economics

Part A: Short Answer Questions

Answer all questions in no more than 150 words plus diagrams where applicable.

Question 1 (5 marks)

Explain the advantages and disadvantages of regulating a natural monopoly through (a) a marginal

cost pricing rule and (b) an average cost pricing rule.

Question 2 (5 marks)

What is a recessionary gap? How does the economy adjust to eliminate a recessionary gap?

Question 3 (5 marks)

How can a higher price of oil create inflation?

Part B: Essay Question (15 marks)

Answer the following question in no more than 500 words plus diagrams if appropriate.

The dependency ratio, the proportion of people in the age group 0 to less than 15 years, plus the

proportion of people in the age group 65+ years to the number of people in the age group 15 to less

than 65 is rising.

a. In terms of GDP per capita why might this be a problem? (5 marks)

b. Explain how changes in labour force participation may partially offset the fall in GDP per

capita. (5 Marks)

c. In the absence of a rise in labour force participation or of an increase the hours worked

per worker will we have to accept that GDP per capita will fall? (5 marks)