good for firm
Ev = firms may want to stay small to avoid attention from regulators or take over bids
= behavioural motives - family firms wish to maintain control avoid divorce of ownership and
control
4
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