By Barry Harrison
This e-book has been written to fulfill the wishes of the A-level economics candidate. even though loose status, it will likely be relatively necessary while used as a complement to the textual content Introductory Economics. It offers a short yet thorough assurance of the A-level syllabus and highlights the commonest error made by means of A-level applicants. virtually each bankruptcy comprises complete and complete solutions to fresh exam questions. it will likely be a vital consultant to all scholars of economics A-level.
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Despite the appealing logic of this argument one point must be stressed. The allocation of resources through the price mechanism partly depends on the distribution of income. If we change the distribution of income we will change the allocation of resources. If we argue that the operation of the price mechanism leads to an optimal allocation of resources we must assume that the distribution of income is also optimal. Given the differing views of society on the importance of equity this is quite an assumption!
This does not necessarily encourage efficiency in the allocation of resources because uniform limits might not give firms an incentive to develop cleaner technologies. It would be more efficient if those firms which could reduce pollution at a lower cost than other firms were assigned a lower pollution limit. This would provide low cost firms with an incentive to cut pollution because they would otherwise be compelled to cut their output and therefore their profits would fall. However, such an approach requires an accurate assessment of which firms have the lowest cost of reducing pollution.
What are the arguments for and against using the price mechanism to remove the shortage? 5 on page 24 shows the supply and demand conditions for car parking in the centre of a busy town. (a) Why is it difficult in the circumstances shown for the city council to use market forces as a guide to what the price of car parking should be? What price would the council wish to charge in order to: (i) encourage maximum use of the car park; (ii) obtain maximum revenue? (b) Suppose the demand for car parking spaces increases by 200 at each and every price.