(iv) The discovery of a new oilfield would move the production possibility curve to the right. This is because an increase in oil would improve the country’s GDP, and would lead to an increase in production.
2. Traffic congestion is a big problem to deal with as many people use and need to use their vehicles daily. An obvious suggestion to try and prevent congestion would be to introduce a traffic congestion charge as seen recently in London, and to decrease the price of public transport, (which can be generated by the money obtained from the traffic congestion charge as is currently happening in London).
If a congestion charge is put into place then the price of driving into Cardiff will increase from nothing, this will force the demand curve to move up therefore leading to a decrease in quantity of cars entering the city.
If the money made from the congestion charge is put into public transport then this would cause the price of public transport to fall, therefore the quantity using it should increase. If this is the case then public transport companies will supply more to take advantage of the quantity using public transport causing the supply curve to shift from S0 to S1.
3.
(i) A serve frost would lead to a decrease in the coffee harvest so the supply curve would move from S0 to S1, which would drive up the price of coffee production.
This increase in the price of coffee production would also lead to an increase in price for the consumer and so we would move up the demand curve, which would lead to a decrease in quantity purchased.
(ii) A fall in air fares from the UK would lead could lead to an increase in price for hotels in the Spanish costas as the drop in price for air fares would lead to an increased demand for air fares and hotels are a supplement product for air fares so the demand curve would move from D0 to D1 for hotel rooms.
iii) More people living in the restaurants area would increase demand, especially since they are ‘executive houses’ so the people living in them would have higher disposable income and so would eat out more. This would shift the demand curve from D0 to D1 and allow the restaurant to increase price without losing any demand.
iv) As insurance is a complementary product to cars the demand curve would shift to the left, from D0 to D1, if the price of insurance increased.
This shift means that car manufactures would need to decrease the price of cars in order to keep demand the same, but in doing so they would be moving down the supply curve and so would be less enticed to manufacture so many cars.
5. A monopoly is a type of market that has many buyers but only one supplier; this can cause major problems to the economic efficiency. The monopolist can decide the market price of the product and has “market power”. This can be done as there are no close competing substitutes, which could cause a problem to smaller firms trying to enter the market with similar products, but not being able to due to the dominance of the monopolist.
In a monopoly there are barriers to entry which prevent rivals entering the market to compete; these barriers are legal protecting a firm from competition from potential threats.