Ecnonmics

Contents Introduction ............................................................................................................................................ iv Using this workbook .................................................................................................................................... v Grade Score Marking .................................................................................................................................. vi Preparation for the externally assessed NCEA Level 1 Assessments ............................................................. vii Achievement Standard 90983 (Economics 1.1) Externally assessed, 4 credits Demonstrate understanding of consumer choices, using scarcity and/or demand .............................1 Achievement Standard 90985 (Economics 1.3) Externally assessed, 3 credits Demonstrate understanding of producer choices using supply ........................................................37 Achievement Standard 90986 (Economics 1.4) Externally assessed, 5 credits Demonstrate understanding of how consumer, producer and/or government choices affect society, using market equilibrium...........................................................61 Answers and explanations Achievement Standard 90983 (Economics 1.1) ..........................................................................................91 Achievement Standard 90985 (Economics 1.3) .........................................................................................98 Achievement Standard 90986 (Economics 1.4) ........................................................................................104 2012 Exam Study PlannerFREE Exam Study Planner AME Workbooks for NCEA and Scholarship For exam revision and practising exam questions. There is a title for most subjects. Available securely at www.esa.co.nz, good booksellers or your usual book supplier. This Study Planner will ESA study tips – free online How to complete your Study Planner www.esa.co.nz/studyplanner NCEA and Schol Exams start Friday 9 November and 4 December Term 3 Holidays – Monday 1 October to Friday 12 October – make a start! Popular and highly recommended Planning your end-of-year revision is vital. You must allow enough time to revise and prepare for all subjects. The Free Exam Study Planner is Term 4 underway – Term 4 starts A4-sized for use during Term 3 and 4. Monday 15 October To obtain your FREE planner (while stocks last): Three weeks before study leave and exams Monday 15 Oct Tuesday 16 Oct Wednesday 17 Oct Thursday 18 Oct 2nd week exam planner Time Monday 12 Nov Tuesday 13 Nov “Snapshot” Thursday 15 Nov Friday 16 Nov Saturday 17 Nov Sunday 18 Nov practise questions Wednesday 14 Nov 9.30– 10.30 10.30– 11.30 11.30– 12.30 12.30– 2.00 2.00– 3.00 3.00– 4.00 4.00– 5.00 5.00– 6.00 7.00– 8.00 7.08– 9.00 En exam Sc 1.5 Tennis practise exam Ac questions Ma Bi exam Revise Sc 1.1 Sc 1.1 Sc 1.5 Sc 1.9 Sc 1.9 Break Revise Ma 1.3 Ma 1.6 Ma 1.12 Break Break Ac exam Break Revise Bi 1.3 Bi 1.4 Bi 1.5 Revise Ec 1.1 Ec 1.3 Break Sc practise questions Break Revise Ec 1.1 Ec 1.3 Catch up practise Sc questions Ec 1.4 Ec 1.4 practise Ma questions Bi practise Ec practise questions questions Night off copies will be sent with AME workbooks purchased from ESA directly by your teacher or school • copies will be sent if you purchase an AME workbook directly from ESA Publications in Two weeks before study leave and exams Term 3 or 4. Alternatively, you can go online to www.esa.co.nz and download a copy (an A4 PDF file to print). Friday 19 Oct Saturday 20 Oct Sunday 21 Oct Monday 22 Oct Tuesday 23 Oct Wednesday 24 Oct Thursday 25 Oct Friday 26 Oct Saturday 27 Oct Sunday 28 Oct • Mapractise questions Catch up Night off 1. Write in exams www.nzqa.govt.nz DOUBLE-CHECK! 2. Other activities One week before study leave and exams Monday 29 Oct Tuesday 30 Oct Wednesday 31 Oct Thursday 1 Nov Friday 2 Nov Saturday 3 Nov Sunday 4 Nov iv  Introduction Introduction You need a minimum of 80 Level 1 Credits in order to achieve a Level 1 NCEA Certificate. Course endorsement provides recognition for students who perform exceptionally well in individual courses. Students will gain an endorsement in Economics where they achieve: 1. 2. 3. 14 or more credits at Merit or Excellence at the lower level that supports the endorsement at least 3 credits from externally assessed standards and 3 credits from internally assessed standards sufficient credits in a single school year. Source: www.nzqa.govt.nz Externally assessed Achievement Standards for NCEA Level 1 Economics All three externally assessed Achievement Standards are pen-and-paper exam assessments and total 12 credits. The exam papers provide lots of opportunities for a student to gain ‘Achieved’ grades, a smaller number of opportunities to gain ‘Merit’ grades, and an even smaller number of opportunities for ‘Excellence’ grades. It is vital that all questions be attempted, because all ‘Excellence’-level questions will provide opportunities to show understanding at an ‘Achieved’ (or ‘Merit’) level, and consequently can be credited (as ‘evidence’) towards the final exam grade. There is an achieved, merit and excellence component in every question. ‘State, identify, describe’ type questions have an achieved component. ‘Explain’ questions have an achieved and merit component. ‘Fully explain’ questions have an achieved, merit and excellence component. NCEA grade Achieved (awarded for definitions and other statements of Economics concepts) Merit Example question 1. Define the law of demand. Example answer Ceteris paribus – as price rises the quantity demanded falls, and as price falls, the quantity demanded rises. Comment(s) Most of these types of answer can be memorised. 2. Explain the difference (grade is awarded between a for answers that change in explain or apply quantity an Economics demanded and concept) a change in demand. Excellence 3. If the price of consumer credit (grade is awarded was reduced, for answers that what effect would apply Economics this have on knowledge overall consumer or results in a spending' variety of ways, or explain a consequence) A change in quantity demanded results only from a change in price. The demand curve does not move. A change in demand results in the whole curve moving and is caused by a change in income, tastes and preferences, or a change in the price of a complement or substitute. If the price of consumer credit – the interest rate – fell, it would be cheaper for people to buy, effectively increasing their purchasing power, which would have the same effect as an increase in income. This would move the demand curve to the right, indicating an increase in demand, resulting in more being bought at each price for goods bought on credit. Students need to know the material well enough to explain clearly the differences between two similar-sounding concepts or show they can apply a concept to a new situation to obtain meaning. The student has shown the ability to analyse a situation – to look at the concept from a new angle, and see the implications, flow-on impacts, consequences and links.   Introduction  v Free Study Planner Planning your end-of-year revision is vital. You must allow enough time to revise and prepare for all subjects. The ESA exam study planner is a popular A3-sized, two-colour planner for use during Terms 3 and 4. It is highly recommended. The planner is free (while stocks last): • with any ESA title purchased direct from ESA in Term 3 or Term 4 • with any bulk quantities purchased by teachers or schools for students • by sending a stamped, self-addressed envelope to ESA, Box 9453, Newmarket, Auckland. Using this workbook Workbook features • This workbook can be used at any time of the year, as your teacher covers each Achievement Standard, or towards the end of the year in Term 4 as part of your external Achievement Standards preparation and revision. • Most of the questions have lines and spaces for you to write in your answers. Step 1: Getting to know this Workbook Each Achievement Standard is covered in one chapter. Each chapter is divided into sections, which should each take about an hour to cover. Each section contains: • brief revision notes, which cover what you should know and include worked examples • NCEA Level 1 Economics questions from the last six years’ external exams. Each answer has an NCEA grading – ’Achieved’, ‘Merit’ and/or ‘Excellence’. Explanations for answers are also given. Step 2: Marking questions The letters A, M, E, in the answers section stand for the grades ‘Achieved’, ‘Merit, and ‘Excellence’, and offer the highest level of evidence the answer to the question is expected to provide. • Carefully check each answer. Learn to be a discerning marker. Be honest – did you write what an examiner would have wanted even if you used different words' If it is not a word-for-word type answer, ask yourself – ‘Did I cover the essentials'’, ‘Did I express myself well'’, ‘Did I use Economics language'’, ‘Did I understand what was wanted'’, ‘Why did I answer in the way I did'’ • Make a point of using as many key terms as possible, even if the question is in non-Economics language. Step 3: Timing questions • Working through the questions in this workbook will help you get used to the requirements of the external assessments so that you can work with increasing speed and accuracy. • Timing how long it takes to answer each question is critical. If you run over time on one question, it means that you will have to rush through another question. vi  Introduction Grade Score Marking NZQA has introduced a system of Grade Score Marking for externally assessed Achievement Standards. Grade Score Marking applies to Level 1 Achievement Standards from 2011, Level 2 Standards from 2012 and Level 3 Standards from 2013. Under Grade Score Marking, each answer to a question in an exam paper receives a number between 0 and 8, depending on the quality of the responses. (A ‘question’ can consist of a set of parts, each one contributing to the question score.) The numbers are based on the Achievement Standard criteria, and are as follows: 0–2 N (Not achieved) 3–4 A (Achieved) 5–6 M (Merit) 7–8 E (Excellence) A score of 7 or 8 is assigned to an answer that meets the criteria for an Excellence grade: a score of 8 indicates the question meets upper expectations for Excellence, a score of 7 indicates the question meets the criteria for Excellence at a lower level; scores are assigned similarly to answers in other grades. The overall grade (N, A, M or E) for an Achievement Standard examination paper is calculated by adding together the grade scores from each question. This allows evidence to be gathered across the entire paper to contribute towards the final grade. For example, in an examination paper with three questions, a candidate might score M5 for Question One, A3 for Question Two, and M6 for Question Three. For the whole paper, the candidate’s score would be M5 + A3 + M6 = 14. This score is written in the ‘total’ box on the front cover of the candidate’s answer booklet. It is therefore important that candidates attempt every question in an examination, because all answers are used to gather evidence. Each year, from a large sample of marked answer papers, cut-off points are established for the national N, A, M or E results for each Achievement Standard. These might vary from year to year, depending on whether or not it was a ‘difficult’ examination, and on the quality of student answers. For example, it might be decided, for a particular Achievement Standard, that the ‘Merit’ range for that year would be 14 – 19. In that case, a student with a score anywhere between (and including) 14 and 19 would achieve a Merit grade for that Achievement Standard. It is not possible to say in advance of the exam what the cut-off grades will be. However, answers are indicated as A, M or E in this workbook to provide a guide to the depth of both the question and the answer.   Introduction  vii Preparation for the externally assessed NCEA Level 1 Assessments Covering all the chapters on the externally assessed Achievement Standards should ensure that you will be confident and able to give your best performance. Stay healthy – practise healthy habits during the period of the exam preparation – eat well, take regular exercise and have at least eight hours’ sleep each night. • Prepare your equipment for the exam. Calculator with a spare battery or spare batteries. Pens, blue or black (not red or green as these colours are used by exam markers). Ruler – good-quality one you are sure is accurate. Compass in good working order. Highlighter and protractor. Exam slip (and school ID card). • Check you know where to go to and what time to be there. This should be on your Term 4 timetable. • The night before the exam ensure you have a good night’s sleep. Have a good breakfast on the morning of the exam. • Familiarise yourself with the exam formats for each externally assessed NCEA Level 1 Economics Achievement Standard. • Leave your iPod™ and phone at home, as you are not permitted to take them into the exam room. • Do not use pencil or correction fluid (‘Twink’). In the exam Nervousness: Nervousness is to be expected and is quite normal. If you need to, use an easy, effective relaxation technique, such as deep breathing. Hard papers: Do not be put off by a hard paper – others will also be finding it difficult. Order of answering: Try to answer easier questions first, harder questions later. Don’t get bogged down with a question. If you cannot answer a question or complete a partly answered question, move on to the next question. Highlight an unanswered question so you can come back to complete it later. Allocate sufficient time: Avoid going ‘over time’ on a question. When you have used up your allocated time, move on to the next question. Attempt every question: Read the questions carefully and follow the instructions, especially those in bold type. Show all necessary working, as ‘Merit’ and ‘Excellence’ are given for different steps/processes in finding answers. Work through each question, making an ‘intelligent’ start if unsure of the answer. Write quality answers: • Read questions carefully so you understand what is being asked for. Follow the instructions carefully. • Neatness – write tidily, using blue or black pen. If the exam markers are unable to read an untidy script, they are not allowed to ‘mind read’ – they must mark only what they see on your paper. Errors or ‘changes of mind’ should be crossed out (do not use ‘Twink’). • If spaces are provided for working and calculations, ensure you use them. Even incorrect answers may score some marks if the working shown is correct. Check answers: Check your answers. Avoid leaving an exam early. Remember to go back to partly completed and unanswered questions and try to complete them. Achievement Standard 90983 Demonstrate understanding of consumer choices, using scarcity and/or demand ECONOMICS 1.1 Externally assessed 4 credits Essent l exam ia Scarcity and opportunity cost Resources are scarce in relation to how much is needed and wanted. People’s wants are unlimited; they are always wanting more. The world’s resources are limited, however; there is a fixed amount available in the world. All of the world’s resources cannot produce enough to satisfy all of the world’s wants, because only so many goods can be made from these limited resources. This creates the central problem in economics: scarcity. The problem is how to best use the resources to satisfy as many needs and wants as possible. (A conflict between limited means relative to wants.) Limited resources must be shared among individuals, groups and even nations. This is the problem of allocation, i.e. what needs and wants are the resources being used to satisfy' Individuals have many economic problems which need decisions and which have outcomes and consequences. Every day people are faced with hundreds of economic choices: ‘Will I buy a cheeseburger and chips, or a hot dog and Coke'’, ‘Will I take a bus or walk to school'’, ‘Will I study or watch TV'’, ‘Will I rent a house or buy a house'’ Individuals must make choices. They also have the problem of allocation. Economic problems Evaluate all the alternatives and choices that can be made Predict outcomes and consequences of decisions that have been made In the market, individuals need to earn or receive an income in order to buy goods and services. Limi te reso d urce Individuals have only a limited amount of money. People cannot afford to buy all the goods they want, so they must choose what to spend their money on. For example, Campbell has $20 to spend on music CDs and to hire videos. He would like to hire a cassette and buy a CD, but cannot afford both. If Campbell spends his money on buying CDs, he loses the opportunity to hire videos. This lost opportunity is called the opportunity cost. The opportunity cost of buying CDs is not being able to hire videos. Opportunity cost applies to all economic choices, even the choice of studying for exams or watching television at night. You may enjoy the programme (a benefit), but you may also fail your exams (a cost). The opportunity cost of watching TV is not being able to do your homework. notes s Unli m need ited s wan and ts Scarcity SCARCITY Needs and wants outweigh limited resources 2  Achievement Standard 90983  (Economics 1.1) Individuals facing the problem of scarcity must make choices about the best way to use their scarce resources to satisfy as many needs and wants as possible. All choices have benefits and costs. A good choice is one whose benefits outweigh the costs. Opportunity cost is the cost of the next best alternative foregone. All decisions involve opportunity cost – the next best alternative that had to be given up. There are limited resources (or means) but unlimited wants – the conflict of limited means relative to wants. In the relationship between limited means and the need to make decisions, ‘means’ includes family, whanau, hapu and iwi, as well as more familiar resources. NCEA 1.1 Year 2011 Ans. p. 91 practic Questions Consumer choice Question One Rina lives with her parents. She works part time at the local post shop. The following are the main activities she chooses to spend her time on. Working at a local café, hourly wage $18 Writing short stories for personal enjoyment Attending Zumba fitness classes Spending time with family Complete a. and b. to fully explain how scarcity and values affect consumer choices. a. Explain how time is a limited resource for Rina. In your answer, you should refer to the resource material above and discuss: • • • scarcity choice opportunity cost. e  ESA Publications (NZ) Ltd, Freephone 0800-372 266   Demonstrate understanding of consumer choices, using scarcity and/or demand  3 b. Fully explain the way values might influence how Rina chooses to spend her time. In your answer, you should refer to the main activities on page 2 that Rina chooses to spend her time on, and discuss: • the most likely activity Rina will spend her time doing if she values her health • the most likely activity Rina will spend her time doing if she values financial stability • conflict that might arise over the two decisions above • TWO ways Rina may use to resolve this conflict. ESA Publications (NZ) Ltd, Freephone 0800-372 266 1.1 Achievement Standard 90986 Demonstrate understanding of how consumer, producer and/or government choices affect society, using market equilibrium Essent l exam ia ECONOMICS 1.4 Externally assessed 5 credits The market A market is a place or situation where buyers and sellers meet to trade, i.e. to buy and sell goods and services. Market demand is the horizontal sum of all the demand of all individual consumers. Market supply is the horizontal sum of the supply of all individual suppliers. Markets have become specialised and are now interdependent. In each market there is only one price and quantity at which both buyers and sellers will agree. This is called the equilibrium price. At equilibrium, everything supplied will be bought, and there is no excess supply or excess demand. Market for milk Price ($) Ep MS Equilibrium Price is used to ration scarce resources and scarce goods and services. Only those who are prepared to pay the market price can buy. Price in the market sends a signal to producers telling them what is wanted, what is no longer wanted or not in the same quantities as before, and what is now wanted in greater quantities. Market equilibrium Market price is the price ruling in the market. If market price is at equilibrium there is nothing to make this price change, so it will be stable at equilibrium. If the market price is not at equilibrium, there will be either excess demand or excess supply, which will push the market price towards the equilibrium price. Market price will continue to change until equilibrium is reached. There can be only one price ruling in a market at any one time. notes MD Eq Quantity (L) 62  Achievement Standard 90986 (Economics 1.4) Changes to market equilibrium There are four main changes to the free market, shown in the following demand curves. Increase in market demand $ Price Ms $ Price Decrease in market demand Ms Ep2 Ep1 Md’ Quantity Ep1 Ep2 Md Eq1 Eq2 Md1 Eq2 Eq1 Md Quantity 1.4 $ Price Ep1 Ep2 A. Equilibrium B. Disequilibrium Increase in market supply Ms Ms1 Ep2 Ep1 $ Price Decrease in market supply Ms1 Ms Md Eq1 Eq2 Quantity Eq2 Eq1 Md Quantity Equilibrium and disequlibrium At equilibrium quantity demanded by consumers is exactly the same as the quantity supplied by firms. The market clears. There is no shortage (excess demand) and no surplus (excess supply). If the quantity demanded by consumers is different to the quantity supplied by firms at a particular price then a market situation called disequilibrium occurs.  ESA Publications (NZ) Ltd, Freephone 0800-372 266 Demonstrate understanding of how consumer, producer and/or government choices affect…  63 If quantity demanded > quantity supplied = excess demand (shortage) $ Price Ms If quantity supplied > quantity demanded = excess supply (surplus) $ Price Ms current price Pe current price Md Qs Eq Qd Quantity Qd Eq Qs Md Quantity Pe How the equilibrium is restored Shortage 1. Consumers who think they will miss out bid up price Surplus 1. Firms lower the price to clear stock 2. As price increases quantity demanded decreases 2. As price decreases quantity supplied decreases (following Law of Demand) (following Law of Supply) 3. As price increases quantity supplied increases (following Law of Supply) 3. As price decreases quantity demanded increases (following Law of Demand) 4. Process continues until quantity supplied is equal 4. Process continues until quantity demanded is to quantity demanded and the equilibrium is equal to quantity supplied and the equilibrium is restored (at a lower price) restored (at a higher price) practic Questions The market and market equilibrium Year 2011 Ans. p. 104 NCEA Question One The table and graph illustrate the market for airline flights between Auckland and Wellington. Market for one-way flights between Auckland and Wellington (number of seats per day) Price ($) 160 140 120 100 60 Market demand 500 1 500 2 000 2 500 3 500 ESA Publications (NZ) Ltd, Freephone 0800-372 266 1.4 e Answers and explanations The ‘Achieved’ (A), ‘Merit’ (M) and ‘Excellence’ (E) ratings given are based on professional judgement made by the author. Achievement Standard 90983 (Economics 1.1): Demonstrate understanding of consumer choices, using scarcity and/or demand 1.1 Consumer choice Question One10 a. Time is a limited resource for Rina as there are only 24 hours in a day. Her wants are unlimited (e.g. working at the local café, writing short stories, attending Zumba and spending time with her family). However, her time (a personal resource) is limited. This is scarcity. Scarcity of time means Rina needs to make a choice (a decision) between which activities she does as there is not enough time to complete them all. When Rina makes a choice as to the activities she will spend her time on, she misses out on her second choice. This is the opportunity cost of her decision, the next best alternative forgone. For example, Rina chose to work at the café since it was her first choice. Attending Zumba was her opportunity cost since it was her second choice. ((A) Scarcity, choice and opportunity cost defined. M two of scarcity, choice and opportunity cost explained. (E) Scarcity, choice and opportunity cost explained with reference to the resource material provided.) 1.1 Scarcity and opportunity cost Question One10 a. p. 4 p. 2 Wants = desires. Needs = essentials. (A) Because Anita does not require a 7-day cruise for survival, it is a want. A need for Anita is something essential for life, such as food. (M) b. Limited means are the personal resources we have (family, income, time, skills). Opportunity cost is the next best alternative forgone when a decision is made. (A) Because Anita has limited income of $10 000, she needs to make a decision as to which of the following three options she will choose: 7-day cruise, Kiwisaver retirement account or lend the money to a close relative. This is because Anita does not have enough income to choose all three options as this would cost $30 000 and she only has $10 000. If Anita chooses the 7-day cruise and her second choice was the Kiwisaver retirement account, then her opportunity cost of the cruise was Kiwisaver. (M) c. i. ii. Consideration for others: Option C. Future financial security: Option B. (A – both correct) A loan from Anita to her relatives will help her relatives as their personal resources will increase as they will have an increased income of $10 000. This means they will be able to get more of their “needs and wants” met. The loan will also provide Anita with a future income, as she will be repaid the loan with interest, resulting in her receiving more in return than the original $10 000 she lent. (M) b. Values are principles that consumers think are important. If Rina values her health it is most likely that she will choose to spend her time attending Zumba fitness classes. This is because being healthy is important to her and attending Zumba classes will help her to improve her health. If Rina values financial stability it is most likely she will choose to spend her time working at a local café. This is because she will be able to earn an income which will help her to be financially stable. Rina may face a conflict between spending time at Zumba and working at the café if the Zumba class is on at the same time as one of her shifts at the café. This will mean she cannot do both activities. Rina may resolve this conflict by changing her shifts at the café so she can work at another time instead and still attend Zumba, or work her shift at the café and find another gym with a Zumba class on at another time so she can work as normal and attend Zumba at another time instead. This will allow Rina to earn a wage for financial stability as well as maintain her fitness. ((A) Values and conflicts defined. (M) Two likely activities and a possible conflict explained. (E) Likely activities, a possible conflict, and two methods to resolve the conflict fully explained.) (E = two Ms from a., b. and c.) Question Two09 a. Good: photocopied worksheets, poster. Service: coaching students. (A – both answers correct) b. A good is a tangible object. A service is something done for you. (A) c. Time (only Wednesday afternoons). (A) d. Limited means is limited personal resources, e.g. time. Choice is decisions made. Opportunity cost is next best decision, foregone when a decision is made. (A) Because Denesh has limited time (only Wednesday afternoons) he needs to make a choice (economic decision) about what he does at the homework centre, e.g. photocopying worksheets / coaching students and designing posters. When he makes a choice about what he spends his time doing, he misses out on his second-best option. This is his opportunity cost. (M) 92  Answers and explanations Question Three08 a. A person who purchases goods or services. (A) b. Limited resources are our personal means. Because there are only 24 hours in a day / seven days in a week, Lucy has limited time to do everything she wants, including tutoring three nights a week, and, on weekends, doing housework/shopping/aerobic training and working. (A – one; M – two) Your examples of spending decisions must be clearly linked to consideration for others. (M) Question Three07 a. i. ii. Substitutes. (A) When the price of desktops increases, quantity demanded decreases (due to the law of demand). Demand for laptops increases as they become relatively cheaper and can be used in place of desktops (and vice versa if price of desktops decreases). (A – demand for laptops increases; M – reason why laptops relatively cheaper / more expensive) c. i. ii. Opportunity cost. (A) Wants are desires. Lucy has limited income (birthday money) so she was not able to buy dance lessons and buy a television. (M) Question Four07 a. Working as a checkout operator at the local supermarket. (A) b. Charlie’s income, tastes/fashion/preferences, price change of a complement to laptops. (A – any two correct) Question Four06 a. Any one of Tui, Chrissy or Ben could be chosen, although Ben is the easiest choice for answering this question. Ben is used to answer this question. i. ii. Ben. Family relationships are important to him, as he is a father and husband. (A) b. Billie, as a consumer, has unlimited wants but limited means (time, skills, income). (A) Billie does not have enough time after school to work and play hockey. Billie does not have enough skills to do everything she desires. Because of scarcity, she has to make a choice. (M ) If she plays sport, her opportunity cost is earning income from working. (E) Question Five06 a. The Wilson’s whanau could call on Ben for his plumbing skill rather than pay for a plumber to visit from outside the family; or Tui could be asked to baby-sit her two young cousins when her brother Ben wants to take his wife out to dinner. (A) b. Ben now has a young family. While he could be earning money plumbing rather than attending the whänau gathering, he may value family relationships more, and want his two children to have the benefit of strong family ties. (M) c. A value determines a person’s behaviour. If Ben valued income more than family relationships, he may have made a different choice, but as he is keen for himself and his family to spend time with the whänau, the value of family ties has led him to make the economic decision to attend the family gathering, with the opportunity cost of not earning income from going to work. (E) Answers This question requires making the link between limited means – including the skills and contributions of the extended family – and the need to make economic decisions. b. Tui cannot go out with her friends. Chrissy cannot do voluntary work at the hospital. (A – both correct) Opportunity cost is the next best alternative which had to be foregone when a decision is made. Give only one alternative each for Tui and Chrissy, rather than a number of different alternatives. c. Because of scarcity, there is a conflict of limited means relative to wants. Economic decisions must be made because a person cannot do two things at the same time, nor can a resource be used for two different uses. (A) If Tui and Chrissy wish to work on family relationships, they should attend the family gathering, but if they do that, they cannot do other things that are important to them, such as going out with friends, or doing voluntary work. (M) Question Five05 a. i. Tom’s income. / His tastes or preferences in what type of bike he wants. / The price of substitute bikes. (A – any two correct) ii. Price determines quantity demanded. Tom can only ride one bike at a time. May be more important to Tom to ride the right bike than the cheapest bike. Quality is important to Tom. (M) iii. Consumers are aware of substitutes. A poor-quality bike may not be good value for money. Value for money is important when consumers make decisions. OR: Consumer demand may decrease because their tastes and preferences may be for a better-quality bike. OR: Tom may not have the skills to ride a bike. (A) b. Means include all ways of buying goods and services or having choices. If Tom asks his family for money instead of individual presents, he can increase the amount of money he has available to buy a bike, which will be greater than his own income. (A) If Tom has a large and wealthy family his means will be greater when he includes his family than if he comes from a small, less well off family. (M) c. Consumer demand may decrease because tastes and preferences may be for a better-quality bike. OR: Consumers are aware of substitutes. A poor-quality bike may not be good value for money. Value for money is important when consumers make decisions. (A)  ESA Publications (NZ) Ltd, Freephone 0800-372 266 1.1 Factors affecting demand Question One10 p. 8 The quantity of a good or service that a consumer is willing and able to purchase at a range of prices in a given time period. Assuming ceteris paribus. (A) Question Two08 Values are things we think are important. Because Lucy thinks consideration for others is important, she may spend her income on goods and services that help others (e.g. she may give money to charity, purchase fundraising raffles, buy headphones for her stereo so her flatmates do not have to listen to her loud music).   1.1 The demand curve Question One10 Title: Rina’s Demand Curve for Zumba classes per month Answers and explanations  93 p. 12 b. Price ($) P1 Anita’s Annual Demand Curve for DVD Rental Movies Rina’s demand Curve for Zumba classes per month Price ($) 20 18 16 14 P1 12 10 P 8 6 4 2 0 1 2 3 4 5 Q1 6 7 8 Q 9 D 10 Quantity P2 D Q1 (A – dotted lines, arrows and labels) Q2 Quantity a. b. c. (A) Curve drawn and labelled. (A) Price change shown using dotted lines, labels and arrows. The law of demand states that as the price increases (e.g. from $7 to $12), the quantity demanded decreases (e.g. from 7 sessions to 4 sessions), and as the price decreases, the quantity demanded increases, assuming ceteris paribus. As the price of Zumba classes increased, Rina’s quantity demanded decreased as classes became relatively less affordable. This makes Rina less able to buy the Zumba sessions at the higher price. I.e. for a set amount of money Rina can now buy fewer Zumba sessions. Rina may now want to attend other leisure activities that are relatively less expensive, e.g. running. Flow-on effects of the price change are: Rina will attend fewer classes so her health may deteriorate as her level of fitness decreases. Rina may switch to another, relatively cheaper substitute to Zumba classes, such as swimming. Rina may not be able to keep up with her friends at Zumba, may not progress to higher level at Zumba, but will have time for other activities instead, e.g. reading. ((A) Law of demand defined. (M) Law of demand explained with reasons. (E) Law of demand fully explained with reference to the resource material and two flow-on effects of the price change for Rina fully explained.) Anita’s quantity demanded of DVD rental movies increased from Q1 to Q2 when the price decreased from P1 to P2. This is because the movies became relatively more affordable (i.e. with the same amount of income, Anita could purchase more). (M) The DVD rental movies become relatively cheaper than substitutes such as downloadable movies, so Anita’s quantity demanded of DVD rental movies increases while her demand for downloadable movies decreases. (E) Question Three a. Dinesh’s Fortnightly Demand Schedule for Bottled Water Price $ 2.80 3.20 3.60 4.40 Quantity (bottles) 12 10 6 4 Headings both correct / numbers in ascending/ descending order (A) b. Dinesh’s Fortnightly Demand for Bottled Water Price ($) 4.40 4.00 3.60 3.20 2.80 0 2 4 Q1 6 8 10 Q D 12 Question Two10 a. Title: Anita’s Annual Demand Curve for Restaurant Meals 80 Price ($) 70 60 50 40 30 20 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 D P P1 Quantity demanded (bottles) i. ii. Quantity of 10 labelled Q. (p–p1, q–q1) i.e. from $3.20 to $4, 10 to 5. (A – 2 of 3 correct) (M – labels and arrows showing price change to $4) iii. Dotted lines and arrows. Quantity (each meal) c. (A – full title, all labels, plotted points) ESA Publications (NZ) Ltd, Freephone 0800-372 266 The law of demand states that as price increases, the quantity demanded decreases. Because the bottled water becomes relatively less affordable / relatively more expensive Dinesh’s quantity demanded decreases. (M) He becomes less ‘able’ to demand the bottled water (or) Dinesh will now prefer a relatively cheaper substitute. (E) Dinesh is less ‘able’ because with his income he can only buy less. Remember demand is ‘willing’ and ‘able’. Answers