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1. (a) (i) State and explain the law illustrated in the above table - Leaving Cert Economics - Question 1 - 2014
Question 1
1. (a) (i) State and explain the law illustrated in the above table. (ii) Outline two assumptions underlying this law. (b) (i) State the 'Law of Supply', and illust... show full transcript
Worked Solution & Example Answer:1. (a) (i) State and explain the law illustrated in the above table - Leaving Cert Economics - Question 1 - 2014
Step 1
State and explain the law illustrated in the above table.
Answer
The table illustrates the Law of Diminishing Marginal Utility. This law states that as a consumer consumes more units of a good, the additional satisfaction or utility gained from consuming each additional unit will eventually decline. For example, the first unit provides a total utility of 20 units, but the fifth unit only adds a marginal utility of 5 units, reflecting this decline.
Step 2
Outline two assumptions underlying this law.
Answer
- Applies after the origin: The law applies only after a certain threshold quantity is consumed where the total utility begins to decrease.
- Consumer tastes remain constant: It assumes that consumers' tastes do not change over the consumption period, ensuring a consistent value of utility associated with each good.
Step 3
State the 'Law of Supply', and illustrate with a labelled diagram.
Answer
The Law of Supply states that there is a direct relationship between the price of a good and the quantity supplied, meaning as the price rises, suppliers are willing to supply more of that good.
In this diagram, the upward slope indicates that higher prices incentivize producers to increase the quantity supplied.
Step 4
Explain how technical progress affects the supply curve.
Answer
Technical progress, such as the introduction of more efficient production methods or new technologies, typically reduces the costs of production. This can shift the supply curve to the right, indicating that at every price level, a greater quantity can be supplied, thereby increasing overall market supply.
Step 5
Outline, with the aid of labelled diagrams, two other factors that would cause a shift in the supply curve.
Answer
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Cost of Inputs: If the prices of raw materials increase, profitability decreases, leading to a leftward shift of the supply curve.
- Number of Suppliers: An increase in the number of suppliers in the market generally shifts the supply curve to the right, indicating an increase in overall market supply.
Step 6
Draw one labelled diagram, showing a market demand curve and a market supply curve that would be consistent with the above information.
Answer
! Market Demand and Supply Diagram The above diagram illustrates the market for concert tickets, with fixed supply at 80,000 and a demand set by the price of €65.
Step 7
Explain, using the concept of Consumer Surpluses, why it might make sense for the concert promoters to have different ticket prices.
Answer
Consumer surplus is the difference between what consumers are willing to pay for a good versus what they actually pay. By offering different ticket prices, such as VIP and standard seating, promoters can capture more consumer surplus. For instance, willing consumers will pay more for a VIP experience, allowing the promoter to maximize revenue while catering to varying willingness to pay across segments.